-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E5bU/hZDuAHFjzPPhpMZ8k5BSSn0jJO1QoeHFTv8KzK2sCUG65iZPz76E8KH5iGF +6o6F23rsi+7hQp5EWMezA== 0000950128-99-000504.txt : 19990217 0000950128-99-000504.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950128-99-000504 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORE SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000920000 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 251628117 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24156 FILM NUMBER: 99542572 BUSINESS ADDRESS: STREET 1: 1000 FORE DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7502 BUSINESS PHONE: 7247424444 MAIL ADDRESS: STREET 1: 1000 FORE DRIVE CITY: WARRENDALE STATE: PA ZIP: 15086-7502 10-Q 1 FORE SYSTEMS, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _________to__________ Commission file number 0-24156 FORE SYSTEMS, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 25-1628117 -------- ---------- (State or Other Jurisdiction of (I.R.S Employer Incorporation or Organization) Identification No.) 1000 FORE Drive, Warrendale, Pennsylvania 15086-7502 ---------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (724) 742-4444 -------------- 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. Class Outstanding at February 1, 1999 - ---------------------------- ------------------------------- Common Stock, $.01 par value 111,239,447 Shares 2 FORM 10-Q FORE SYSTEMS, INC. TABLE OF CONTENTS
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements FORE Systems, Inc. Consolidated Balance Sheet as of December 31, 1998 and March 31, 1998 3 FORE Systems, Inc. Consolidated Statement of Operations for the three months and nine months ended December 31, 1998 and 1997 4 FORE Systems, Inc. Consolidated Statement of Cash Flows for the three months and nine months ended December 31, 1998 and 1997 5 Notes to Unaudited Consolidated Financial Statements 6-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 21-22 Signature 23 Exhibit Index 24
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. FORE SYSTEMS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) DECEMBER 31, MARCH 31, 1998 1998 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $189,432 $ 127,231 Short-term investments 172,048 186,999 Accounts receivable, net of allowance for doubtful accounts of $6,521 at December 31, 1998 and $7,194 at March 31, 1998 124,163 111,347 Inventories 87,053 70,388 Deferred income taxes 36,533 36,620 Prepaid expenses and other current assets 18,101 12,127 --------------- --------------- Total current assets 627,330 544,712 Fixed assets, net 70,848 71,495 Other non-current assets 6,642 5,000 --------------- --------------- Total assets $704,820 $ 621,207 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 48,811 $ 37,240 Accrued payroll and related costs 18,350 18,560 Income taxes payable 12,695 13,789 Deferred revenue 46,194 28,719 Other current liabilities 21,999 15,881 --------------- --------------- Total current liabilities 148,049 114,189 --------------- --------------- Commitments and contingencies Stockholders' equity: Common stock, par value $.01 per share; 300,000,000 shares authorized; shares issued: 111,158,727 at December 31, 1998 and 100,302,143 at March 31, 1998 640,871 423,782 Retained earnings (accumulated deficit) (79,720) 88,285 Treasury stock, at cost: 165,714 shares at December 31, 1998 and 137,310 shares at March 31, 1998 (3,253) (3,252) Cumulative translation adjustment (590) (101) Valuation allowance for short-term investments (537) (1,696) --------------- --------------- Total stockholders' equity 556,771 507,018 --------------- --------------- Total liabilities and stockholders' equity $704,820 $ 621,207 =============== ===============
The accompanying notes are an integral part of these financial statements. -3- 4 FORE SYSTEMS, INC. CONSOLIDATED STATEMENT OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------------------- --------------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Revenue $ 158,724 $ 122,083 $ 444,208 $ 327,161 Cost of sales 74,013 53,944 201,185 144,322 --------- --------- --------- --------- Gross profit 84,711 68,139 243,023 182,839 --------- --------- --------- --------- Operating expenses: Research and development 20,760 17,765 58,372 50,802 Sales and marketing 44,929 32,577 125,064 92,016 General and administrative 7,901 6,182 22,162 16,686 Purchased research and development -- -- 199,316 -- Restructuring charges -- -- 5,100 -- --------- --------- --------- --------- Total operating expenses 73,590 56,524 410,014 159,504 --------- --------- --------- --------- Income (loss) from operations 11,121 11,615 (166,991) 23,335 Interest income, net 3,869 3,413 10,930 9,706 Other income (expense) 491 199 233 296 --------- --------- --------- --------- Income (loss) before provision for income taxes 15,481 15,227 (155,828) 33,337 Provision for income taxes 4,335 5,177 12,177 11,335 --------- --------- --------- --------- Net income (loss) $ 11,146 $ 10,050 $(168,005) $ 22,002 ========= ========= ========= ========= Net income (loss) per share - basic $ 0.10 $ 0.10 $ (1.61) $ 0.22 ========= ========= ========= ========= Net income (loss) per share - diluted $ 0.10 $ 0.10 $ (1.61) $ 0.22 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. -4- 5 FORE SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- ------------------------- 1998 1997 1998 1997 --------- --------- -------- --------- Cash flows from operating activities: Net income (loss) $ 11,146 $ 10,050 $(168,005) $ 22,002 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 9,641 6,915 26,796 18,570 Deferred income tax benefit 4,441 (739) 5,442 (1,710) Purchased research and development -- -- 199,316 -- Income tax benefit related to stock options 456 -- 5,112 1,376 Cumulative translation adjustment (242) (423) (489) (268) Change in operating assets and liabilities: Accounts receivable (11,792) 4,108 (12,814) (12,616) Inventories (13,584) (1,694) (16,286) (12,151) Prepaid expenses and other current assets (6) 935 (10,286) (5,434) Accounts payable 12,455 (10,523) (20) (1,821) Accrued liabilities 3,246 1,094 510 6,245 Prepaid income taxes and income taxes payable (1,590) 5,504 (1,094) 10,512 Deferred revenue 9,280 3,860 17,463 6,862 --------- --------- --------- --------- Net cash provided by operating activities 23,451 19,087 45,645 31,567 --------- --------- --------- --------- Cash flows from investing activities: Purchases of short-term investments (64,076) (53,775) (139,744) (152,710) Redemption and sale of short-term investments 68,983 21,133 155,854 146,296 Investment in other non-current assets 145 -- (1,642) -- Capitalization of software development costs (413) (527) (2,055) (1,112) Acquisition of businesses, net of cash acquired -- -- 844 -- Purchases of fixed assets (6,890) (13,954) (22,479) (37,101) --------- --------- --------- --------- Net cash used in investing activities (2,251) (47,123) (9,222) (44,627) --------- --------- --------- --------- Cash flows from financing activities: Principal payments on notes payable and capital lease obligations -- -- -- (21) Purchase of treasury stock -- -- (1) -- Proceeds from issuance of Common stock 4,338 3,484 25,779 12,814 --------- --------- --------- --------- Net cash provided by financing activities 4,338 3,484 25,778 12,793 --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents 25,538 (24,552) 62,201 (267) Cash and cash equivalents at beginning of period 163,894 153,709 127,231 129,424 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 189,432 $ 129,157 $ 189,432 $ 129,157 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. -5- 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 NOTE 1. Interim Financial Statements The accompanying unaudited interim consolidated financial statements of FORE Systems, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the results for such periods. The results of operations for the three and nine month periods ending December 31, 1998 are not necessarily indicative of results which may be achieved for the entire fiscal year ending March 31, 1999. The unaudited consolidated interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 as filed with the Securities and Exchange Commission. NOTE 2. Inventories (in thousands) Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method, and include raw material components, processing costs and manufacturing overhead costs. Inventories are summarized as follows:
December 31, 1998 March 31, 1998 ----------------- -------------- Raw Materials $ 22,956 $15,120 Work in Process 12,358 11,512 Finished Goods 51,739 43,756 -------- ------- Total Inventories $ 87,053 $70,388 ======== =======
NOTE 3. Lease Commitments In December 1998, the Company entered into agreements to construct and lease manufacturing and operating facilities on land adjacent to the Company's headquarters, which was purchased by the Company. The lessor has committed to fund a maximum of $20.5 million for the construction of the building. Upon completion of construction, the Company will lease the facilities under an eight-year operating lease and has options to renew the lease for two additional five-year terms (subject to certain conditions). Future annual minimum rental payments under the lease are approximately $1.5 million and are expected to commence in fiscal year 2000. During the construction period, the Company guaranties the repayment of 90% of certain project costs expended or financed by the lessor, which amount is estimated not to exceed $18 million, and under certain circumstances guaranties the repayment of 100% of all project costs expended or financed by the lessor. During the lease period, the Company guaranties all of its obligations under the lease. The Company may, at its option, purchase the facilities during or at the expiration of the term of the lease at an amount equal to the remaining balance of any debt of the lessor related to the construction of the facilities plus any applicable prepayment penalties. The Company has the right to obtain a purchaser for the facility upon the termination of the lease. If the Company exercises this remarketing option and obtains a buyer for the facility, the Company guaranties to the lessor a residual value for the facility of approximately $14 million, an amount that was determined at the lease inception date. Should the Company not exercise the remarketing option, the Company will be required to purchase the facility at the termination of the lease for approximately $19 million. As part of the above lease transaction, the Company will pledge approximately $19.5 million of marketable securities (valued as of completion of construction) as collateral for specified obligations of the lessor. The Company under its investment policy will manage these securities. In addition, under the terms of the lease, the Company is required to comply with certain financial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends. The lease transaction entered into in December 1998 is tied to the lease for the Company's existing headquarters facilities. As such, the lease contains cross default provisions with the previous lease, and the Company must exercise purchase options, renewal options and remarketing options with respect to all buildings at the headquarters. Should the Company elect to purchase, or be required to purchase, all facilities at its headquarters, the total purchase price would approximate $43 million. -6- 7 NOTE 4. Legal Proceedings In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from July 19, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. In December, 1998, plaintiffs filed a second consolidated amended complaint and the Company and the individual defendants responded by filing a motion to dismiss, or, in the alternative, for summary judgment. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. The Company was served, in October 1998, with a complaint filed by Bell Communications Research, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringes four patents owned by the plaintiff and seeks compensatory and injunctive relief. The Company subsequently filed its answer to the complaint. The Company believes the allegations in the complaint are completely without merit and intends to defend this action vigorously. From time to time, the Company receives notifications alleging that it is or may be infringing the intellectual property rights of third parties. At the present time, the Company is in separate discussions with several such third parties regarding the alleged infringement by the Company of certain patents owned by such third parties. In the opinion of management, the ultimate outcome of the complaint filed by Bell Communications Research, Inc. or of any of the above referenced potential intellectual property claims by third parties will not have a material adverse effect on the results of operations or the financial position of the Company. However, in the course of defending any of these matters, the Company may incur substantial legal and other expenses, and certain managers of the Company may expend substantial amounts of time and effort, diverting the attention of such managers from other activities. In addition, because the ultimate outcome of matters of this type can be difficult to predict with accuracy, it is possible that an unfavorable resolution of any of these matters could materially adversely affect the Company's results of operations or its financial position in a particular future period or periods. NOTE 5. Business Combination On September 11, 1998, the Company acquired Berkeley Networks, Inc., a California corporation ("Berkeley"), by means of a merger (the "Merger") of a wholly-owned subsidiary of the Company, Fastwire Acquisition Corporation, a Delaware corporation ("Fastwire"), with and into Berkeley. Berkeley, which designs and develops multi-gigabit routing switch platforms based on Windows NT and advanced stateful inspection switching ASICs, was a development stage enterprise that had generated no significant revenues and had not shipped a completed product at the time the acquisition was completed. The Company issued a total of approximately 8.6 million shares of Common stock to the former shareholders of Berkeley and granted to former holders of options to purchase Berkeley Common stock a total of approximately 0.6 million substitute stock options to purchase the Company's Common stock. Pursuant to the terms of the Merger, additional consideration of up to a total of $30,000,000 in cash (the "Earn-Out Payments") was to be paid by the Company based on Berkeley achieving certain technological advances and/or attaining certain revenue goals in the period commencing on September 11, 1998 and ending on the second anniversary thereof. Since the acquisition date, the Company has made Earn-Out Payments of approximately $8.8 million, based on the payment schedule established by the terms of the Merger, to the former equity holders of Berkeley. -7- 8 The transaction was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded based upon their fair values at the date of the acquisition. The Company has obtained an independent third-party appraisal of the value of intangible assets and purchased research and development acquired. The results of operations of Berkeley are included in the financial statements of the Company from the date of the acquisition. The purchase price paid in Company stock and options and including the Earn-Out Payments made to date of $8.8 million totaled $196.6 million. Additional costs incurred in connection with the closing of the transaction ($6.5 million) and restructuring charges of the acquired company for certain assets, closing of facilities and employee termination costs ($2.0 million) results in a total purchase price of $205.1 million. The Company may be required to pay up to an additional $10 million based on the achievement of certain technological advances prior to March 31, 1999 and an additional $10 million based on the attainment of certain revenue goals prior to September 11, 2000. Depending on the amount and nature of any additional consideration paid, the amount of intangible assets and corresponding periodic amortization would be increased. The table below summarizes the purchase price allocation, excluding the additional $20 million that may be recorded based on certain technological advances and/or certain revenue goals being achieved over the next 2 years:
Value --------- Current assets $ 1,311 Property, plant and equipment 2,168 Assembled work force 1,700 Purchased research and development 199,316 Liabilities (4,671) Deferred tax asset 5,355 ---------- Total purchase price $205,179 ----------
As of the acquisition date, it was determined that technological feasibility of the in-process technology had not been established, Berkeley had generated no significant revenue, had not shipped a -8- 9 completed product and the technology had no alternative future use. Accordingly, no value was assigned to existing technology. Therefore, in accordance with generally accepted accounting principles, the Company has expensed the amount of purchase price allocated to purchased research and development of approximately $199 million. The value assigned to purchased research and development was determined by identifying three research projects in areas for which technological feasibility had not been established as of the date of the acquisition. These projects were the E4, the E8 and the EZ Switch (collectively the "projects"). The E4 is a stackable Ethernet/Fast Ethernet/Gigabit Ethernet switch offering "pay-as-you-go" bandwidth scalability and designed for medium size LAN backbones. The E8 is a modular platform expected to deliver high network performance to enterprise LAN backbones, and designed to meet the demands of the corporate data center and to operate at a processing rate of more than 38 million packets per second. The EZ Switch is a workgroup edge switch which will be targeted toward the low-cost stackable market and will allow for low-cost forwarding devices to employ higher-end processing and memory architectures toward the route calculation and distribution functions. The value assigned to purchased research and development was determined by estimating the costs to develop the purchased research and development into commercially viable products; estimating the resulting net cash flows from such projects; and discounting the net cash flows back to their present value. The discount rate includes a factor that takes into account the uncertainty surrounding the successful development of the purchased research and development. At the acquisition date, the efforts remaining to develop the purchased research and development into commercially viable products principally related to the completion of all planning, designing, prototyping, high-volume manufacturing, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications including functions, features and technical performance requirements. The projects identified made up 100% of the total charge for purchased research and development. Commercial versions of the E4 and the E8 were first shipped to customers late in the quarter ended December 31, 1998. Development of the EZ Switch is not yet complete. Management expects that development of the EZ Switch will be completed prior to March 31, 2000. If such development is completed on schedule, management expects that sales of the product will commence prior to March 31, 2000. Research and development costs related to the E4, the E8 and the EZ switch projects incurred through the acquisition date and the quarter ended December 31, 1998 were $12.6 million and $15.4 million, respectively. Estimated costs to complete these projects are $2.3 million. Estimated revenues for the purchased in-process products commence in fiscal year 1999 and increase through fiscal year 2002, at which time they are assumed to decrease through fiscal year 2004, as newer products are released. These assumptions are based on management's estimates of market size and growth (which are supported by independent market data), expected trends in technology and the nature and expected timing of new product introductions by the Company and its competitors. The estimated gross margins as a percentage of revenues are expected to be higher on a stand alone basis as compared to historical gross margin percentages due to the product features and selling into a less price sensitive market. The estimated selling, general and administration costs were assumed to be lower as a percentage of revenue on a stand alone basis as compared to historical percentages due to the type of markets and purchasing patterns of the customers. Research and development costs were based on costs estimated to complete the projects and maintenance costs after the products are completed. The assumed income tax rate was 28%. The discount rate used in discounting the net cash flows from purchased research and development averaged 30%. In connection with this acquisition, the Company allocated the fair values of the net assets acquired, including purchased research and development, based upon an independent third party appraisal. Significant assumptions used to determine the value of the purchased research and development included -9- 10 financial projections for revenues, gross margin, selling and administrative costs and research and development costs and an applicable income tax rate. The company believes that the assumptions used in the forecasts were reasonable at the time of the business combination. No assurance can be given, however, that the underlying assumptions used to estimate expected project revenues, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary materially from the projected results. Since the acquisition date the E4, E8 and EZ Switch have progressed generally as expected under the assumptions used in the valuation. Revenues and costs from these projects have not differed materially from the original projections and estimates used in the assumptions. In addition, the Company incurred restructuring charges during the quarter ended September 30, 1998 of $5.1 million related primarily to the closing of the Company's facilities and certain employee termination costs. The decision to close such facilities and to terminate such employees was made in connection with the acquisition of Berkeley in order to rationalize and better align the Company's resources following the acquisition. Cost savings are expected to result from the changes related to the restructuring activities. The Company has received a letter from the Securities and Exchange Commission (the "Commission") requesting additional information with respect to the calculation and treatment of such purchased research and development, as well as information concerning a restructuring charge of $5.1 million which the Company recorded in connection with the acquisition of Berkeley. The Company believes that it has appropriately assigned fair values in connection with the acquisition of Berkeley, including purchased research and development, and that it has appropriately recorded restructuring charges in accordance with generally accepted accounting principles. However, the Commission, in recent public statements and in communications with other companies in the computer networking and other technology industries, has challenged the valuation methodologies used in valuing purchased research and development. The Company, as a result of discussions with the Commission, may be required to restate its financial statements for the periods ended September 30, 1998 and December 31, 1998 with respect to the treatment of the in process research and development acquired from Berkeley and/or in connection with the restructuring charges related to such acquisition. Any such restatement would increase goodwill and intangibles and result in charges against the Company's earnings in future periods, and may have a material adverse effect on the Company's results of operations in such future periods. The following unaudited pro forma information has been prepared assuming that the acquisition of Berkeley had taken place at the beginning of the respective periods presented. The amount of the aggregate purchase price allocated to purchased research and development and the restructuring charges has been excluded from the pro forma information as they are non-recurring items. The pro forma financial information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the period, nor is it necessarily indicative of the results that may occur in the future.
Pro Forma of the Nine Months Ended December 31, 1998 1997 Revenue $444,313 $327,161 Income from operations 29,432 18,876 Net income 27,047 17,669 Earnings per share - basic $ .25 $ .18 Earnings per share - diluted $ .24 $ .17
NOTE 6. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" ("SFAS 133"). This new standard requires recognition of all derivatives as either assets or liabilities at fair value. Based upon the hedging strategies currently used and the level of activity related to derivative instruments, the Company does not anticipate the effect of adoption to have a material impact on either financial position or results of operations. The Company will implement SFAS 133 in fiscal year 2001, as required. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The Company is currently evaluating the impact of SFAS 131. During the first quarter of fiscal year 1999, the company adopted SFAS 130. This statement establishes standards for reporting and the display of comprehensive income and its components in a primary financial statement. At December 31, 1998 and December 31, 1997, the components of comprehensive income were as follows:
THREE MONTHS ENDED DECEMBER 31, 1998 1997 Net Income $ 11,146 $ 10,050 Change in currency translation adjustment $ (242) $ (423) Change in unrealized gain (loss) on available-for-sale investments $ 343 $ (306) ---------- -------- Comprehensive income $ 11,247 $ 9,321 ========== ========
-10- 11
NINE MONTHS ENDED DECEMBER 31, 1998 1997 Net Income (loss) $ (168,005) $ 22,002 Change in currency translation adjustment $ (489) $ (268) Change in unrealized gain (loss) on available-for-sale investments $ 1,159 $ (56) ---------- -------- Comprehensive income (loss) $ (167,335) $ 21,678 ========== ========
NOTE 7. Earnings Per Share (in thousands except per-share data) In February 1997, Statement of Financial Accounting Standards No. 128 "Earnings per share"("SFAS 128") was issued by the FASB. Under SFAS 128, "basic earnings per share" is calculated based upon the weighted average number of common shares actually outstanding and "diluted earnings per share" is calculated based upon the weighted average number of common shares outstanding and other potential common shares if they are dilutive. Since the Company had a net loss for the nine month period ended December 31, 1998, the dilutive effect of other potential common shares has been excluded from the calculation. Common share equivalents consisting of common shares issuable on exercise of outstanding options are computed using the treasury method.
THREE MONTHS ENDED DECEMBER 31, 1998 1997 Net income available to common stockholders $ 11,146 $ 10,050 -------- -------- Shares used for basic per share computation weighted average shares outstanding 109,791 99,564 Effect of dilutive securities: Stock options 5,399 2,969 -------- -------- Shares used for diluted per share computation 115,190 102,533 ======== ======== Net income per share: Basic $ .10 $ .10 ======== ======== Diluted $ .10 $ .10 ======== ========
-11- 12
NINE MONTHS ENDED DECEMBER 31, 1998 1997 Net income (loss) available to common stockholders $(168,005) $ 22,002 --------- --------- Shares used for basic per share computation weighted average shares outstanding 104,572 99,000 Effect of dilutive securities: Stock options -- 2,850 --------- --------- Shares used for diluted per share computation 104,572 101,850 ========= ========= Net income (loss) per share: Basic $ (1.61) $ .22 ========= ========= Diluted $ (1.61) $ .22 ========= =========
-12- 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS GENERAL Certain statements made herein, including, without limitation, statements regarding increased market acceptance of ATM and LAN switching products, statements regarding the Company's pricing strategies and resulting effects on revenue and gross margins and statements regarding the Company's sales and marketing strategies, may be deemed to be forward-looking statements that involve risks and uncertainties. In addition, statements containing the words "believes", "estimates", "expects" and words of similar import may be deemed to be forward-looking statements. Such forward-looking statements should be read in conjunction with certain cautionary statements set forth herein and the list of risk factors set forth in the Company's Annual Report on Form 10-K for the year ended March 31, 1998 (the "Form 10-K") and the Company's Current Report on Form 8-K dated September 11, 1998 in connection with the acquisition of Berkeley Networks, Inc. ("Berkeley"). Such factors could cause actual results to differ materially from those expressed in any forward-looking statements contained herein. On September 11, 1998, the Company acquired Berkeley by means of a merger (the "Merger") of Fastwire Acquisition Corporation, a wholly-owned subsidiary of the Company ("Fastwire"), with and into Berkeley pursuant to an Agreement and Plan of Reorganization, dated as of August 25, 1998, by and among the Company, Berkeley and Fastwire (the "Reorganization Agreement"). Based in Milipitas, California, Berkeley designs and develops multi-gigabit routing switch platforms based on Windows NT and advanced stateful inspection switching ASICs. The Company issued a total of approximately 8.6 million shares of Common stock to the former shareholders of Berkeley and granted to former holders of options to purchase Berkeley Common stock a total of approximately 0.6 million substitute stock options to purchase the Company's Common stock. Pursuant to the Reorganization Agreement, additional consideration of up to a total of $30,000,000 in cash (the "Earn-Out Payments") was to be paid by the Company based on Berkeley achieving certain technological advances and/or attaining certain revenue goals in the period commencing on September 11, 1998 and ending on the second anniversary thereof. Since the closing date, the Company has made Earn-Out Payments of approximately $8.8 million, based on the payment schedule established by the Reorganization Agreement, to the former equity holders of Berkeley. The Company accounted for the acquisition under the purchase method of accounting. QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997 REVENUE. Revenue increased by 30% to $158.7 million in the quarter ended December 31, 1998, from $122.1 million in the quarter ended December 31, 1997. The distribution of revenue from sales to domestic and foreign customers was 73% and 27%, respectively, in the quarter ended December 31, 1998. This compares with 68% and 32%, respectively, in the corresponding quarter in 1997. In the quarter ended December 31, 1998, the distribution of revenue from sales to foreign customers by geographic region was 19%, 4% and 4% for Europe (which includes Middle East and Africa), Pacific Rim and other, respectively. Geographic mix for the corresponding quarter in 1997 was 20%, 9% and 3%, respectively. Revenue increased by 36% to $444.2 million for the nine month period ended December 31, 1998, as compared to $327.2 million in the corresponding nine month period in 1997. The distribution of revenue from sales to domestic and foreign customers was 72% and 28%, respectively, in the nine month period ended December 31, 1998. This compares with 70% and 30%, respectively, in the corresponding period in 1997. The distribution of revenue from sales to foreign customers by geographic region for the nine month period ended December 31, 1998 was 19%, 5% and -13- 14 4% for Europe (which includes Middle East and Africa), Pacific Rim and other, respectively. Geographic mix for the corresponding nine month period in 1997 was 18%, 7% and 5%, respectively. The increase in revenue dollars was attributable to the increased market acceptance of ATM and, to a lesser extent, LAN switching products. The Company measures overall unit volume for its switching products based on the number of ATM ports or network connections shipped. The total number of ATM ports shipped in the quarter ended December 31, 1998 was 53,500 (48,000 enterprise ports, 5,500 service provider ports), as compared with 45,000 (40,000 enterprise ports, 5,000 service provider ports) in the previous year's corresponding period. The total installed base of ATM ports as of December 31, 1998 was 465,000, as compared with 263,000 at December 31, 1997. The total number of LAN switching ports shipped in the quarter ended December 31, 1998 was 159,500, as compared with 135,000 in the previous year's corresponding period. The total number of adapter cards shipped in the quarter ended December 31, 1998 was 21,400, as compared with 12,700 in the previous year's corresponding period. The total installed base of adapter cards as of December 31, 1998 was 168,500 as compared with 93,000 at December 31, 1997. In the quarter ended December 31, 1998, revenue mix, as a percentage of revenue, among ATM switching products, LAN switching products, adapter cards and other revenue (principally service support and development contracts) was 63%, 24%, 4% and 9%, respectively. Revenue mix for the corresponding quarter in 1997 was 59%, 28%, 4% and 9%, respectively. Average selling price per ATM port during the quarter ended December 31, 1998 was $1,900, as compared to $1,600 in the corresponding quarter in 1997. Average selling price per LAN switching port was $235 in the quarter ended December 31, 1998 as compared to $300 in the corresponding quarter in 1997. Average selling price for adapter cards shipped during the quarter ended December 31, 1998 was $300, as compared to $400 in the previous year's quarter ended December 31, 1997. In January of 1998, the Company reduced the price of certain of its ATM workgroup products by up to 40%. GROSS PROFIT. Gross profit increased to $84.7 million or 53.4% as a percentage of revenue in the quarter ended December 31, 1998, as compared to gross profit of $68.1 million or 55.8% as a percentage of revenue in the corresponding quarter in 1997. Gross profit of $243.0 million or 54.7% as a percentage of revenue for the nine month period ended December 31, 1998, compares to gross profit of $182.8 million or 55.9% as a percentage of revenue during the same period in the previous year. The dollar increase in gross profit was largely attributable to the increase in revenue. The gross margin percentage decline in the three month and nine month periods ended December 31, 1998 was directly attributable to a single government contract. Gross margin percentage for the quarter ended December 31, 1998 excluding this government contract would have been 55.5%. This seven-year government contract commenced in August 1998 and the impact on future gross margin cannot be determined because the contract includes fixed prices for certain products but does not include any volume commitment. The Company intends to price its products competitively. There can be no assurance that the gross profit percentage can be maintained at the current level. RESEARCH AND DEVELOPMENT. Research and development expense was $20.8 million or 13.1% of revenue in the quarter ended December 31, 1998, as compared to $17.8 million or 14.5% of revenue in the corresponding quarter in 1997. Research and development expense for the nine month period ended December 31, 1998 was $58.4 million or 13.1% of revenue, as compared to $50.8 million or 15.6% of revenue in the year ago nine month period. The increase in research and development expense in dollars was largely attributable to increased purchases of research and development materials, increased hiring of engineering employees and increases in depreciation. The decrease in research and development expense as a percentage of revenue was primarily attributable to increased revenue absorbing a greater portion of the Company's expenses. The number of employees of the Company engaged in research and development increased to 451 at December 31, 1998, from 415 at December 31, 1997. The Company plans to make appropriate expenditures for research and development, but does not expect the overall expenditures to increase materially as a percentage of revenue. SALES AND MARKETING. Sales and marketing expense was $44.9 million or 28.3% of revenue for the quarter ended December 31, 1998, as compared to $32.6 million or 26.7% of revenue in the -14- 15 corresponding quarter in 1997. Sales and marketing expense for the nine month period ended December 30, 1998 was $125.1 million or 28.2% of revenue, as compared to $92.0 million or 28.1% of revenue in the year ago nine month period. Comparing the quarter ended December 31, 1998 versus the corresponding quarter in 1997, the increase in sales and marketing expense in dollars and as a percentage of revenue for the quarter ended December 31, 1998 was largely the result of hiring additional sales, marketing and support personnel (including training and documentation), increased marketing promotion costs and increases in depreciation. The number of employees of the Company engaged in sales and marketing activities increased to 924 at December 31, 1998, from 725 at December 31, 1997. The Company has and expects to continue to increase sales and marketing expenses in dollars, but not as a percentage of revenue, both domestically and internationally as a part of its continuing effort to expand its markets, introduce new products, build marketing staff and programs and expand its international presence. GENERAL AND ADMINISTRATIVE. General and administrative expense was $7.9 million or 5.0% of revenue in the quarter ended December 31, 1998, as compared to $6.2 million or 5.1% of revenue in the corresponding quarter in 1997. General and administrative expense for the nine month period ended December 31, 1998 was $22.2 million or 5.0% of revenue, as compared to $16.7 million or 5.1% of revenue in the year ago nine month period. The dollar increase in general and administrative expense was largely due to increased salary costs, increased hiring of administrative staff, including those engaged in systems administration, accounting and human resources and increased costs for professional services and depreciation. The number of employees of the Company engaged in general and administrative activities increased to 219 at December 31, 1998, from 167 at December 31, 1997. The Company plans to make appropriate expenditures in the general and administrative organization as necessary, but does not expect the overall expenditures to increase materially as a percentage of revenue. PURCHASED RESEARCH AND DEVELOPMENT. In connection with the acquisition of Berkeley, the Company allocated $199.3 million of the purchase price to purchased research and development that had not reached technological feasibility as of September 11, 1998. The Company expensed such amount as a non-recurring charge in the fiscal quarter ended September 30, 1998. RESTRUCTURING CHARGES. In connection with the acquisition of Berkeley, the Company recorded a restructuring charge of $5.1 million related primarily to the closing of duplicate facilities and certain employee termination costs. The Company expensed such amount as a non-recurring charge in the fiscal quarter ended September 30, 1998. INTEREST INCOME. Interest income, net of interest expense, was $3.9 million and $10.9 million, respectively, in the quarter and nine months ended December 31, 1998, as compared to $3.4 million and $9.7 million in the corresponding quarter and nine month period in 1997. INCOME TAXES. In the quarter ended December 31, 1998, the provision for income taxes was $4.3 million, or an effective rate of 28%, as compared to $5.2 million, or an effective rate of 34%, in the previous year's quarter ended December 31, 1997. The provision for income taxes recorded in the nine month period ended December 31, 1998 was $12.2 million, or an effective rate of 28%, exclusive of the effect of one-time non-deductible purchased research and development expense, as compared to $11.3 million, or an effective rate of 34%, in the corresponding nine month period in 1997. The decrease in the effective tax rate is primarily the result of certain tax advantages associated with the operation of the Dublin, Ireland manufacturing facility. NET INCOME (LOSS). Net income for the three month period ended December 31, 1998 was $11.1 million or $.10 per diluted share compared to net income of $10.1 million or $0.10 per diluted share for the corresponding period in the previous fiscal year. Net loss for the nine month period ended December 31, 1998 was $168.0 million or $1.61 per diluted share compared to net income of $22.0 million or $0.22 per diluted -15- 16 share for the corresponding period in 1997. Net loss for the nine month periods ended December 31, 1998 included purchased research and development expenses of $199.3 million and restructuring charges of $5.1 million. Excluding these charges and any tax effect, the net income for the nine month period ended December 31, 1998 was $35.0 million or $.32 per diluted share. YEAR 2000 The Company continues to evaluate the possible impact of Year 2000 on its products, internal information technology systems and non-information technology systems and third party suppliers. The Company believes that all of its current products are Year 2000 compliant, in that they will be able to distinguish accurately between 20th century and 21st century dates. However, certain products previously sold by the Company are not Year 2000 compliant, and the Company has instituted an upgrade program for such non-compliant products. The Company believes that the costs associated with such program will not have a material adverse effect on its financial position or results of operations. The failure of any of the Company's products to be Year 2000 compliant could result in increased warranty claims and other liabilities. The Company believes that most of its internal information technology systems are Year 2000 compliant. However, the Company continues to evaluate its internal information technology systems and is in the process of implementing upgrades to certain systems. In addition, the Company is also assessing other non-information technology equipment and systems and related business processes used in its operations. The Company plans to have a full assessment of such equipment, systems and processes completed in the first quarter of calendar year 1999 and test and deploy solutions during the first and second quarters of calendar year 1999. The Company expects that all of its equipment, systems and processes will be Year 2000 compliant early in the third quarter of calendar year 1999. The Company believes that the costs of converting or replacing equipment, systems and related business processes that are not Year 2000 compliant will not have a material adverse effect on the Company's financial position or results of operations. The Company is also assessing the possible effect on its operations of the Year 2000 readiness of its suppliers of products and services, as well as its customers. The Company has submitted questionnaires to its suppliers in order to solicit information concerning the Year 2000 readiness of such suppliers. The Company has material relationships with certain third party manufacturers and a Year 2000 problem which results in any such manufacturer being unable to deliver products to the Company could materially adversely affect the Company. There can be no assurance that the information systems and other business processes of the Company's suppliers and customers will be Year 2000 compliant, and it is possible that various business functions which require the interaction of the Company's systems with those of suppliers or customers will fail or malfunction in the Year 2000. Such failure or malfunction could materially adversely affect the Company's financial position or results of operation. In addition, it is possible that the Company's revenue may be adversely affected if current and prospective customers divert their spending resources away from networking equipment over the next two years in order to correct or replace information systems which are not Year 2000 compliant. The Company expects to finalize a preliminary estimate of Year 2000 project costs related to the Company's products and internal information and non-information technology equipment and systems during the first quarter of calendar year 1999. Year 2000 related project costs incurred to date are immaterial to the Company's financial position and results of operation. Although the Company expects its products and systems to be Year 2000 compliant on or before December 31, 1999, it cannot predict with complete accuracy the outcome of its Year 2000 program. If its Year 2000 program is not successful or if the systems of suppliers and customers material to the Company fail or malfunction in the Year 2000, the Company's financial position or results of operations may be materially adversely affected. The Company is currently preparing a contingency plan to address possible risks to -16- 17 its internal systems and the consequences of Year 2000 issues among its suppliers and expects such plan to be completed during calendar year 1999. The Company has not yet estimated the costs of implementing the contingency plan, and it is possible that such costs may have a material adverse effect on the Company's financial position or results of operations. FUTURE GROWTH SUBJECT TO RISKS The Company's quarterly and annual operating results are affected by a wide variety of risks and uncertainties as discussed in the Company's 1998 Annual Report on Form 10-K and the Company's Current Report on Form 8-K dated September 11, 1998. This Quarterly Report on Form 10-Q should be read in conjunction with the 1998 Form 10-K, particularly the section entitled "Certain Risk Factors," and such Current Report on Form 8-K. The networking industry is highly competitive and is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions which could render the Company's products noncompetitive or obsolete. Because the Company's business strategy is based upon the belief that ATM will be the technology of choice for the information technology infrastructure, the Company's business, financial position and results of operations would be materially adversely affected if ATM fails to gain broad commercial acceptance or if other networking technologies gain competitive advantages over ATM. Even if ATM achieves broad commercial acceptance, there can be no assurance that the Company can continue to successfully develop and introduce new products and enhancements given the fact that many of the Company's competitors have significantly greater financial, technological and personnel resources than does the Company. The networking industry has experienced consolidation as industry participants have sought to expand into new technologies and markets. Several recent transactions, such as the acquisition by Northern Telecom Limited of Bay Networks, Inc. and the pending acquisition by Lucent Technologies Inc. of Ascend Communications, Inc. have intensified this trend. Such consolidations may result in the creation of stronger, more powerful competitors, which could increase the competitive risks faced by the Company. The Company has in the past and may in the future make acquisitions of companies and technologies in order to compete more effectively. The Company completed the acquisition of Berkeley in September 1998 and in connection therewith, recorded $199.3 million as purchased research and development expense. The Company has received a letter from the Commission requesting additional information with respect to the calculation and treatment of such purchased research and development, as well as information concerning a restructuring charge of $5.1 million which the Company recorded in connection with the acquisition of Berkeley. The Company believes that it has appropriately assigned fair values in connection with the acquisition of Berkeley, including purchased research and development, and that it has appropriately recorded restructuring charges in accordance with generally accepted accounting principles. However, the Commission , in recent public statements and in communications with other companies in the computer networking and other technology industries, has challenged the methodologies used in valuing purchased research and development and in accounting for acquisition-related restructuring charges. The Company, as a result of discussions with the Commission, may be required to restate its financial statements for the periods ended September 30, 1998 and December 31, 1998 with respect to the treatment of the in process research and development acquired from Berkeley and/or in connection with the restructuring charges related to such acquisition. Any such restatement would result in charges against the Company's earnings in future periods, and may have a material adverse effect on the Company's results of operations in such future periods. Acquisitions are subject to numerous risks, including the risk that research and development and other expenses will materially increase without necessarily leading to the successful introduction of new products or enhancements. The introduction of a new line of products based on multi-service WAN adaptation and concentration technology for the service provider market, previously announced by the -17- 18 Company in connection with an acquisition, has been delayed, and there can be no assurance that this product will be introduced or, if it is introduced, that it will be successful in the marketplace. There can be no assurance that the Company can successfully introduce and market new products resulting from the acquisition of Berkeley or identify other acquisition opportunities or that any acquisitions that are completed will be successfully integrated with the Company's operations. Although the Company has historically experienced increasing sales on an annual basis, the Company's rate of revenue growth may be slower than that of certain other networking industry participants. The Company's rate of revenue growth may continue to decline, and there can be no assurance that the Company will experience revenue growth in the future at historic rates or at all. The Company has experienced fluctuating operating results on a quarterly and annual basis and may continue to do so. These fluctuations are caused by many factors, including a disproportionate share of sales occurring late in a given quarter, manufacturing lead times and the need to match resources with anticipated demand for newly introduced products, the introduction of new products and technologies by competitors, the pattern and seasonality of customer purchasing cycles, variations in the mix of products sold and sales channels, price competition, manufacturing lead times and changes in economic conditions. These factors make it difficult to predict operating results for any given period, and have led to, and are likely to continue to lead to, volatility in the market price of the Company's Common stock. The Company competes in international markets and is, accordingly, subject to numerous risks. Sales to foreign customers in fiscal 1998 decreased in dollars and as a percentage of revenue in comparison with fiscal 1997 and have continued to decline as a percentage of revenue in the first three quarters of fiscal 1999. There can be no assurance that such sales will not decline. In addition, the Company's international business may be adversely affected by foreign regulatory requirements, changes in demand resulting from fluctuations in currency exchange rates and local purchasing practices, difficulties in distribution, slower payment of invoices, increases in duty rates, foreign political and economic conditions and constraints upon international trade. The Company's gross margins in the three months and the nine months ended December 31, 1998 were adversely affected by a government contract. This government contract has a duration of seven years, and if the government were to purchase significant quantities of products thereunder, the Company's gross margins will continue to be adversely affected in future periods. In addition, gross margins have been adversely affected and may continue to be adversely affected by competitive pricing pressures and a change in the mix of products sold toward lower-margin workgroup and desktop products for both ATM and Ethernet. In addition, the Company's operating margins may be adversely affected by the need to hire additional sales, marketing and other personnel. The Company plans its operating expense levels based primarily on forecasted revenue, and a shortfall in revenue would be likely to lead to operating results being lower than expected. Any such failure to meet expectations could result in a decrease in the market price of the Company's Common stock. LIQUIDITY AND CAPITAL RESOURCES The Company has financed most of its working capital and capital expenditure requirements to date primarily through cash proceeds from public offerings and cash generated from operations. Net cash provided by operations was $45.6 million for the nine month period ended December 31, 1998. Net cash provided by operations was the result of net income (net of purchased research and development expenses) and an increase to deferred revenue offset somewhat by increases to inventories, accounts receivable and prepaid expenses and other current assets. Net cash provided by operations was $31.6 million for the nine month period ended December 31, 1997. Net cash provided by operations was the result of net income and increases to prepaid income taxes and income taxes payable, accrued liabilities and deferred revenue offset somewhat by increases to accounts receivable and inventories. The increase in accounts receivable and inventories was due to increased revenue. The Company's investing activities to date have been primarily for the purchase of fixed assets to support the Company's growth. At December 31, 1998, the Company had cash and cash equivalents of approximately $189.4 million, short-term investments of $172.0 million and an unused line of credit of $20 million. -18- 19 In December 1998, the Company entered into agreements to construct and lease manufacturing and operating facilities on land adjacent to the Company's headquarters, which was purchased by the Company. The lessor has committed to fund a maximum of $20.5 million for the construction of the building. Upon completion of construction, the Company will lease the facilities under an eight-year operating lease and has options to renew the lease for two additional five-year terms (subject to certain conditions). Future annual minimum rental payments under the lease are approximately $1.5 million and are expected to commence in fiscal year 2000. During the construction period, the Company guaranties the repayment of 90% of certain project costs expended or financed by the lessor, which amount is estimated not to exceed $18 million, and under certain circumstances guaranties the repayment of 100% of all project costs expended or financed by the lessor. During the lease period, the Company guaranties all of its obligations under the lease. The Company may, at its option, purchase the facilities during or at the expiration of the term of the lease at an amount equal to the remaining balance of any debt of the lessor related to the construction of the facilities plus any applicable prepayment penalties. The Company has the right to obtain a purchaser for the facility upon the termination of the lease. If the Company exercises this remarketing option and obtains a buyer for the facility, the Company guaranties to the lessor a residual value for the facility of approximately $14 million, an amount that was determined at the lease inception date. Should the Company not exercise the remarketing option, the Company will be required to purchase the facility at the termination of the lease for approximately $19 million. As part of the above lease transaction, the Company will pledge approximately $19.5 million of marketable securities (valued as of completion of construction) as collateral for specified obligations of the lessor. The Company under its investment policy will manage these securities. In addition, under the terms of the lease, the Company is required to comply with certain financial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends. The lease transaction entered into in December 1998 is tied to the lease for the Company's existing headquarters facilities. As such, the lease contains cross default provisions with the previous lease, and the Company must exercise purchase options, renewal options and remarketing options with respect to all buildings at the headquarters. Should the Company elect to purchase, or be required to purchase, all facilities at its headquarters, the total purchase price would approximate $43 million. The Company may be required to pay up to $21.2 million based on the achievement of certain technological advances and/or the attainment of certain revenue goals over the next 2 years. Since the acquisition date, the Company has paid approximately $8.8 million to former equity holders of Berkeley. The Company believes that the proceeds from its public offerings, together with its existing sources of liquidity and internally generated cash, will satisfy the Company's projected cash needs through at least the next twelve months. The Company may require additional sources of liquidity to fund future growth, including additional equity offerings or debt financing. In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from July 19, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. In December, 1998, plaintiffs filed a second consolidated amended complaint and the Company and the individual defendants responded by filing a motion to dismiss, or, in the alternative, for summary judgement. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. To date, inflation has not had a material impact on the Company's financial results. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" ("SFAS 133"). This new standard requires recognition of all derivatives as either -19- 20 assets or liabilities at fair value. Based upon the hedging strategies currently used and the level of activity related to derivative instruments, the Company does not anticipate the effect of adoption to have a material impact on either financial position or results of operations. The Company will implement SFAS 133 in fiscal year 2001, as required. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). The Company is currently evaluating the impact of SFAS 131. During the first quarter of fiscal year 1999, the company adopted SFAS 130. This statement establishes standards for reporting and the display of comprehensive income and its components in a primary financial statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. -20- 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings. In July and August 1997, the Company was notified that it was a party to seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania, alleging certain violations of federal securities laws by the Company and certain of its officers, who were named as defendants in the suits, arising from alleged misstatements or omissions by the Company. Plaintiffs seek compensatory damages for injuries allegedly incurred by purchasers of the Company's stock during the period from July 19, 1996 through April 1, 1997, inclusive. Pursuant to court order, the lawsuits were consolidated and a consolidated amended complaint was filed by the lead plaintiffs. The Company and the individual defendants subsequently filed their answer to the consolidated amended complaint. In December, 1998, plaintiffs filed a second consolidated amended complaint and the Company and the individual defendants responded by filing a motion to dismiss, or, in the alternative, for summary judgement. The Company believes the allegations in the consolidated amended complaint are completely without merit and intends to defend this action vigorously. Management believes that the ultimate outcome of these claims will not have a material adverse effect on the results of operations or financial position of the Company. The Company was served, in October 1998, with a complaint filed by Bell Communications Research, Inc. in the United States District Court for the District of Delaware. The complaint alleges that the Company infringes four patents owned by the plaintiff and seeks compensatory and injunctive relief. The Company subsequently filed its answer to the complaint. The Company believes the allegations in the complaint are completely without merit and intends to defend this action vigorously. Although management believes that the ultimate outcome of pending legal proceedings will not have a material adverse effect on the Company's financial position or results of operations, litigation is subject to inherent uncertainties, and an unfavorable outcome may have a material adverse effect on the results of operations in a particular future period or periods. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits. The exhibits listed below are filed or incorporated by reference as part of this quarterly report on Form 10-Q: 3.1 Amended and Restated Certificate of Incorporation of FORE Systems, Inc. (as amended by Certificate of Amendment dated May 6, 1996) (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996). 3.2 Second Amended and Restated Bylaws of FORE Systems, Inc. (as amended through March 5, 1997) (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). 10.1 Participation Agreement, dated as of December 14, 1998, by and among FORE Systems, Inc., Wilmington Trust Company, Mellon Financial Services Corporation #4 and Mellon Bank, N.A. 10.2 Lease and Open End Mortgage, dated as of December 14, 1998, by and between FORE Systems, Inc. and Wilmington Trust Company. -21- 22 10.3 Guaranty, dated as of December 14, 1998, by and among FORE Sytems, Inc., Mellon Bank, N.A. and Mellon Financial Services Corporation #4. 10.4 Guaranty Agreement, dated as of December 14, 1998, by and among FORE Systems Holding Corporation, Mellon Bank, N.A. and Mellon Financial Services Corporation #4. 10.5 Pledge and Security Agreement, dated as of December 14, 1998, by and among FORE Systems Holding Corporation, Mellon Bank, N.A., Mellon Financial Services Corporation #4 and Mellon Bank, N.A., as custodian. 27.1 Financial Data Schedule. b) Reports on Form 8-K. On October 1, 1998, the Company filed a Current Report on Form 8-K in connection with the issuance of a press release announcing preliminary financial results for its second fiscal quarter ended September 30, 1998. -22- 23 SIGNATURE 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. FORE SYSTEMS, INC. (Registrant) Date: February 16, 1999 /s/ Bruce E. Haney ------------------ Bruce E. Haney Senior Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer) -23- 24 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 10.1 Participation Agreement, dated as of December 14, 1998, by and among FORE Systems, Inc., Wilmington Trust Company, Mellon Financial Services Corporation #4 and Mellon Bank, N.A. 10.2 Lease and Open End Mortgage, dated as of December 14, 1998, by and between FORE Systems, Inc. and Wilmington Trust Company. 10.3 Guaranty, dated as of December 14, 1998, by and among FORE Systems, Inc., Mellon Bank, N.A. and Mellon Financial Services Corporation #4. 10.4 Guaranty Agreement, dated as of December 14, 1998, by and among FORE Systems Holding Corporation, Mellon Bank, N.A. and Mellon Financial Services Corporation #4. 10.5 Pledge and Security Agreement, dated as of December 14, 1998, by and among FORE Systems Holding Corporation, Mellon Bank, N.A., Mellon Financial Services Corporation #4 and Mellon Bank, N.A., as custodian. 27.1 Financial Data Schedule
-24- EX-10.1 2 FORE SYSTEMS, INC. 1 Exhibit 10.1 ================================================================================ PARTICIPATION AGREEMENT dated as of December 14, 1998 among FORE SYSTEMS, INC., as Lessee, Guarantor and Construction Agent, WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as trustee of BRUSH CREEK BUSINESS TRUST II, as Lessor and Certificate Trustee, MELLON FINANCIAL SERVICES CORPORATION #4, as Certificate Purchaser, and MELLON BANK, N.A., as Construction Lender --------------------------------------------- Construction Program For a Manufacturing/Office Facility in Allegheny County, Pennsylvania ================================================================================ Participation Agreement 2 TABLE OF CONTENTS
Page ARTICLE I. DEFINITIONS; INTERPRETATION ARTICLE II. DOCUMENTATION DATE; INITIAL ADVANCE DATE SECTION 2.1. DOCUMENTATION DATE............................................................................. 3 SECTION 2.2. INITIAL ADVANCE DATE........................................................................... 4 ARTICLE III. FUNDING OF ADVANCES SECTION 3.1. CERTIFICATE TRUSTEE COMMITMENT................................................................. 4 SECTION 3.2. CERTIFICATE PURCHASER'S COMMITMENT............................................................. 5 SECTION 3.3. CONSTRUCTION LENDER'S COMMITMENT............................................................... 5 SECTION 3.4. PROCEDURES FOR ADVANCES........................................................................ 5 SECTION 3.5. USE OF ADVANCES................................................................................ 6 SECTION 3.6. COLLATERALIZATION.............................................................................. 6 SECTION 3.7. REFINANCING.................................................................................... 6 SECTION 3.8. RESIZING OF TRANCHE A, TRANCHE B AND CERTIFICATE............................................... 9 ARTICLE IV. CERTIFICATE PAYMENTS; CONSTRUCTION LOAN PAYMENTS SECTION 4.1. CERTIFICATE PAYMENTS........................................................................... 9 SECTION 4.2. CONSTRUCTION LOAN PAYMENTS..................................................................... 10 SECTION 4.3. RENT PAYMENTS.................................................................................. 10 SECTION 4.4. OVERDUE PAYMENTS............................................................................... 11 ARTICLE V. CERTAIN INTENTIONS OF THE PARTIES SECTION 5.1. NATURE OF TRANSACTION.......................................................................... 11 SECTION 5.2. AMOUNTS DUE UNDER LEASE........................................................................ 12 ARTICLE VI. CONDITIONS PRECEDENT TO INITIAL ADVANCE DATE AND ADVANCES SECTION 6.1. INITIAL ADVANCE DATE CONDITIONS................................................................ 12 SECTION 6.2. CONDITIONS PRECEDENT TO EACH ADVANCE........................................................... 17
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Page ARTICLE VII. CONDITIONS TO SUBSTANTIAL COMPLETION SECTION 7.1. CONDITIONS TO SUBSTANTIAL COMPLETION OF THE PROPERTY.......................................... 20 VIII. ARTICLE REPRESENTATIONS SECTION 8.1. REPRESENTATIONS OF THE PARTICIPANTS........................................................... 20 SECTION 8.2. REPRESENTATIONS OF THE CERTIFICATE TRUSTEE AND THE TRUST COMPANY.............................. 21 SECTION 8.3. REPRESENTATIONS OF LESSEE..................................................................... 23 SECTION 8.4. REPRESENTATIONS OF LESSEE WITH RESPECT TO EACH ADVANCE........................................ 29 ARTICLE IX. PAYMENT OF CERTAIN EXPENSES SECTION 9.1. TRANSACTION EXPENSES.......................................................................... 30 SECTION 9.2. BROKERS' FEES AND STAMP TAXES................................................................. 31 SECTION 9.3. LIMITATIONS DURING INTERIM TERM............................................................... 31 ARTICLE X. OTHER COVENANTS AND AGREEMENTS SECTION 10.1. COVENANTS OF LESSEE........................................................................... 31 SECTION 10.2. RESERVED...................................................................................... 35 SECTION 10.3. FINANCIAL COVENANTS........................................................................... 35 SECTION 10.4. WAIVER OF COVENANTS........................................................................... 35 SECTION 10.5. COVENANT OF THE CERTIFICATE TRUSTEE AND THE PARTICIPANTS...................................... 35 SECTION 10.6. OTHER COVENANTS OF THE CERTIFICATE TRUSTEE AND THE TRUST COMPANY.............................. 35 SECTION 10.7. COVENANT OF CERTIFICATE PURCHASER............................................................. 37 ARTICLE XI. [RESERVED] ARTICLE XII. TRANSFERS OF PARTICIPANTS' INTERESTS SECTION 12.1. ASSIGNMENTS................................................................................... 37 SECTION 12.2. PARTICIPATIONS................................................................................ 39 SECTION 12.3. WITHHOLDING TAXES; DISCLOSURE OF INFORMATION; PLEDGE UNDER REGULATION A........................39 ARTICLE XIII. INDEMNIFICATION SECTION 13.1. GENERAL INDEMNIFICATION....................................................................... 40
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Page SECTION 13.2. END OF TERM INDEMNITY......................................................................... 48 SECTION 13.3. ENVIRONMENTAL INDEMNITY....................................................................... 49 SECTION 13.4. PROCEEDINGS IN RESPECT OF CLAIMS.............................................................. 50 SECTION 13.5. GENERAL TAX INDEMNITY......................................................................... 52 SECTION 13.6. FUNDING LOSSES................................................................................ 56 SECTION 13.7. REGULATION D COMPENSATION..................................................................... 56 SECTION 13.8. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR...................................... 57 SECTION 13.9. ILLEGALITY.................................................................................... 57 SECTION 13.10. INCREASED COST AND REDUCED RETURN............................................................. 58 SECTION 13.11. INDEMNITY PAYMENTS IN ADDITION TO LEASE OBLIGATIONS........................................... 59 ARTICLE XIV. MISCELLANEOUS SECTION 14.1. SURVIVAL OF AGREEMENTS........................................................................ 60 SECTION 14.2. NO BROKER, ETC................................................................................ 60 SECTION 14.3. NOTICES....................................................................................... 60 SECTION 14.4. COUNTERPARTS.................................................................................. 60 SECTION 14.5. AMENDMENTS.................................................................................... 61 SECTION 14.6. HEADINGS, ETC................................................................................. 61 SECTION 14.7. PARTIES IN INTEREST........................................................................... 61 SECTION 14.8. GOVERNING LAW................................................................................. 61 SECTION 14.9. SEVERABILITY.................................................................................. 61 SECTION 14.10. LIABILITY LIMITED............................................................................. 62 SECTION 14.11. FURTHER ASSURANCES............................................................................ 62 SECTION 14.12. SUBMISSION TO JURISDICTION.................................................................... 63 SECTION 14.13. CONFIDENTIALITY............................................................................... 63 SECTION 14.14. NO BAR........................................................................................ 64 SECTION 14.15. WAIVER OF JURY TRIAL.......................................................................... 64 SECTION 14.16. CONSTRUCTION CONSULTANT....................................................................... 64 SECTION 14.17. COOPERATION IN CONNECTION WITH SUBDIVISIONS................................................... 64
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APPENDICES APPENDIX 1 Definitions and Interpretation SCHEDULES SCHEDULE I ADDITIONAL DEBT SCHEDULE II CHANGE IN NAME OR ENTITY SCHEDULE III INFORMATION FOR NOTICES SCHEDULE IV COMMITMENT PERCENTAGES EXHIBITS EXHIBIT A Funding Request EXHIBIT B Form of Lease EXHIBIT C Form of Certificate EXHIBIT D Form of Construction Loan Agreement EXHIBIT E Form of Note EXHIBIT F Form of Guaranty EXHIBIT G Form of Pledge and Security Agreement EXHIBIT H Form of Assignment of Leases and Rents EXHIBIT I Form of Deed EXHIBIT J Form of Mortgage EXHIBIT K Form of Construction Agency Agreement EXHIBIT L Form of Assignment of Construction Agency Agreement EXHIBIT M Form of Construction Documents Assignment EXHIBIT N Responsible Employee's Certificates EXHIBIT O Construction Certificate EXHIBIT P Form of Assignment Agreement EXHIBIT Q Form of Guaranty Agreement
6 PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT, dated as of December 14, 1998, is entered into by and among FORE SYSTEMS, INC., a Delaware corporation, as Lessee, Guarantor and Construction Agent; WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly stated herein, but solely as trustee of BRUSH CREEK BUSINESS TRUST II, a Delaware business trust, as Lessor and Certificate Trustee; MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation, as the Certificate Purchaser; and MELLON BANK, N.A., a national banking association ("Mellon"), as Construction Lender, W I T N E S S E T H: -------------------- WHEREAS, the Lessee is the owner of the fee simple interest in the Land; WHEREAS, pursuant to the terms of the Ground Lease, the Lessee has leased to the Lessor, and the Lessor has leased from the Lessee, the Land; WHEREAS, pursuant to the terms of the Lease, the Lessor has subleased to the Lessee, and the Lessee has subleased from the Lessor, the Land; WHEREAS, the Lessor wishes to finance the development of certain Improvements on the Land to be used by the Lessee and certain Soft Costs in connection therewith; WHEREAS, the Trust under the Trust Agreement has been created for the purpose of providing financing for the construction of the Improvements on the Land and certain Soft Costs in connection therewith; WHEREAS, using Advances from the Lessor, the Lessee, as Construction Agent, will construct certain Improvements which will be the property of the Lessor and will become part of the Property subject to the terms of the Lease; WHEREAS, the Certificate Purchaser is willing to provide as equity a portion of the funding of the costs of the construction of the Improvements on the Land and certain Soft Costs in connection therewith up to $1,286,500.00. WHEREAS, the Construction Lender is willing to provide financing for a portion of the costs of the construction of the Improvements on the Land and certain Soft Costs in connection therewith up to $19,213,500.00. -2- Participation Agreement 7 WHEREAS, to secure such financing, (i) the Lessor, pursuant to the Lease and subject to the Construction Loan Agreement, will have the benefit of a lien from the Lessee on all of the Lessee's right, title and interest in and to the Property, and (ii) the Construction Lender and the Certificate Purchaser will have the benefit of a Lien (a) from the Lessor on all of the Lessor's right, title and interest in and to the Property and on all of the Lessor's rights against the Lessee under the Lease and the Ground Lease, against the Construction Agent under the Construction Agency Agreement, and against the Lessee under the Guaranty which liens are more fully described in the Lease and Mortgage and (b) from the Lessee on all of the Lessee's right, title and interest in and to the Land and the Lessee's leasehold interest in and to the Lease; WHEREAS, the Lessee's obligations under the Operative Documents will be guaranteed pursuant to the terms of the Guaranty and Guaranty Agreement, which Guaranty and Guaranty Agreement may be for amounts less than the Lease Balance; and WHEREAS, to secure the Lessee's obligations under the Guaranty and the obligations of Fore Systems Holdings Corp. under the Guaranty Agreement, the Construction Lender and the Lessor will have a perfected security interest in the Property and the Collateral Account. NOW, THEREFORE, in consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix 1 hereto for all purposes hereof; and the rules of interpretation set forth in Appendix 1 hereto shall apply to this Participation Agreement. ARTICLE II. DOCUMENTATION DATE; INITIAL ADVANCE DATE SECTION 2.1. Documentation Date. The documentation date (the "Documentation Date") shall occur on the earliest date on which all of the following conditions precedent shall have been satisfied: (a) Participation Agreement. This Participation Agreement shall have been duly authorized, executed and delivered by the parties hereto and shall be in full force and effect. (b) Certain Transaction Expenses. Counsel for each of the Lessor, the Lessee, the Certificate Purchaser and the Construction Lender shall have received, to the extent -3- Participation Agreement 8 then invoiced, payment in full in cash of all Transaction Expenses pursuant to Section 3.4 payable to such counsel pursuant to Section 9.1. (c) Mellon Bank's Facility Fee. The Lessee shall pay to Mellon Bank a non-refundable, fully-earned facility structuring fee in the amount of (A) $150,000 plus (B) the greater of (i) $100,000 and (ii) 0.50% of the maximum amount of the Commitment of the Construction Lender under the Construction Loan Agreement, which will be payable from the initial Advance pursuant to Section 3.4. (d) Mellon Leasing Corporation's Fees. The Lessee shall pay to Mellon Leasing Corporation a fully-earned, non-refundable arranging and structuring fee in the amount of $350,000, which will be payable from the initial Advance pursuant to Section 3.4. SECTION 2.2. Initial Advance Date. The Initial Advance Date (the "Initial Advance Date") shall occur on the earliest date on or before January 10, 1999 on which all the conditions precedent thereto set forth in Section 6.1 shall have been satisfied or waived by the applicable parties as set forth therein; provided, however, that if the Initial Advance Date does not occur prior to January 10, 1999, then this Participation Agreement shall automatically terminate (except as provided in Section 14.1), the Lessee shall pay in full all Transaction Expenses not theretofore paid, and each other Operative Document then executed shall terminate. The Lessee, the Lessor, the Certificate Purchaser and the Construction Lender shall confirm in writing the occurrence of the Initial Advance Date. ARTICLE III. FUNDING OF ADVANCES SECTION 3.1. Certificate Trustee Commitment. Subject to the conditions and terms hereof, the Certificate Trustee shall take the following actions at the written request of the Lessee from time to time during the Commitment Period: (a) the making of Advances (out of funds provided by the Certificate Purchaser and the Construction Lender) for the purpose of financing of Soft Costs and the construction of the Improvements on the Land; and (b) the subleasing of the Land and the leasing of the Improvements by the Certificate Trustee as Lessor to the Lessee under the Lease. Notwithstanding any other provision hereof, the Certificate Trustee shall not be obligated to make any Advance if, after giving effect thereto, the aggregate original amounts of the Loans and the Certificate Amounts would exceed the Commitments of the Construction Lender and the Certificate Purchaser. SECTION 3.2. Certificate Purchaser's Commitment. Subject to the conditions and terms -4- Participation Agreement 9 hereof, the Certificate Purchaser shall make available to the Lessor at the request of the Lessee from time to time during the Commitment Period on any Funding Date an amount (each, a "Certificate Amount") in immediately available funds equal to three percent (3%) of the amount of the Advance being funded on such Funding Date; provided, that on the Documentation Date the Certificate Purchaser shall fund all funds payable to Mellon Bank and Mellon Leasing Corporation under Section 2.1. Notwithstanding any other provision hereof, the Certificate Purchaser shall not be obligated to make available any Certificate Amount to the extent that, after giving effect to the proposed Certificate Amount, the outstanding aggregate amount of Certificate Amounts would exceed the Certificate Purchaser's Commitment. No amounts repaid with respect to Certificate Amounts may be readvanced. SECTION 3.3. Construction Lender's Commitment. Subject to the conditions and terms hereof, the Construction Lender shall make Construction Loans to the Lessor at the request of the Lessee from time to time during the Commitment Period on any Funding Date (except for the fees to Mellon Bank, N.A. and Mellon Leasing Corporation, which are included in the initial Advance pursuant to Section 3.4) in an amount in immediately available funds equal to ninety-seven percent (97%) of the amount of the Advance being funded on such Funding Date. Notwithstanding any other provision hereof, the Construction Lender shall not be obligated to make any Construction Loan to the extent that, after giving effect to the proposed Construction Loan, the outstanding aggregate amount of the Construction Loans would exceed the Construction Lender's Commitment. No amounts repaid with respect to the Construction Loans may be readvanced. SECTION 3.4. Procedures for Advances. (a) With respect to each funding of an Advance, the Lessee shall give the Certificate Trustee, the Certificate Purchaser and the Construction Lender prior written notice not later than 10:00 a.m., Pittsburgh, Pennsylvania time, three Business Days prior to the proposed Funding Date, pursuant to a Funding Request substantially in the form of Exhibit A (a "Funding Request"), specifying the proposed Funding Date and the amount of Advance requested. Except as the parties may otherwise agree in writing, Advances shall be made solely to provide the Construction Agent with funds with which to pay or reimburse itself for Property Improvements Costs, except that the Participants shall make Certificate Yield Payment Advances, and Interest Payment Loans, in accordance with the provisions of Section 4.1 hereof and Section 2.2 of the Construction Loan Agreement, up to the maximum amounts set forth in such provisions. On the Documentation Date, the Lessee shall submit an irrevocable Funding Request for the payment of fees to Mellon Bank and Mellon Leasing Corporation and Transaction Expenses under Section 2.1. (b) All remittances made by the Certificate Purchaser and the Construction Lender for the funding of any Advance shall be made on the applicable Funding Date in immediately available federal funds by wire transfer to the account of the Construction Agent specified on the Construction Agent's signature page hereto, except that a portion of the initial Advance shall be made (in accordance with instructions to be included in the -5- Participation Agreement 10 initial Funding Request) by wire transfer to the Lessee to reimburse the Lessee for Transaction Expenses as provided in Section 3.4(a). SECTION 3.5. Use of Advances. Notwithstanding any provision to the contrary contained in any Operative Document, Advances may be used to fund the following items to the extent they are included in the Approved Construction Budget: (i) Project Improvement Costs (including all Soft Costs and costs related to Site Work), (ii) Transaction Expenses and (iii) fees payable pursuant to Sections 4.5 and 4.6 of this Participation Agreement, provided, that in no event may the Advances be used to fund any of the foregoing matters in clauses (i) and (ii) to the extent any such funding would conflict with any provision of any Operative Document. Advances may be applied to any of the foregoing, regardless of whether such costs, fees or expenses were incurred prior to, as of or after the Documentation Date. Prior to the Base Date, Certificate Yield shall accrue for the benefit of the Certificate Trustee in accordance with Section 4.1(d) of this Participation Agreement but shall not be paid to the Certificate Trustee during the Interim Term. Accrued interest under the Construction Loan shall be paid to the Construction Lender in accordance with Section 2.2 of the Construction Loan Agreement. SECTION 3.6. Collateralization. The Lessee shall satisfy the Collateral Requirement as a condition precedent to each Advance, and shall satisfy the Collateral Requirement throughout the Lease Term. SECTION 3.7. Refinancing. So long as (i) no Event of Default shall have occurred and be continuing, and (ii) the Refinancing Loan Documents shall have been accepted and delivered by all parties thereto in form and substance satisfactory to Mellon Bank and Mellon Financial Service Corporation #4 in their sole discretion, (a) The Construction Lender covenants and agrees to purchase the Tranche A Loans, which Tranche A Loans shall bear interest at a rate per annum equal to the Eurodollar Rate plus 1/2 of 1%, and the Certificate Purchaser covenants and agrees to purchase the Tranche B Loans, which Tranche B Loans shall bear interest at a rate per annum equal to the Treasury Rate plus 2.25%. (b) The Certificate Purchaser further covenants and agrees that so long as no Event of Default shall have occurred and be continuing, the Certificate Purchaser shall purchase a new Certificate, which Certificate shall be in the original principal amount of no less than 3% of the aggregate amount of all Advances made to or for the benefit of the Construction Agent during the Interim Term and shall bear interest at a rate per annum equal to the Treasury Rate plus 4.00%, so long as all of the following conditions shall have been satisfied: (i) the Tranche A Loans shall have been purchased by Mellon Bank, and the Tranche B Loans shall have been purchased by the Certificate Purchaser; (ii) the conditions set forth in Section 6.1(a), (b), (d), (f), (g), (h), (m), and 6.2(c), (d), (e), (f) and (j) (and each Lender shall receive an appropriate -6- Participation Agreement 11 endorsement under clause (j)) shall have been satisfied in connection with the Refinancing, provided, that all references in such provisions in Sections 6.1 and 6.2 to the "Construction Lender" shall be deemed to refer to the "Lenders" and all references to the "Operative Documents" shall be deemed to include all documents, agreements and instruments to be executed in connection with the Refinancing; (iii) all documents, agreements and instruments to be executed in connection with the Refinancing shall be legal, valid and binding in accordance with their terms, and the Lenders and Certificate Purchaser shall have received a legal opinion, in form and substance satisfactory to them, to such effect; (iv) all documents to be recorded and/or filed in connection with the Refinancing shall have been properly recorded or filed; (v) after giving effect to the Refinancing, no Default shall exist under any Operative Document; and (vi) the Lessee, Mellon Bank and Mellon Financial Services Corporation #4 shall each have approved the proposed terms of the Refinancing and the Refinancing Loan Documents. Upon the consummation of the Refinancing, the Tranche A Lenders and the Tranche B Lender shall succeed to all rights and benefits of the Construction Lender under the Operative Documents. (c) Unless a Default or Event of Default shall exist, at the request and expense of Lessee and subject to the provisions of the Loan Agreement, Lessor (upon receipt of written instructions from Lessee and upon compliance with the conditions hereof) shall refinance the Tranche A Loans by either: (i) issuing and selling during the Term refunding notes pursuant to and subject to the restrictions in the Refinancing Loan Documents with such terms and conditions as Lessee and the new Tranche A Lender or Lenders may agree upon and, in connection therewith, use the proceeds of such issuance and sale to prepay, pursuant to the Refinancing Loan Documents, all of the Tranche A Loans then outstanding, in whole but not in part, or (ii) causing the Tranche A Lender to assign the Tranche A Loans to a commercial bank, savings and loan association, savings bank, pension plan, depository institution, insurance company, branches or agents of foreign banks, a real estate investment trust or other similar institution as the Lessee identifies and as a result of such assignment the Tranche A Lender receives par plus all accrued interest through the date of such assignment, plus all other amounts then due and payable to the selling Tranche A Lender, provided, however, that no refinancing -7- Participation Agreement 12 pursuant to this Section 3.7(c) shall occur unless and until all of the following conditions have been satisfied: (a) no Default or Event of Default shall have occurred and be continuing; (b) no such refinancing shall increase or decrease the amount, or shorten or lengthen the maturity, of any scheduled payment of any outstanding principal amount thereof; (c) no such refinancing shall increase the principal amount of indebtedness then outstanding under the Tranche A Loans, provided that the interest rate charged by the lenders in connection with any such refinancing may be different from the interest rate under the Tranche A Loans; (d) no such refinancing shall contain any covenants or restrictions upon the Lessee or Lessor or any of their Affiliates which are materially more burdensome to the Lessee or Lessor or any of their Affiliates than the undertakings and restrictions contained in the Operative Documents; (e) no such refinancing shall create any Liens on any property of the Lessee or any of its Affiliates except for those Liens created pursuant to the Security Documents in accordance with the terms of the Security Documents; provided, however, Lessee or its Affiliates may pledge additional collateral up to a value of $5,000,000 to such new lender so long as the pledge of such additional collateral does not violate the covenants set forth in Section 10.3; (f) the lenders under such refinancing shall each execute an agreement, in form and substance satisfactory to the Lenders, pursuant to which such refinancing lenders shall agree to be bound by all of the obligations, terms and conditions of the Construction Loan Agreement to which the Tranche A Lender is bound and to assume all of the responsibilities, covenants and agreements of the Tranche A Lender under the Construction Loan Agreement; (g) no such refinancing shall impair the Liens, rights or benefits of the Lenders under the Refinancing Loan Documents, or any documents or agreements executed in connection therewith (provided, that this subsection shall not be construed to prohibit such new Tranche A Lender from taking a first priority mortgage position as contemplated in the Construction Loan Agreement); (h) after giving effect to any such refinancing, no Default or Event of Default shall exist; and (i) Lessee shall cause the Pledgor under the Pledge and Security Agreement to make an additional transfer to the Collateral Account (as defined in the Pledge and Security Agreement) in the amount required thereunder as a result of the refinancing or refunding. The parties hereto shall cooperate in the preparation and execution of any amendments, supplements and other writings reasonably requested to accomplish such refinancing, including assignments and/or release instruments, as appropriate. Lessee shall reimburse Lessor, the Tranche A Lender and Tranche B Lender for all reasonable costs and expenses (including all reasonable internal and external costs and fees of the Tranche A Lender and Tranche B Lender) incurred in connection with any refinancing of the Tranche A Loans which is consummated pursuant to this Section 3.7(c). SECTION 3.8. Resizing of Tranche A, Tranche B and Certificate. The parties have determined the amounts of Tranche A, Tranche B and the Certificate based on certain assumptions determined to be reasonable by the parties as of the Documentation Date. Should -8- Participation Agreement 13 there be a material change in the Lease Balance (it being agreed that any such change shall be made only with the consent of the Certificate Purchaser and the Lenders in each case in their respective sole and absolute discretion) or the assumptions utilized by the parties as of the Documentation Date that, because of GAAP, requires a new calculation of Tranche A, Tranche B and the Certificate to meet the intention of the parties as stated in Section 5.1 and to provide operating lease treatment for the Lessee in accordance with GAAP, the parties agree to negotiate in good faith to recalculate the principal amount of Tranche A, Tranche B and the Certificate such that the Lease may continue to be treated by the Lessee for financial accounting purposes as an operating lease in accordance with GAAP so long as any such recalculation does not impose any additional burdens or risks of any nature on the Lenders, the Certificate Trustee or the Certificate Purchaser. ARTICLE IV. CERTIFICATE PAYMENTS; CONSTRUCTION LOAN PAYMENTS SECTION 4.1. Certificate Payments. (a) The amount of the Certificate Amounts outstanding from time to time shall accrue yield ("Certificate Yield") at the Certificate Yield Rate, calculated during the Interim Term using the actual number of days elapsed in a 360 day year, and during the Base Term using 30 days for each month in a 360 day year. If all or any portion of the Certificate Amounts, any Certificate Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration thereof or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate. (b) Subject to the provisions of the Operative Documents, Certificate Amounts shall be repaid on the Expiration Date. (c) The Certificate Trustee shall, pursuant to the Assignment of Leases and Rents, direct the Lessee to pay to the Certificate Trustee for the account of the Certificate Purchaser Basic Rent (determined on the basis of amounts due in accordance with clauses (a) and (b) above) and all other amounts due with respect to the Certificate Amounts payable by the Lessee under the Lease from time to time, and the Certificate Trustee shall distribute such amounts to the Certificate Purchaser in accordance with Section 5 of the Construction Loan Agreement. (d) On each Scheduled Payment Date prior to the Base Date, the Certificate Trustee shall be deemed to have requested a payment with respect to accrued Certificate Yield on outstanding Certificate Amounts pursuant to Section 3.2 (a "Certificate Yield Payment Advance") in an amount equal to the lesser of (x) the aggregate amount of Certificate Yield which has accrued to and including such date and (y) the Available Certificate Purchaser Commitment. The Funding Date with respect to any such Certificate -9- Participation Agreement 14 Yield Payment Advance shall be the relevant Scheduled Payment Date (provided that the making of a Certificate Amount pursuant to such payment shall be subject to satisfaction of the applicable conditions precedent set forth in Section 6.2) and the proceeds of such payment shall be applied to such accrued Certificate Yield but shall not be paid to the Certificate Trustee during the Interim Term, and instead shall be added to the Certificate Amount. On each such Funding Date, the Certificate Amounts and the Property Improvements Costs shall be increased by an amount equal to the Certificate Yield Payment Advance paid on such date with the proceeds of such payment. SECTION 4.2. Construction Loan Payments. (a) Each Construction Loan shall accrue interest computed and payable in accordance with the terms of the Construction Loan Agreement. (b) The principal of the Construction Loan shall be repaid in full on the Construction Loan Expiration Date. (c) The Certificate Trustee shall, pursuant to the Assignment of Leases and Rents, direct the Lessee to pay to the Certificate Trustee the Lender Basic Rent (determined on the basis of amounts due in accordance with clauses (a) and (b) above) and all other amounts due with respect to the Construction Loans payable by the Lessee under the Lease from time to time, and the Certificate Trustee shall distribute such amounts in accordance with Section 5 of the Construction Loan Agreement. SECTION 4.3. Rent Payments. The Lessee may, at any time and from time to time, designate one or more (but in no event more than three) separate accounts or credit facilities (including the Mellon Revolver) in one or more financial institutions to be debited directly by the Certificate Trustee on each Scheduled Payment Date for the payment of Basic Rent under the Lease. Lessee may designate the priority from time to time of debiting of such accounts or credit facilities by written notice to the Certificate Trustee no later than fifteen (15) Business Days prior to any Scheduled Payment Date. Nothing contained herein shall limit Lessee's obligation to pay Basic Rent under the Lease. The Certificate Trustee, the Construction Lender and the Certificate Purchaser acknowledge that the Lessee has the right to prepay Rent in minimum amounts of $100,000 and integrals of $10,000 at any time, upon thirty days prior written notice, together with a Make-Whole Premium. The Lessee acknowledges and agrees that a Make-Whole Premium shall be payable in connection with each and every prepayment of the principal component of Rent prior to the Expiration Date except for a prepayment to the extent arising solely from a Significant Casualty or a Significant Condemnation, and that such prepayment shall be applied as provided in Section 5.1(b) of the Construction Loan Agreement or the Refinancing Loan Documents, as applicable. SECTION 4.4. Overdue Payments. The Certificate Trustee, the Construction Lender and the Certificate Purchaser acknowledge that the Lessee shall have no liability with respect to overdue payments of Loans and Certificate Amounts so long as the Lessee has timely paid Rent in -10- Participation Agreement 15 accordance with Article III of the Lease, or such amounts are otherwise accounted for pursuant to Section 4.1(d). ARTICLE V. CERTAIN INTENTIONS OF THE PARTIES SECTION 5.1. Nature of Transaction. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the sublessor of the Land under the Lease and the owner and the lessor of the Improvements and the Lessee will be treated as the sublessee of the Land under the Lease and the lessee of the Improvements and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessor, the Certificate Purchaser and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Certificate Amounts and the outstanding principal amount of the Loans, which loans are secured by the Property and (C) the Lessee 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 the Property for such tax purposes. Nevertheless, the Lessee acknowledges and agrees that neither the Certificate Trustee, the Certificate Purchaser nor any Lender have made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. (b) Specifically, without limiting the generality of subsection (a) of this Section 5.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, the Lessor, the Certificate Purchaser or the Lenders or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Certificate Trustee, the Certificate Purchaser and the Lenders as unrelated third party lenders of the Lessee. SECTION 5.2. Amounts Due Under Lease. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee, the Certificate Trustee, the Certificate Purchaser and the Lenders that: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Lease shall be equal to the aggregate payments due and payable with respect to amortization of principal of, and interest on, the Loans, and with respect to Certificate Yield on the Certificate Amounts on each Payment Date (to the extent such interest is not funded by additional Interest Payment Loans); (ii) if the Lessee elects the Purchase Option or becomes obligated to purchase the Property (which is subject to the -11- Participation Agreement 16 Lease) under the Lease (whether upon the occurrence of a Lease Event of Default or otherwise), the Loans, the Certificate Amounts, the Make-Whole Premium, all interest and Certificate Yield thereon and all other obligations of the Lessee owing to the Certificate Trustee, the Certificate Purchaser and the Lenders shall be paid in full by the Lessee; and (iii) if the Lessee properly elects the Remarketing Option, the Lessee shall only be required to pay to the Certificate Trustee the Gross Proceeds from Improvements, the Termination Rental Amount and any amounts due pursuant to Section 9.1 and Article XIII of this Participation Agreement and Sections 20.1 and 20.2 of the Lease (which aggregate amounts may be less than the Lease Balance). ARTICLE VI. CONDITIONS PRECEDENT TO INITIAL ADVANCE DATE AND ADVANCES SECTION 6.1. Initial Advance Date Conditions. The occurrence of the Initial Advance Date is subject to the occurrence of the Documentation Date and the satisfaction of the following conditions precedent: (a) Trust Agreement; Redemption of Certificate; Operative Documents; No Default. The Trust Agreement shall have been duly authorized, executed and delivered by the parties thereto, shall be in form and substance satisfactory to the Certificate Purchaser, and shall be in full force and effect, and the Certificate shall have been validly issued to the Certificate Purchaser pursuant to the Trust Agreement. Each of the Operative Documents shall have been duly authorized, executed and delivered by the parties thereto in substantially the forms attached hereto as Exhibits B through M, P and Q, respectively, and, if not so attached, in form and substance satisfactory to the parties hereto, and shall be in full force and effect. No Default or Event of Default shall exist under any of the Operative Documents to which the Lessee is a party (either before or after giving effect to the transactions contemplated by the Operative Documents), no "Default" or "Event of Default" as such terms are defined in the Lease shall exist, and the Certificate Trustee, the Construction Lender and the Certificate Purchaser shall each have received a fully executed copy of each of the Operative Documents (other than (A) the Note and the Lease, of which the Construction Lender shall receive the originals and the Lessor and the Certificate Purchaser shall receive specimens, and (B) the Certificate, of which the Certificate Purchaser shall receive the original and the Certificate Trustee, Lessee and the Construction Lender shall receive specimens). The Operative Documents (or memoranda thereof), any supplements thereto and any financing statements in connection therewith required under the Uniform Commercial Code shall have been recorded, registered and filed, if necessary, in such manner as to enable the title insurance company to issue the title insurance policies referred to in clause (k) below. (b) Taxes. All taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents shall have been paid or provisions for such payment shall have been made to the satisfaction of the Certificate Trustee, the Certificate Purchaser and the Construction Lender. -12- Participation Agreement 17 (c) Opinions of Counsel. Each of (i) Kirkpatrick & Lockhart LLP, special counsel to the Lessee, and (ii) Richards, Layton & Finger shall have issued to the Certificate Trustee, the Certificate Purchaser and the Construction Lender his/her opinion in form and scope mutually satisfactory to the Certificate Trustee, the Certificate Purchaser and the Construction Lender. (d) Governmental Approvals. All necessary (or, in the reasonable opinion of the Certificate Trustee, the Certificate Purchaser, the Construction Lender or any of their respective counsel, advisable) Governmental Actions, in each case required by any Requirement of Law, shall have been obtained or made and be in full force and effect. (e) Litigation. No action or proceeding shall have been instituted, nor shall any action or proceeding be threatened, before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority (i) to set aside, restrain, enjoin or prevent the full performance of this Participation Agreement, any other Operative Document or any transaction contemplated hereby or thereby or (ii) which is reasonably likely to materially and adversely affect the Lessee. (f) Requirements of Law. In the reasonable opinion of the Certificate Trustee, the Certificate Purchaser, the Construction Lender and their respective counsel, the transactions contemplated by the Operative Documents do not and will not violate in any respect any Requirement of Law and do not and will not subject the Certificate Trustee, the Certificate Purchaser or the Construction Lender to any material adverse regulatory prohibitions or constraints. (g) Responsible Employee's Certificates. The Certificate Trustee, the Certificate Purchaser and the Construction Lender shall each have received a Responsible Employee's Certificate of the Lessee (as Lessee, Guarantor and Construction Agent) in substantially the form of Exhibit N attached hereto, dated as of the Initial Advance Date, stating that (i) each and every representation and warranty of such Person 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 Advance Date; (ii) no Default or Event of Default has occurred and is continuing under any Operative Document to which it is a party with respect to such Person; (iii) each Operative Document to which such Person is a party is in full force and effect with respect to it; and (iv) such Person has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Document required to be performed or complied with by it on or prior to the Initial Advance Date. (h) Resolutions and Incumbency Certificate, etc. The Lessee shall have delivered to the Certificate Trustee, the Certificate Purchaser and the Construction Lender (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of the Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its -13- Participation Agreement 18 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 its State of incorporation. (i) Environmental Audit. The Certificate Trustee, the Certificate Purchaser and the Construction Lender shall have received an Environmental Audit for the Property in form and substance acceptable to each of them, and shall have received a report from Killam & Associates describing the corrective actions required to be taken by the Lessee to remediate any Hazardous Substances and any violations, or potential violations, of Environmental Law identified in the Phase I environmental report previously prepared for the Land and delivered to the Construction Lender, which report shall be in form and substance satisfactory to the Construction Lender. (j) Appraisal. The Certificate Trustee, the Certificate Purchaser and the Construction Lender shall have received an Appraisal of the Property, which Appraisal shall (i) show that as of the Base Date the value of the Lessor's interest in the Improvements to be constructed thereon in accordance with the Plans and Specifications shall not be less than 100% of the aggregate Commitments of the Certificate Purchaser and the Construction Lender and (ii) show the Fair Market Sales Value as of the end of the Base Term of the Lessor's interest in the Improvements to be constructed thereon in accordance with the Plans and Specifications shall be no less than [$14,500,000.] (k) Survey and Title Insurance. The Lessee shall have delivered to the Certificate Trustee, the Certificate Purchaser and the Construction Lender an ALTA/1992 (Urban) Survey of the Property prepared by a licensed surveyor and meeting the Minimum Standard Detail Requirements for ALTA/ASCM Land Title Surveys as adopted by the American Land Title Association/American Society and American Congress on Surveying and Mapping in 1992 certified to the Certificate Trustee, the Construction Lender and the title company and otherwise in form reasonably acceptable to the Construction Lender, and an ALTA owner's and lender's title commitment for an insurance (together with a title insurance policy issued pursuant to such commitment, and containing no additional exclusions or exceptions from the commitment, which shall be delivered promptly after the Initial Advance Date) policy covering the Property in favor of the Certificate Trustee, the Lessee and the Construction Lender, and a leasehold policy in favor of the Lessee, each such policy to be dated as of the Initial Advance Date and in an amount not less than the aggregate Commitments of the Construction Lender and Certificate Purchaser and to be reasonably satisfactory to the Participants with comprehensive, survey, variable rate, access and such other endorsements requested by the Participants to the extent available in the Commonwealth of Pennsylvania. (l) Recordation. Each of the Construction Lender and the Certificate Purchaser shall have received evidence reasonably satisfactory to it that each of the Deed, the Ground Lease or a memorandum thereof, the Lease or a memorandum thereof, the -14- Participation Agreement 19 Mortgage and the Assignment of Leases and Rents shall have been or are being recorded with the appropriate Governmental Authorities in the order in which such documents are listed in this clause (and the issuance of the title insurance policies in clause (k) above shall be satisfactory evidence of the foregoing), and the UCC Financing Statements with respect to the Property shall have been or are being filed with the appropriate Governmental Authorities. (m) Evidence of Property Insurance. The Certificate Trustee, the Construction Lender and the Certificate Purchaser shall have received evidence of insurance with respect to the Property required to be maintained pursuant to the Lease, setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. (n) Initial Advance Date. The Initial Advance Date shall occur on or prior to January 10, 1999. (o) [Reserved] (p) Certificate Trustee's Resolutions and Incumbency Certificate, etc. The Lessee, the Construction Lender and the Certificate Purchaser shall have received a certificate of the Secretary or an Assistant Secretary of the Certificate Trustee attaching and certifying as to (i) the resolutions of the Board of Directors duly authorizing the execution, delivery and performance by the Certificate Trustee of each Operative Document to which it is or will be a party, (ii) its articles of association, certified as of a recent date by an appropriate officer of Trust Company, (iii) its by-laws and (iv) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party. (q) Architect's Statement of Professional Opinion. The Certificate Trustee, the Construction Lender and the Certificate Purchaser shall have received a statement of professional opinion from the Architect, in form and scope satisfactory to the Certificate Trustee, the Construction Lender and the Certificate Purchaser, certifying that (i) the Property as improved in accordance with the Plans and Specifications and the contemplated use thereof by the Lessee will comply with Requirements of Law (including zoning and land use laws and Environmental Laws) and (ii) the Plans and Specifications have been prepared in accordance with applicable Requirements of Law (including applicable Environmental Laws and building, planning, zoning and fire codes) and upon completion of the Improvements in accordance with the Plans and Specifications, such Improvements on the Property will not encroach in any manner onto any adjoining land to the best of the Architect's knowledge based on information received (except as permitted by express written easements or as insured by appropriate title insurance). The Plans and Specifications, the contracts with the Prime Contractor and a complete and detailed breakdown, on a line item basis, of the costs (prepared by others) of constructing the Improvements in accordance with the Plans and Specifications, together with evidence of all matters described in the Architect's statement of professional opinion described in this -15- Participation Agreement 20 paragraph, shall have been reviewed and approved by the Construction Lender. (r) Custody Agreement. The Lessee shall have executed and delivered the Custody Agreement to the Construction Lender. (s) Recognition of Assignment. The Architect and the Prime Contractor shall have each executed written instruments reasonably satisfactory to the Certificate Trustee, the Certificate Purchaser and the Construction Lender pursuant to which each of the Architect and the Prime Contractor shall have agreed to perform its obligations under the Construction Documents to which it is a party for the benefit of the Certificate Trustee or the Construction Lender, when and if the Certificate Trustee or the Construction Lender shall exercise their rights under the Construction Documents Assignment. (t) Approval of Prime Contractor. The Construction Lender shall have reviewed and approved a credit report issued by the bonding company for the Construction with respect to the Prime Contractor, which report shall be satisfactory to the Construction Lender in all respects. (u) Fees. The Certificate Trustee and the Participants shall have received all fees payable on the Documentation Date and the Initial Advance Date pursuant to this Participation Agreement (which fees shall be included in the initial Advance). All documents and instruments required to be delivered on the Initial Advance Date shall be delivered at the offices of Mellon Bank, One Mellon Bank Center, Pittsburgh, Pennsylvania, or at such other location as may be determined by the Certificate Trustee, the Certificate Purchaser, the Construction Lender and the Lessee. SECTION 6.2. Conditions Precedent to each Advance. The obligations of the Certificate Trustee to make an Advance on a Funding Date (including the Initial Advance), the obligation of the Certificate Purchaser to make any related Certificate Amount available on such Funding Date and the obligation of the Construction Lender to make any related Construction Loans on such Funding Date, are subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. The Construction Lender, the Certificate Purchaser and the Certificate Trustee shall have received a fully executed counterpart of the applicable Funding Request, executed by the Lessee, in accordance with Section 3.4. (b) Construction Certificate. With respect to any Property Improvements Costs to be paid or reimbursed using the proceeds of such Advance, (i) the Construction Lender shall have received, at least ten (10) days prior to the applicable Funding Date, a Construction Certificate in the form of Exhibit O hereto, together with all attachments thereto, and (ii) the property inspectors and consultants employed by the Construction Lender to inspect the Improvements shall have inspected and approved all of the work performed to such date in connection with the Property and the Improvements, and -16- Participation Agreement 21 arrangements shall have been made to reimburse the Construction Lender for the reasonable costs and expenses incurred in connection with such inspection and approval, including the internal costs and expenses of the Construction Lender, its employees and consultants. (c) Accuracy of Representations and Warranties. On the applicable Funding Date the representations and warranties of the Lessee contained herein and in each of the other Operative Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (d) Performance of Agreements. The Lessee shall have performed its agreements contained herein and in the other Operative Documents to be performed by it on or prior to such date. (e) No Default. There shall not have occurred and be continuing any Event of Default under the Lease and no Default or Event of Default under the Lease will have occurred after giving effect to the making of the Advance requested by such Funding Request. (f) Commitment Amount. After giving effect to the applicable Advance, the aggregate amount of all Advances shall not exceed the aggregate of the Commitments with respect to any party which has been requested to make an Advance. (g) Cost of Completion. The Certificate Purchaser and the Construction Lender shall have received a Certificate from the Prime Contractor, in form and scope satisfactory to each of them, certifying that after giving effect to the applicable Advance (or if the Certificate is given pursuant to Section 3.3.1 hereof, then after giving effect to the reduction of the Commitments), the estimated as yet unpaid cost to the Construction Agent of completing the Construction pursuant to the Construction Documents will not exceed the Available Commitments net of any portion of the Available Commitments that shall be allocated for Interest Payment Loans and Certificate Yield Payment Advances, and all such Construction is capable of attaining Substantial Completion by the Outside Completion Date and is proceeding in accordance with the schedule for Construction approved by the Participants prior to the Initial Advance Date, which schedule is attached as Schedule 3 to the Construction Agency Agreement. (h) Building Permits. All building permits required by any Governmental Authority in connection with the Construction for which the applicable Advance is being made shall have been obtained. -17- Participation Agreement 22 (i) Architect's Statement of Professional Opinion. The Certificate Trustee, the Construction Lender and the Certificate Purchaser shall have received a statement of professional opinion from the Architect, in form and scope satisfactory to the Certificate Trustee, the Construction Lender and the Certificate Purchaser, stating that (i) the Property is being improved in a good and workmanlike manner and in accordance with the Plans and Specifications, and the contemplated use thereof by the Lessee will comply with Requirements of Law (including all zoning and land use laws and Environmental Laws), (ii) the progress of the construction is such that Substantial Completion of the Improvements can occur on or prior to the Outside Completion Date (and specifying the stage and percentage of completion which has been achieved by each of the various trades engaged in the construction of the Improvements), and the Construction is proceeding in accordance with the schedule for construction approved by the Participants prior to the Initial Advance Date, and (iii) the amount of the Advance is not greater than the actual value of the materials incorporated into the Improvements and the work and labor performed in connection therewith. (j) Title Policy Endorsement. The Construction Lender and the Certificate Trustee shall have received on the date of such Advance an endorsement to the title policy delivered pursuant to the Lease (i) indicating that since the date of the preceding Advance there has been no change in the state of title (except changes approved by the Construction Lender), (ii) updating the title policy to the date of such Advance, and (iii) increasing the coverage of the title policy by an amount equal to such Advance if the title policy does not by its own terms provide for such an increase. (k) Contractor Receipts. On or prior to the date of each Advance the Lessor shall have received (i) receipts with respect to any invoice which is the subject of such Advance and which is in excess of Fifty Thousand Dollars ($50,000) from the Prime Contractor and all subcontractors engaged in the construction of the Improvements evidencing that all sums previously advanced for Property Improvement Costs have been expended for such Property Improvement Costs and that no further amounts are owing with respect to such previously invoiced Property Improvement Costs and (ii) copies of all documents required to be submitted by the Lessee as of such date pursuant to the terms of the contracts with the Prime Contractor. (l) Maintenance of Collateral. The Lessee shall on the date of such Advance have satisfied the Collateral Requirement. (m) Commitment Period. No Advance shall be made after the termination of the Commitment Period. -18- Participation Agreement 23 ARTICLE VII. CONDITIONS TO SUBSTANTIAL COMPLETION SECTION 7.1. Conditions to Substantial Completion of the Property. Substantial Completion shall be deemed to have occurred for purposes of the Operative Documents at such time as the Construction, including Tenant Improvement Work, shall have been substantially completed in accordance with the Plans and Specifications and all Applicable Law, and the Property shall be ready for occupancy and operation, as evidenced by certificates of the Architect, the Prime Contractor and the Construction Agent and the issuance by the appropriate Governmental Authority of certificates of occupancy for the Facility contemplated by the Plans and Specifications, all in form and substance reasonably satisfactory to the Lessor. VIII. ARTICLE REPRESENTATIONS SECTION 8.1. Representations of the Participants. As of the Initial Advance Date, each Participant represents and warrants to the Lessor, the other Participants, and the Lessee that: (a) ERISA. Such Participant is not and will not be making its Construction Loans or funding its Certificate Amounts hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. Such Participant is a commercial bank, savings and loan association, savings bank, pension plan, depository institution, insurance company, branch or agency of a foreign bank or other similar financial institution, or an Affiliate thereof. (c) Power and Authority. Such Participant has the requisite power and authority to enter into and perform under the Operative Documents to which it is a party. (d) Corporate Status. Such Participant (i) is a duly organized and validly existing corporation in good standing under the laws of its state of incorporation and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. -19- Participation Agreement 24 (e) Corporate Power and Authority. Such Participant has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles. (f) Lessor Liens. The Property is free and clear of all Lessor Liens attributable to it. SECTION 8.2. Representations of the Certificate Trustee and the Trust Company. The Certificate Trustee and the Trust Company (solely as to Paragraphs (a)(i), (b) and (c) only as to the agreements to which the Trust Company is a party, (d), (e), (f) and (g), and only as to the Trust Company) represent and warrant to the Lessee and the Participants that: (a) Corporate Status. The Trust Company (i) is a duly organized and validly existing banking corporation in good standing under the laws of the State of Delaware and (ii) the Certificate Trustee has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. (b) Corporate Power and Authority. The Certificate Trustee and the Trust Company each has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles. (c) No Violation. Neither the execution, delivery and performance by the Certificate Trustee or the Trust Company of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Certificate Trustee or the Trust Company of the transactions contemplated therein (i) will result in a violation by the Certificate Trustee or the Trust Company respectively of any applicable provision of any law, statute, rule, regulation, -20- Participation Agreement 25 order, writ, injunction or decree of any court or governmental instrumentality having jurisdiction over the Certificate Trustee, the Trust Company or the Property that would adversely affect (x) the validity or enforceability of the Operative Documents to which the Certificate Trustee or the Trust Company is a party, or the title to, or value or condition of, the Property, or (y) the consolidated financial position, business, prospects or consolidated results of operations of the Certificate Trustee or the Trust Company or the ability of the Certificate Trustee or the Trust Company to perform its obligations under the Operative Documents, (ii) violate or result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Certificate Trustee or the Trust Company pursuant to the terms of any indenture, loan agreement or other agreement for borrowed money to which the Certificate Trustee or the Trust Company is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Certificate Trustee. (d) No Approvals, etc. Neither the execution and delivery by Trust Company or (assuming the due authorization, execution and delivery of the Trust Agreement by the Certificate Purchaser) Certificate Trustee, as the case may be, of any of the Operative Documents to which it is a party requires the consent or approval of, or the giving of notice to or registration with, or the taking of any other action in respect of, any Governmental Authority or other body governing its banking practices. (e) Litigation. There is no action, proceeding or investigation pending or threatened against Trust Company or Certificate Trustee which questions the validity of the Operative Documents, and there is no action, proceeding or investigation pending or threatened which is likely to result, either in any case or in the aggregate, in any material adverse change in the ability of Trust Company or Certificate Trustee to perform its obligations under the Operative Documents to which it is a party. (f) Lessor Liens. The Property is free and clear of all Lessor Liens attributable to it. (g) Securities Act. Neither Trust Company nor Certificate Trustee nor anyone authorized to act on its behalf has, directly or indirectly, in violation of Section 5 of the Securities Act or any state securities laws, offered or sold any interest in the Note, the Certificate, the Property or the Lease, or in any security or lease the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned securities or leases, or solicited any offer to acquire any of the aforementioned securities or leases. SECTION 8.3. Representations of Lessee. The Lessee represents and warrants to the Lessor, the Certificate Purchaser and the Construction Lender that the representations and -21- Participation Agreement 26 warranties of the Lessee under the "Operative Documents" as such term is defined in the Existing Lease are true and correct in all material respects, and: (a) Corporate Status. The Lessee (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. (b) Corporate Power and Authority. The Lessee has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles. (c) No Violation. Neither the execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Lessee of the transactions contemplated therein (i) result or will result in a violation by the Lessee of any Applicable Law applicable to it or the Property, (ii) violate or result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Lessee pursuant to the terms of any indenture, loan agreement or other agreement for borrowed money to which the Lessee is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Lessee. (d) Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to have a material adverse effect on the Property or on the businesses, prospects, operations, financial condition or assets of the Lessee or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor, the Certificate Purchaser or the Construction Lender with respect to the Lessee or the Property under the Operative Documents. (e) Governmental Approvals. No Governmental Action by any Governmental Authority having jurisdiction over the Lessee or the Property is required to authorize or is required in connection with (i) the execution, delivery and performance by the Lessee of -22- Participation Agreement 27 any Operative Document to which it is a party, (ii) the Construction (other than certain permits which shall be obtained prior to any Construction which relates to or requires such permits) or (iii) the legality, validity, binding effect or enforceability against the Lessee of any Operative Document to which it is a party. (f) Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act. (g) Public Utility Holding Company Act. The Lessee is not a "holding company" or a "subsidiary company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (h) Provided Information. The information and materials which have been provided by the Lessee or any of its Affiliates (or any Person authorized or employed by any such Person as agent or otherwise) to the Lessor, the Certificate Purchaser and/or the Construction Lender in writing prior to the Initial Advance Date, are true and accurate in all material respects, do not contain an untrue statement of a material fact, and are not incomplete by omitting to state any fact necessary to make the statements herein or therein (taken as a whole) not misleading in light of the circumstances under which such information was provided. (i) Taxes. All United States Federal income tax returns and all other tax returns which are required to have been filed have been or will be filed by or on behalf of the Lessee by the respective due dates, including extensions, and all taxes due with respect to the Lessee pursuant to such returns or pursuant to any assessment received by the Lessee have been or will be paid. The charges, accruals and reserves on the books of the Lessee in respect of such taxes or other governmental charges are, in the opinion of the Lessee, adequate. (j) Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to the Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. No Plan Termination Event has occurred with respect to any Plan or Multiple Employer Plan. No member of the ERISA Group has any knowledge of any event that could result in a liability of any such member to the PBGC, whether -23- Participation Agreement 28 under a Plan, a Multiemployer Plan, a Multiple Employer Plan, or otherwise. There have not been any nor are there now existing any events or conditions that would permit any Plan to be terminated under circumstances that would cause the lien provided under Section 4068 of ERISA to attach to the material assets of the Lessee or its ERISA Affiliates. The value of the Plans' benefits guaranteed under Title IV of ERISA on the date hereof does not exceed the value of such Plans' assets allocable to such benefits as of the date of this Participation Agreement. No "Prohibited Transaction" within the meaning of Section 406 of ERISA exists or will exist upon the execution and delivery of this Lease or any Operative Document. (k) Environmental Laws. The Lessee is in compliance with all Environmental Laws relating to pollution and environmental control in all jurisdictions in which all real property of the Lessee, including the Land, are located, other than those the non-compliance with which would not have a material adverse effect on such real property, including the Land, or the consolidated results of operations, business, prospects or consolidated financial position of the Lessee. (l) Offer of Securities, etc. Neither the Lessee nor any Person authorized to act on the Lessee's behalf has, directly or indirectly, offered any interest in the Property or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in the Property), for sale to, or solicited any offer to acquire any of the same from, any Person other than the Lessor and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission). (m) Financial Statements. (i) The Submitted Financial Statements, copies of which have been delivered to the Lessor, the Certificate Purchaser and the Construction Lender present fairly in all material respects, in conformity with generally accepted accounting principles, the financial position of the Lessee as of such date and its results of operations and cash flows for such fiscal year. (ii) The unaudited consolidated statement of financial position of the Lessee as of September 30, 1998 and the related unaudited consolidated statements of income, and cash flows for the year to date, copies of which have been delivered to Lessor and the Construction Lender, present fairly in all material respects, in conformity with generally accepted accounting principles applied on a basis substantially consistent with the financial statements referred to in clause (i) of this subsection (m), the consolidated financial position of the Lessee as of such date and its consolidated results of operations and cash flows for such year-to-date period (subject to normal year-end adjustments), and as of the Documentation Date there have been no material adverse changes in the consolidated assets, liabilities, results of operations or financial condition of the Lessee from that set forth in such statements. -24- Participation Agreement 29 (n) Property. The Property as improved in accordance with the Plans and Specifications and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, licensees and tenants will comply in all material respects with all Requirements of Law (including all zoning and land use laws and Environmental Laws) and Insurance Requirements. (o) Plans and Specifications. Upon Substantial Completion of the Construction all water, sewer, electric, gas, telephone and drainage facilities and all other utilities required to adequately service the Improvements for their intended use will be available pursuant to adequate permits (including any that may be required under applicable Environmental Laws). There is on the Documentation Date no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or the Property which adversely affects the title to, or the use, operation or value of, the Property, and following the Documentation Date there will be no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates or the Property which materially adversely affects the title to, or the use, operation or value of, the Property . No fire or other casualty with respect to the Property has occurred which fire or other casualty has had a material adverse effect on the Property. Upon Substantial Completion of the Construction the Property will have available all material services of public facilities and other utilities necessary for use and operation of the Property and the other Improvements for their primary intended purposes including adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between such Improvements and public highways for motor vehicles. All utilities serving the Property, or proposed to serve the Property in accordance with the related Plans and Specifications, are located in, and vehicular access to the Improvements on the Property is provided by, either public rights-of-way abutting the Property or Appurtenant Rights. All Requirements of Law, easements and rights-of-way, including proof and dedication, required for (x) the use, treatment, storage, transport, disposal or disposition of any Hazardous Substance on, at, under or from the Property during the construction of the Improvements thereon, and (y) construction of the Improvements in accordance with the Plans and Specifications and the Construction Agency Agreement have either been irrevocably obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be irrevocably obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to commencing any such construction or use and operation, as applicable. (p) Title. The Deed is in form and substance sufficient to convey good and marketable title to the Land in fee simple to the Lessee, subject only to Permitted Liens. The Ground Lease is in form and substance sufficient to convey a valid leasehold estate to the Lessor, subject only to Permitted Liens. The Lessor will at all times during the Term -25- Participation Agreement 30 have a valid leasehold estate in the Land and good and marketable title in fee simple to all Improvements located on the Land, subject only to Permitted Liens. The Lessee will at all times during the Term have marketable title in fee simple to the Land subject only to Permitted Liens. (q) Insurance. The Lessee has obtained or caused to be obtained insurance coverage covering the Property which meets in all respects the requirements of the Lease, and such coverage is in full force and effect. The Lessee carries insurance with reputable insurers, or self-insures, in respect of its material assets, in such manner, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar business. (r) Flood Hazard Areas. Except as otherwise identified on the survey delivered pursuant to Section 6.1(k), no portion of the Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency. If the Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for the Property in accordance with the Lease and in accordance with the National Flood Insurance Act of 1968, as amended. (s) Lease. Upon the execution and delivery of the Lease, (i) the Lessee will have unconditionally accepted the Property demised thereunder (provided that nothing contained herein shall be deemed a waiver by the Lessee of any right of action against Persons with respect to title to and condition of the Property on the Initial Advance Date other than the Lessor, the Certificate Purchaser and the Construction Lender) and will have good and marketable title to a valid and subsisting subleasehold interest in the Land and leasehold interest in the Improvements, subject only to Permitted Liens, (ii) no right of offset will exist with respect to any Rent or other sums payable under the Lease and (iii) no Rent under the Lease will have been prepaid. (t) Outstanding Debt. Except as set forth on Schedule I, as of the date hereof, the Lessee has no outstanding Debt for money borrowed, other than (i) Debt arising or permitted hereunder or under the Operative Documents, and (ii) Debt reflected on the balance sheets in the Submitted Financial Statements. (u) Title to Properties. The Lessee has good and marketable title to all of its material assets reflected on the balance sheets in the Submitted Financial Statements, except for such material assets as have been disposed of in the ordinary course of business, and all such material assets are free and clear of any Lien, except as reflected in the Submitted Financial Statements and/or notes thereto or as otherwise permitted by the provisions hereof or under the Operative Documents, and except for Permitted Liens. The Lessee has such trademarks, trademark rights, trade names, trade name rights, franchises, copyrights, patents, patent rights and licenses as to allow it to conduct its business as now operated in all material respects, without known conflict with the rights of others. -26- Participation Agreement 31 (v) Defaults. The Lessee is not in default under any instrument evidencing any Debt individually, or in the aggregate, in an amount in excess of $500,000, or under any material agreement relating thereto or any indenture, mortgage, deed of trust, security agreement, lease, franchise or other agreement or other instrument to which any such Person is a party or by which any such Person or any of its material assets is subject to or bound including the Mellon Revolver Facility. (w) Use of Advances. No part of any Advance will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of Debt that was incurred for the purposes of purchasing or carrying, any margin security or margin stock as such terms are defined in Regulation G, T, V or X of the Board of Governors of the Federal Reserve System. (x) Solvency. The Lessee is Solvent. (y) Leases and Contracts. All material leases to which the Lessee is a party that relate to the material assets of the Lessee or the Collateral and all material contracts relating to the ownership by any such Person of rights or interests in the material assets of any such Person and the Collateral are in full force and effect, and no material default has occurred with regard to any such lease or contract. All rentals and other payments due under any such lease or contract have been timely paid to the Person entitled to receive such payment. (z) [Reserved] (aa) Condition of Property. The material properties used or to be used in the continuing operations of the Lessee comply with all Requirements of Law and with any Appurtenant Rights pertaining to such properties. (bb) No Change in Name or Entity. Except as provided in Schedule II hereto or in the case of a transaction permitted by the Pledge and Security Agreement which occurs subsequent to the date hereof, the Lessee has not prior to the date of this Participation Agreement, changed its name. (cc) Rights in Respect of the Property. The Lessee is not a party to any contract or agreement to sell any interest in the Property or any part thereof other than pursuant to or in accordance with this Participation Agreement and the Lease. (dd) Chief Executive Office of Lessee. The principal place of business and chief executive office, as such terms are used in Section 9-103(3) of the UCC, of the Lessee are each located at 1000 Fore Drive, Warrendale, Pennsylvania 15086-7535. (ee) Zoning. The Property complies in all material respects with all applicable zoning and subdivision laws, ordinances, regulations and restrictive covenants, and all requirements thereof necessary for the use, occupancy and operation of the Property have -27- Participation Agreement 32 been, or upon the completion of the Facility thereon will be, satisfied in all material respects, and the current use and intended use under the Lease of the Property is a conforming use. (ff) Appraisal Data. The information provided by the Lessee and its Affiliates to the Appraiser and forming the basis for the conclusions set forth in each Appraisal, taken as a whole, was true and correct in all material respects and did not omit any information known and available to the Lessee necessary to make the information provided not materially misleading. SECTION 8.4. Representations of Lessee with Respect to Each Advance. The Lessee represents and warrants to the Lessor, the Certificate Purchaser and the Construction Lender as of each Funding Date on which an Advance is made as follows: (a) Representations. The representations and warranties of the Lessee set forth in the Operative Documents (including the representations and warranties set forth in Section 8.3) and the "Operative Documents" as such term is defined in the Exiting Lease are 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 on and as of such earlier date. The Lessee is in material compliance with its obligations under the Operative Documents and there exists no Default or Event of Default under the Lease, the Guaranty, the Guaranty Agreement, the Construction Agency Agreement or the Pledge and Security Agreement or any other Operative Document or the "Operative Documents" as such term is defined in the Existing Lease to which the Lessee is a party. No Default or Event of Default by Lessee under the Lease, the Guaranty, the Guaranty Agreement, the Construction Agency Agreement or the Pledge and Security Agreement or any other Operative Document to which the Lessee is a party will occur as a result of, or after giving effect to, the Advance requested by the Funding Request on such date and in accordance with the schedule for construction approved by the Participants prior to the Initial Advance Date. (b) Improvements. The Construction of the Improvements to date has been performed in a good and workmanlike manner, substantially in accordance with the Plans and Specifications and in compliance with all Insurance Requirements and Requirements of Law, and will be completed prior to the occurrence of the Outside Completion Date. (c) Lender's Liens. The Lessee has not permitted Liens to be placed against the Property or against Lessee's fee ownership interest in the Land since the recordation of the Mortgage other than Permitted Liens. (d) Advance. The amount of the Advance requested represents interest on Construction Loans and Certificate Yield, Financed Transaction Costs, and amounts owed by the Lessee or Construction Agent to third parties in respect of Property Improvements -28- Participation Agreement 33 Costs incurred prior to the date of such Advance and for which the Lessee has not previously been reimbursed by an Advance. The conditions precedent to such Advance and the related Certificate Amount and Loans set forth in Article VI have been satisfied. ARTICLE IX. PAYMENT OF CERTAIN EXPENSES The Lessee agrees, for the benefit of the Certificate Trustee, the Certificate Purchaser, Trust Company and the Construction Lender, that: SECTION 9.1. Transaction Expenses. (a) The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses in respect of the transactions on the Documentation Date, the Initial Advance Date and each Funding Date on such date; provided, however, that, if the Lessee has not received written invoices therefor prior to such date, such Transaction Expenses shall be paid within ten Business Days after the Lessee has received written invoices therefor. (b) The Lessee shall pay or cause to be paid (i) the fee of Mellon Leasing Corporation as provided in Section 2.1 and all fees and expenses (other than expenses directly relating to an assignment of any interest of a Participant pursuant to Section 12.1) of the Certificate Trustee, the Custodian and any necessary co-trustees (including reasonable counsel fees and expenses) or any successor Certificate Trustee or successor Custodian, for acting as Certificate Trustee under the Trust Agreement and Custodian under the Pledge and Security Agreement, (ii) all Transaction Expenses incurred by the Certificate Trustee, the Lenders or the Certificate Purchaser in entering into any future amendments or supplements with respect to any of the Operative Documents, whether or not such amendments or supplements are ultimately entered into, or giving or withholding of waivers of consents hereto or thereto, in each case which have been requested by or approved by the Lessee, (iii) all Transaction Expenses incurred by the Certificate Trustee, the Lessee, the Certificate Purchaser or the Lenders in connection with any purchase of the Property by the Lessee or other Person pursuant to Articles XV, XVI, XVIII and XX of the Lease and (iv) all Transaction Expenses incurred by any of the other parties hereto in respect of enforcement of any of their rights or remedies against the Lessee or any Affiliate of the Lessee in respect of the Operative Documents. Subject to the provisions of Section 9.3, all fees and expenses referenced in Sections 9.1(a) and (b) payable or incurred before or during the Interim Term shall be paid through Advances to the extent they are included in the Approved Construction Budget. SECTION 9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees and any and all Impositions, 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. During the Interim Term, such fees and Impositions shall be -29- Participation Agreement 34 payable through Advances to the extent they are specifically included in the Approved Construction Budget. SECTION 9.3. Limitations During Interim Term. If at any time there shall be fees, expenses, Impositions or other amounts which are required to be paid prior to or during the Interim Term through Advances under this Article IX or Sections 13.5, 13.7, 13.10 or 14.11 or under any Operative Document, and (i) such amounts are not included in the Approved Construction Budget or (ii) there are not sufficient Available Commitments remaining to complete the construction of the Improvements pursuant to the Construction Documents (net of all Certificate Yield Payment Advances and Interest Payment Loans), then at such time an Event of Default shall be deemed to have occurred under the Construction Agency Agreement. All references to the Approved Construction Budget in the Operative Documents shall be deemed to include all contingencies therein; provided that at no time shall any contingency (on a percentage basis of all contingency amounts) be funded in excess of the percentage of the commitments funded to such date, and any usage or reallocation of the contingency shall be subject to the approval of the Construction Lender in its sole and absolute discretion. ARTICLE X. OTHER COVENANTS AND AGREEMENTS SECTION 10.1. Covenants of Lessee. The Lessee hereby agrees as follows: (a) Information. The Lessee will deliver, or cause to be delivered, to each of the Certificate Purchaser and the Construction Lender: (i) as soon as available and in any event within 120 days after the end of each fiscal year of the Lessee, consolidated statements of financial position of the Lessee and its consolidated subsidiaries as of the end of such fiscal year and the related consolidated statements of income, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, with such consolidated financial statements audited by PriceWaterhouseCoopers or other "Big Six" accounting firm, or other independent public accountants of nationally recognized standing reasonably acceptable to the Construction Lender and the Certificate Purchaser, without qualification as to going concern or limitation on the scope of the audit, which financial statements shall be accompanied by a certificate of a Vice President or the President of the Lessee certifying that, as of such date, no Default or Event of Default exists under any Operative Document to which the Lessee is a party, and that the Lessee is in compliance with all of its obligations under the Operative Documents; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Lessee, a consolidated statement of financial position of the Lessee as of the end of such quarter and the -30- Participation Agreement 35 related consolidated statements of income and cash flows for such quarter and for the portion of the Lessee's fiscal year ended at the end of such quarter, which financial statements shall be accompanied by a certificate of a Vice President or the President of the Lessee certifying that, as of such date, no Default or Event of Default exists under any Operative Document to which the Lessee is a party, and that the Lessee is in compliance with all of its obligations under the Operative Documents; (iii) if and when any member of the ERISA Group (1) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV or ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (2) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (3) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (4) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (5) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (6) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (7) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Lessee setting forth details as to such occurrence and action, if any, which the Lessee or applicable member of the ERISA Group is required or proposes to take; (iv) as soon as possible and in any event within three Business Days after the occurrence of each Default or Event of Default under any Operative Document a statement of an officer of the Lessee setting forth details of such Default or Event of Default and the action that the Lessee proposes to take with respect thereto; (v) promptly upon any change of the Lessee's independent public accountants, notification thereof and such further information as the Construction Lender, the Certificate Purchaser and the Certificate Trustee may reasonably request concerning the resignation, refusal to stand for reappointment after completion of the current audit or dismissal of such accountants; -31- Participation Agreement 36 (vi) promptly upon becoming aware thereof, written notice of the commencement or existence of any proceeding against the Lessee or any Affiliate of the Lessee by or before any Governmental Authority with respect to the Property; (vii) as soon as possible and in any event within ten days after the occurrence of any violation or alleged violation of an Environmental Law, a statement of an authorized officer setting forth the details of such violation and the action which the Lessee proposes to take with respect thereto; and (viii) from time to time such additional information regarding the business, prospects, properties, condition or operations, financial or otherwise, of the Lessee, or regarding the Property or the status of any construction thereon, as the Certificate Purchaser or the Construction Lender may reasonably request. (b) Compliance with Laws. Lessee shall comply in all material respects with all Applicable Laws with respect to the Property. (c) Required Transfers. The Lessee will maintain, or cause to be maintained, Qualified Assets in the amounts, and transfer (or cause to be transferred) Qualified Assets at the times and to the accounts, all as provided in the Pledge and Security Agreement. (d) Payment of Taxes, etc. The Lessee shall pay and discharge before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property, and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property, other than those arising from Permitted Liens; (e) Visitation Rights. Subject to the provisions of Section 14.13 of this Participation Agreement, the Lessee shall permit the Construction Lender, the Certificate Purchaser and the Certificate Trustee or any agents or representatives thereof annually (or upon demand during an Event of Default) to (upon reasonable notice) examine and make copies of and abstracts from the records and books of account of, the Lessee (except for any proprietary information which involves trade secrets of the Lessee) and to discuss the affairs, finances and accounts of the Lessee with any of its officers. Subject to the provisions of Section 14.13 of this Participation Agreement, during the Term, the Lessee shall upon reasonable notice from the Lessor (except that no notice shall be required if an Event of Default has occurred and is continuing) permit the Lenders, the Certificate Purchaser and their respective authorized representatives to inspect the Property during normal business hours, provided that such inspections shall not unreasonably interfere with the Lessee's business operations at the Property. (f) Keeping of Books. The Lessee shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the material assets of the Lessee. -32- Participation Agreement 37 (g) Maintenance of Property, etc. The Lessee shall maintain and preserve all material assets used or useful in the conduct of its business in good working order and condition. (h) Maintenance of Insurance. The Lessee shall maintain insurance coverage covering the Property which meets in all respects the requirements of Article XIII of the Lease, and such coverage shall remain in full force and effect. The Lessee shall carry insurance with reputable insurers, or self-insure, in respect of its material assets, in such manner, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar business. (i) Environmental Audit. The Lease shall deliver to the Certificate Purchaser and the Construction Lender upon the request of any Participant, on or before January 1 of each calendar year, an Environmental Audit for the Property, prepared during the last quarter of the previous calendar year, in form and substance acceptable to each of them, provided that such Environmental Audit may be an update of the Environmental Audit delivered during the previous calendar year pursuant to the terms of this Participation Agreement. During the continuance of any Lease Event of Default, the Lessee shall deliver to the Certificate Purchaser and the Construction Lender an Environmental Audit for the Property within twenty days of demand therefor. (j) Appraisal. Within sixty days of the three year anniversary of the Initial Advance Date, and at thirty-six month intervals thereafter (or upon demand from the Certificate Purchaser or the Construction Lender during the continuance of an Lease Event of Default), the Lessee shall deliver to the Certificate Purchaser and the Construction Lender an Appraisal of the Property, prepared by an appraiser satisfactory to the Certificate Purchaser and the Construction Lender and in form and substance reasonably satisfactory to each of them, showing the Fair Market Sales Value of the fee interest in the Land and the Lessor's interest in the Improvements, dated within thirty days of the delivery of such Appraisal. SECTION 10.2. Reserved. SECTION 10.3. Financial Covenants. (a) Fixed Charge Coverage. The Lessee and its Subsidiaries shall as of the end of each fiscal quarter of the Lessee, for the period of four (4) consecutive fiscal quarters then ended, maintain a ratio of Consolidated Available Earnings to Consolidated Fixed Charges of 1.5 to 1, provided, that during the Interim Term the Lessee shall be deemed to be in default of the covenants under this Section 10.3 only if the failure to comply with such covenants shall arise from, be caused by or relate to, any act or omission of the Lessee, anything within the reasonable control of the Lessee or anything that could have been avoided through the use of best efforts by the Lessee. The Lessee covenants and agrees that it shall use best efforts during the Term to comply with the covenants in this -33- Participation Agreement 38 Section 10.3. (b) Tangible Net Worth. The Tangible Net Worth of the Lessee shall not at any time be less than $225,000,000. (c) Limitations on Indebtedness. (i) The Consolidated Indebtedness of the Lessee and its Subsidiaries shall not at any time exceed 50% of the Total Capitalization of the Lessee. SECTION 10.4. Waiver of Covenants. The covenants of the Lessee contained in Section 10.3 above may, following the consummation of the Refinancing, be waived only by a written instrument executed by the Construction Lender, the Certificate Purchaser and the holders of at least 50% of the then outstanding principal amount of the Tranche A Loans and the Tranche B Lender (or its successor), in each case of the foregoing in their respective sole and absolute discretion. SECTION 10.5. Covenant of the Certificate Trustee and the Participants. In the event that the Certificate Trustee or any Participant receives (x) written notice of any material pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with the Property or (y) written notice from any Governmental Authority relating to the Property, the Certificate Trustee or such Participant, as the case may be, shall promptly give notice thereof to the Lessee. SECTION 10.6. Other Covenants of the Certificate Trustee and the Trust Company. (a) Other Activities. The Certificate Trustee (in its capacity as such) shall not conduct, transact or otherwise engage in, or commit to transact, conduct or otherwise engage in, any business or operations other than the entry into, and exercise of rights and performance of obligations in respect of, the Operative Documents, the Refinancing Credit Facility Agreements and other activities incidental or related to the foregoing. (b) Ownership of Properties; Indebtedness. The Certificate Trustee (in its capacity as such) shall not own, lease, manage or otherwise operate any properties or assets other than in connection with the activities described in clause (a) above, or incur, create, assume or suffer to exist any indebtedness or other consensual liabilities or financial obligations other than as may be incurred, created or assumed or as may exist in connection with the activities described in clause (a) above (including the Construction Loans, the Refinancing Credit Facility Agreements and other obligations incurred by the Certificate Trustee hereunder). (c) Disposition of Assets. The Certificate Trustee (in its capacity as such) shall not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, except to the extent expressly contemplated by the Operative Documents, the Refinancing Credit Facility -34- Participation Agreement 39 Agreements or as otherwise directed in writing by the Participants. (d) Compliance with the Operative Documents. The Certificate Trustee and the Trust Company shall at all times observe and perform all of the covenants, conditions and obligations required to be performed by them respectively (whether in its capacity as Certificate Trustee, in its individual capacity or otherwise) under each Operative Document to which either of them is a party. (e) Further Assurances. At any time and from time to time, upon the written request of the Construction Lender, and at the sole expense of the Lessee, the Certificate Trustee and the Trust Company will promptly and duly execute and deliver such further instruments and documents and take such further action as the Construction Lender may reasonably deem necessary for the purpose of obtaining or preserving the full benefits of this Participation Agreement and the other Operative Documents and of the rights and powers herein or therein granted. (f) Notices. If on any date the Certificate Trustee shall obtain actual knowledge of the occurrence of a Default or Event of Default, the Certificate Trustee will give written notice thereof to the Construction Lender or Tranche A Lenders and Tranche B Lender within two Business Days after such date. (g) Discharge of Liens. The Trust Company will not create or permit to exist at any time, and the Trust Company will, at its own expense, promptly take such action as may be necessary to duly discharge, or cause to be discharged, all Lessor Liens attributable to it and not resulting from the Operative Documents. (h) Trust Agreement. Without prejudice to any right under the Trust Agreement of the Certificate Trustee to resign, each of the Certificate Trustee and the Trust Company (a) agrees not to terminate or revoke the trust created by the Trust Agreement except as permitted by Article VI of the Trust Agreement, (b) agrees not to amend, supplement, terminate, revoke or otherwise modify any provision of the Trust Agreement in any manner which could reasonably be expected to have an adverse effect on the rights or interests of the Construction Lender or Lessee hereunder or under the other Operative Documents and (c) agrees to comply with all of the terms of the Trust Agreement. (i) No Transfers. Notwithstanding anything to the contrary contained in the Operative Documents, the Certificate Trustee shall not pledge, hypothecate, convey, assign, encumber or otherwise transfer (by operation of law or otherwise) any interest of the Certificate Trustee in and to the Property, the Ground Lease or the Lease (including any right to receive Rent or other sums from the Lessee), except as expressly contemplated by the Operative Documents and the Refinancing Credit Facility Agreement, and any such pledge, hypothecation, conveyance, assignment, encumbrance or other transfer not expressly authorized in accordance with the Operative Documents shall be -35- Participation Agreement 40 void ab initio and of no force and effect. SECTION 10.7. Covenant of Certificate Purchaser. So long as no Event of Default shall have occurred and be continuing, (i) the Certificate Purchaser shall not direct the Trustee to terminate the Trust, pursuant to Article VI of the Trust Agreement, unless such action does not adversely affect the Lessee or its rights under the Operative Documents and (ii) until the expiration or sooner termination of the Term, the Certificate Purchaser shall accept no distributions from the Trust, other than (A) distributions of Certificate Yield during the Base Term and any Renewal Term and (B) distributions otherwise expressly permitted under Article V of the Construction Loan Agreement. ARTICLE XI. [RESERVED] ARTICLE XII. TRANSFERS OF PARTICIPANTS' INTERESTS SECTION 12.1. Assignments. All or any part of the interest of any Participant in, to or under this Participation Agreement, the other Operative Documents, the Property, the Notes or the Certificate may be assigned or transferred by such Participant at any time; provided, however, that (i) no assignment or transfer shall be made during the Interim Term so long as Lessee is not in Default under the terms of any Operative Document (unless a Participant's institution is no longer participating in the types of financings evidenced by the Operative Documents), (ii) each assignment or transfer shall comply with all applicable securities laws, and (iii) any assignee or transferee (A) acknowledges that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Documents are its obligations, including the obligations imposed by this Section 12.1 (and the transferor and transferee Participant shall deliver to the Lessee and the Certificate Trustee an Assignment Agreement, in substantially the form of Exhibit P hereto, executed by the assignee or transferee), and (B) further represents and warrants to the Certificate Trustee, each Participant and the Lessee that: (i) it will not be acquiring any Note or Certificate, as the case may be, with the assets of an employee pension benefit plan (or its related trust) as defined in Section 3(2) of ERISA, or with the assets of a Plan (or its related trust) as defined in Section 4975(e)(l) of the Code or with any assets which are "plan assets" within the meaning of Department of Labor Regulation Section 2510.3-101, unless the acquisition qualifies for an exemption from the prohibited transaction rules under Section 406 of ERISA and Section 4975 of the Code, other than assets allocated to an insurance company pooled separate account as defined in ERISA Section 3(17) maintained by a lessor which satisfies the requirements of U.S. Department of Labor Prohibited Transaction Class Exemption 90-1 with -36- Participation Agreement 41 respect to the transactions contemplated by the Lease in order for such transactions to be exempt from the prohibitions of Section 406 of ERISA and Section 4975 of the Code; (ii) it is a commercial bank, savings and loan association, savings bank, pension plan, depository institution, insurance company, branch or agency of a foreign bank, mutual fund or other similar financial institution, in each case, having a minimum capital and surplus of $100,000,000; (iii) it will not transfer any Note or Certificate, as the case may be, unless the proposed transferee makes the foregoing representations and covenants; (iv) it will not take any action with respect to such Note or Certificate that would violate any applicable securities laws; (v) it will not assign or transfer any interest in the Note or the Certificate except in compliance with this Section 12.1; and (vi) funds used to acquire such interest will not be derived from the proceeds of non-recourse financing, and the assignee will not otherwise limit its at-risk equity investment as a result of hedging arrangements, to the extent the interest being assigned is an interest in the Certificate. Notwithstanding anything to the contrary contained in any Operative Document, the holder of the Note or the Certificate which is assigned or transferred pursuant to this Section shall pay any municipal, county or state real estate transfer tax payable in the Commonwealth of Pennsylvania arising solely as the result of the assignment or transfer of such Certificate. SECTION 12.2. Participations. Any Participant may without the consent of the Lessee sell participations to one or more commercial banks, savings and loan associations, savings banks, pension plans, depository institutions, insurance companies, branches or agencies of foreign banks, mutual funds or other similar institutions, in each case, having a minimum capital and surplus of $100,000,000 (such institutions are hereinafter referred to, collectively, as "Sub-Participants") in all or a portion of its rights and obligations under this Participation Agreement, the other Operative Documents or its Note or Certificate; provided, however, that (i) such Participant's obligations under this Participation Agreement and the other Operative Documents to which it is a party shall remain unchanged, (ii) such Participant shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Sub-Participants shall be entitled to the cost protection and tax indemnification provisions contained in this Participation Agreement (provided that no Sub-Participant shall be entitled to receive any greater amount pursuant to such provisions than the Participant would have been entitled to receive in respect of the amount of the participation transferred by such transferor Participant to such Sub-Participant had not such transfer occurred and, provided, further, that such Sub-Participant shall have fully complied with the provisions of Section 12.3), (iv) the Lessee, the Certificate Trustee and the Participants shall continue to deal solely and directly with such Participant in connection with such -37- Participation Agreement 42 Participant's rights and obligations under this Participation Agreement and the other Operative Documents to which it is a party and in connection with the cost protection and tax indemnification provisions of this Participation Agreement and the other applicable Operative Documents to which any Sub-Participant is entitled pursuant to this Section 12.2, (v) such Participant shall retain the sole right and responsibility to enforce the obligations of the Lessee relating to this Participation Agreement, the Lease and the other Operative Documents, (vi) each such sale shall be made in the ordinary course of such Participant's commercial banking business and in compliance with all applicable Laws, (vii) each Sub-Participant shall comply with the provisions of Section 12.1(vi), and (viii) such Participant shall retain the sole right to approve any amendment, modification or waiver of any provision of this Participation Agreement or any other Operative Document (other than amendments, modifications or waivers decreasing any Transaction Expenses or other fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Construction Loans, or the rate at which Certificate Yield is payable on the Certificate, extending the Term or increasing any Commitment, in each case in respect of an obligation in which the relevant participating bank or entity is participating, or releasing all or substantially all of the Collateral, or the Lessee from its obligations under the Guaranty). SECTION 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A. (a) If any Participant (or the assignee of or Sub-Participant in any Note or Certificate of a Participant, each a "Transferee") is organized under the laws of any jurisdiction other than the United States or any State thereof, then such Participant or the Transferee of such Participant, as applicable, shall (as a condition precedent to acquiring or participating in such Construction Loan or Certificate and as a continuing obligation to the Certificate Trustee and the Lessee) (i) furnish to the Certificate Trustee and the Lessee in duplicate, for each taxable year of such Participant or Transferee during the term of the Lease, a properly completed and executed copy of either Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any additional form (or such other form) as is necessary to claim complete exemption from United States withholding taxes (wherein such Transferee claims entitlement to complete exemption from United States withholding taxes on all payments hereunder), and (ii) provide to the Certificate Trustee and the Lessee a new Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any such additional form (or any successor form or forms) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws and regulations and amendments duly executed and completed by such Participant or Transferee, and to comply from time to time with all applicable United States laws and regulations with regard to such withholding tax exemption. By its acceptance of a participation or assignment of a Participant's Note or Certificate, each Transferee shall be deemed bound by the provisions set forth in this Article XII. -38- Participation Agreement 43 (b) Subject to Section 14.13, any Participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Article XII, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Lessee. (c) Anything in this Article XII to the contrary notwithstanding, any Participant may without the consent of the Lessee assign and pledge all or any portion of the Note or Certificate held by it to any Federal Reserve Bank, the United States Treasury or to any other financial institution as collateral security pursuant to Regulation A of the Federal Reserve Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise. ARTICLE XIII. INDEMNIFICATION SECTION 13.1. A. General Indemnification. The Lessee agrees, commencing upon the Completion Date and without limitation on the rights of any indemnitee under Section 13.1B. or 13.1C., whether or not any of the transactions contemplated hereby shall be consummated, to indemnify, protect, defend, save and keep harmless each Indemnitee from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee, whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person, whether or not such Claim is covered by the indemnification under Section 13.B. or 13.1C. and whether or not such Claim arises or accrues prior to the Documentation Date, the Initial Advance Date or the Completion Date, and 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 (including matters based upon or arising from the negligence of the Indemnitee) that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Initial Advance Date or after the Expiration Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; (b) the 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 Section 15.1, 16.2(c), 16.2(e) or 18.3 of the Lease or any sale pursuant to Articles XVIII or XX of the Lease), return or other disposition of all or any part or any interest in the Property -39- Participation Agreement 44 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, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by Lessee pursuant to the Lease which are in effect at any time with respect to the 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 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, the Improvements, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of 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 personalty or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Construction Lender or the Lessor; or (g) subject to the accuracy of any Participant's representation set forth in Section 8.1(a), as to such Participant, the transactions contemplated by the Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (or any Affiliate of such Indemnitee) (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee (or any Affiliate of such Indemnitee) set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Indemnitee is responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the expiration of the Term or the return or -40- Participation Agreement 45 remarketing of the Property so long as the Certificate Trustee, the Construction Lender and the Certificate Purchaser are not exercising remedies against the Lessee in respect of the Operative Documents, (4) any claim for the payment of state, county or municipal real estate transfer tax for which Lessee is not responsible pursuant to Section 12.1 of the Participation Agreement and (5) any Claim to the extent arising from a breach of representations, warranties or covenants of an Indemnitee. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 13.1, this Section 13.1 shall be construed as an indemnity only and not a guaranty of residual value of the Property or as a guaranty of the Notes or the Certificate. B. (1) General Indemnification by Construction Agent for the Construction Period. The Construction Agent agrees, without limitation on the rights of any indemnitee under Section 13.1A. or 13.1C., whether or not any of the transactions contemplated hereby shall be consummated, to indemnify, protect, defend, save and keep harmless the Lessor and its successors, assigns, directors, shareholders, partners, officers, employees and agents (hereinafter collectively referred to in this Section 13.1B. as the "Indemnitee") from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee, whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person, whether or not such Claim is covered by the indemnification under Section 13.A. or 13.1C. and whether or not such Claim arises or accrues prior to the Documentation Date or the Initial Advance Date, or after the Completion Date, and 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 (including matters based upon or arising from the negligence of the Indemnitee) that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Initial Advance Date or after the Completion Date, in any way relating to or arising out of: (a) the Construction Agency Agreement or any of the transactions or obligations provided for therein; any other Operative Document or any transaction, act or omission thereunder to the extent, in the case of such other Operative Document or transaction, act or omission thereunder, such Claim arose during or otherwise relates to any transaction, act or omission occurring prior to the Completion Date, including any investigation, litigation or proceeding in connection with any of the foregoing; the Construction Documents or any other contracts or agreements entered into or assumed by Construction Agent with any third party, or the design and construction of the Improvements or the use, possession or any activity by or conducted under the supervision of any Construction Agency Person of, at or on the Property, including: (i) Claims arising from any violation of Applicable Laws and Regulations, including Environmental Laws, or in tort (arising under principles of strict liability or otherwise), (ii) Claims arising from damage to the environment (including investigation costs, cleanup costs, response costs, remediation and removal costs, costs of corrective action, costs of financial assurance and -41- Participation Agreement 46 all other damages, costs, fees and expenses, fines and penalties, including natural resource damages), or death or injury to any Person and any and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required under any Environmental Laws, (iii) latent or other defects, whether or not discoverable by Construction Agent or any Indemnitee, or (iv) any Claims resulting from the existence or Release of any Hazardous Materials from or with respect to the construction of the Improvements or any part thereof. (b) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; (c) the Property or any part thereof or interest therein; (d) 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 Section 15.1, 16.2(c), 16.2(e) or 18.3 of the Lease or any sale pursuant to Articles XVIII or XX of the 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, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by the Construction Agent pursuant to the Lease which 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; (e) the breach by the Construction Agent 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; (f) the retaining or employment of any broker, finder or financial advisor by the Construction Agent to act on its behalf in connection with this Participation Agreement; (g) the existence of any Lien on or with respect to the Property, the Improvements, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair -42- Participation Agreement 47 or rebuilding of the Property or by reason of labor or materials furnished or claimed to have been furnished to the Construction Agent, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Construction Agent or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Construction Lender or the Lessor; or (h) subject to the accuracy of any Participant's representation set forth in Section 8.1(a), as to such Participant, the transactions contemplated by the Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; provided, however, the Construction Agent shall not be required to indemnify any Indemnitee under this Section 13.1B. for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (or any Affiliate of such Indemnitee) (it being understood that the Construction Agent shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee (or any Affiliate of such Indemnitee) set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Indemnitee is responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the expiration of the Term or the return or remarketing of the Property so long as the Certificate Trustee, the Construction Lender and the Certificate Purchaser are not exercising remedies against the Lessee in respect of the Operative Documents, (4) any claim for the payment of state, county or municipal real estate transfer tax for which Lessee is not responsible pursuant to Section 12.1 of the Participation Agreement, (5) any Claim to the extent arising from a breach of representations, warranties or covenants of an Indemnitee and (6) any Claim to the extent arising from an Unrelated Indemnity Event. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 13.1B., this Section 13.1B. shall be construed as an indemnity only and not a guaranty of residual value of the Property or as a guaranty of the Notes or the Certificate. The limitations on indemnities in this Article XIII do not in any way limit any claims for damages for any Events of Default under the Operative Documents. (2) Notwithstanding any provision set forth in this Participation Agreement or any of the other Operative Documents, (i) in the event of a Construction Agency Event of Default arising solely from an Unrelated Event which is also not caused by an Unrelated Indemnity Event, unless and until the Completion Date has occurred, Lessee shall not be required to pay more than the Maximum Guaranteed Amount on a recourse basis with respect to any damages which relate to or arise from any such Construction Agency Event of Default and (ii) with respect to each specific instance under the Operative Documents in which the Lessee is not required to pay more than the Maximum Guaranteed Amount on a recourse basis with respect to an Event of Default, in calculating any such payment the Lessee shall be entitled to include any amounts previously -43- Participation Agreement 48 paid by the Lessee to the Lessor pursuant to other specific instances under the Operative Documents which expressly provide that the Lessee's obligations thereunder on a recourse basis are limited to the Maximum Guaranteed Amount, but shall not be entitled to include any other payments or amounts, it being agreed that nothing in clause (i) or (ii) above shall limit any Claim, or any payments or amounts payable, with respect to any indemnity under any Operative Document. (3) Notwithstanding any provision set forth in this Participation Agreement or any of the other Operative Documents, in the event of a Lease Event of Default arising solely from a Construction Agency Event of Default under Section 5.1(b) of the Construction Agency Agreement, unless and until the Completion Date has occurred, Lessee shall not be required to pay more than the Maximum Guaranteed Amount on a recourse basis with respect to any damages which relate to such Construction Agency Event of Default. C. General Indemnification by Lessor During the Construction Period. The Lessor agrees, without limitation on the rights of any indemnitee under Section 13.1A. or 13.1B., whether or not any of the transactions contemplated hereby shall be consummated, to indemnify, protect, defend, save and keep harmless the Certificate Purchaser, the Lenders and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents (hereinafter collectively referred to in this Section 13.1C. as the "Indemnitee") from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee, whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person, whether or not such Claim is covered by the indemnification under Section 13.A. or 13.1B. and whether or not such Claim arises or accrues prior to the Documentation Date or the Initial Advance Date, or after the Completion Date, and 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 (including matters based upon or arising from the negligence of the Indemnitee) that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Initial Advance Date or after the Date, in any way relating to or arising out of: (a) the Construction Agency Agreement or any of the transactions or obligations provided for therein; any other Operative Document or any transaction, act or omission thereunder to the extent, in the case of such other Operative Document or transaction, act or omission thereunder, such Claim arose during or otherwise relates to any transaction, act or omission occurring prior to the Completion Date, including any investigation, litigation or proceeding in connection with any of the foregoing; the Construction Documents or any other contracts or agreements entered into or assumed by Construction Agent with any third party, or the design and construction of the Improvements or the use, possession or any activity by or conducted under the supervision of any Construction Agency Person of, at or on the Property, including: (i) Claims arising from any violation of Applicable Laws and Regulations, including Environmental Laws, or -44- Participation Agreement 49 in tort (arising under principles of strict liability or otherwise), (ii) Claims arising from damage to the environment (including investigation costs, cleanup costs, response costs, remediation and removal costs, costs of corrective action, costs of financial assurance and all other damages, costs, fees and expenses, fines and penalties, including natural resource damages), or death or injury to any Person and any and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required under any Environmental Laws, (iii) latent or other defects, whether or not discoverable by Construction Agent or any Indemnitee, or (iv) any Claims resulting from the existence or Release of any Hazardous Materials from or with respect to the construction of the Improvements or any part thereof. (b) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; (c) the Property or any part thereof or interest therein; (d) 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 Section 15.1, 16.2(c), 16.2(e) or 18.3 of the Lease or any sale pursuant to Articles XVIII or XX of the 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, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by the Construction Agent pursuant to the Lease which 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; (e) the breach by the Construction Agent 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; (f) the retaining or employment of any broker, finder or financial advisor by the Construction Agent to act on its behalf in connection with this Participation Agreement; -45- Participation Agreement 50 (g) the existence of any Lien on or with respect to the Property, the Improvements, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the Property or by reason of labor or materials furnished or claimed to have been furnished to the Construction Agent, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Construction Agent or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Construction Lender or the Lessor; or (h) subject to the accuracy of any Participant's representation set forth in Section 8.1(a), as to such Participant, the transactions contemplated by the Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; provided, however, the Lessor shall not be required to indemnify any Indemnitee under this Section 13.1C. for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (or any Affiliate of such Indemnitee) (it being understood that the Lessor shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee (or any Affiliate of such Indemnitee) set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Indemnitee is responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the expiration of the Term or the return or remarketing of the Property so long as the Certificate Trustee, the Construction Lender and the Certificate Purchaser are not exercising remedies against the Lessee in respect of the Operative Documents, (4) any claim for the payment of state, county or municipal real estate transfer tax for which Lessee is not responsible pursuant to Section 12.1 of the Participation Agreement, (5) any Claim to the extent arising from a breach of representations, warranties or covenants of an Indemnitee and (6) any Claim to the extent arising from an Unrelated Indemnity Event. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 13.1C., this Section 13.1C. shall be construed as an indemnity only and not a guaranty of residual value of the Property or as a guaranty of the Notes or the Certificate. The obligations of the Lessor under this Section 13.1C. shall be limited to net amounts which the Lessor receives under Section 13.1B. which are not distributed with respect to indemnity obligations under Section 13.1B. above. To the extent the Lessor receives insufficient funds under Section 13.1B. to satisfy the indemnity obligations under Section 13.1B. and 13.1C., then such amounts received under Section 13.1B. shall be distributed pro rata to the Certificate Purchaser and the Lenders under Section 13.1B. and 13.1C. based on the ratio of the outstanding Certificate Amount and Loans of each such Participant. -46- Participation Agreement 51 SECTION 13.2. End of Term Indemnity. (a) If the Lessee elects the Remarketing Option and there would, after giving effect to the proposed remarketing transactions, be a Shortfall Amount, then prior to the Expiration Date and as a condition to the Lessee's right to complete the remarketing of the Property pursuant to Section 20.1 of the Lease, the Lessee shall cause to be delivered to the Lessor at least 120 days prior to the Expiration Date, at the Lessee's sole cost and expense, a report from the Appraiser in form and substance satisfactory to the Participants (the "End of the Term Report") which shall state the appraiser's conclusions as to the reason for any decline in the Fair Market Sales Value of any of the Property subject to the Lease from that anticipated for such date in the Appraisal delivered on the Initial Advance Date. (b) If the Lessee elects the Remarketing Option, then on or prior to the Expiration Date the Lessee shall pay to the Lessor an amount (not to exceed the Shortfall Amount) equal to the sum of (x) the excess, if any, of the Fair Market Sales Value determined by the foregoing appraisal procedure of the Improvements over the Gross Proceeds, plus (y) the portion of the Shortfall Amount that the End of the Term Report demonstrates was the result of a decline in the Fair Market Sales Value of the Improvements due to (i) extraordinary use, failure to maintain, to repair, to restore, to rebuild or to replace, failure to comply with all Applicable Laws, failure to use, workmanship, method of installation or removal or maintenance, repair, rebuilding or replacement, (excepting in each case ordinary wear and tear), or (ii) any change to the Plans and Specifications as submitted to the appraiser for the Appraisal after the Initial Advance Date, or any Modification made to, or any rebuilding of, the Property or any part thereof by the Lessee, or (iii) the existence of any Hazardous Activity, Hazardous Substance or Environmental Violations, or (iv) any restoration or rebuilding carried out by the Lessee, or (v) any condemnation of any portion of the Property pursuant to Article XIV of the Lease, or (vi) any use of the Property or any part thereof by the Lessee other than as a first class suburban office building and/or manufacturing facility, or (vii) any grant, release, dedication, transfer, annexation or amendment made pursuant to Section 11.2 of the Lease, or (viii) the failure of the Lessor to have good and marketable title to the -47- Participation Agreement 52 leasehold interest in the Land demised under the Ground Lease and the ownership interest in the Improvements, in each case free and clear of all Liens (excluding Permitted Liens), or (ix) the existence of any sublease relating to the Property that shall survive the Expiration Date. SECTION 13.3. Environmental Indemnity. Without limitation of the other provisions of this Article XIII, the Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including third party claims for personal injury or real or personal property damage), losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to, reasonable and documented attorneys' and/or paralegals' fees and expenses), including but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising in whole or in part, out of (a) the presence on or under the Property of any Hazardous Substances, or any releases or discharges of any Hazardous Substances on, under, from or onto the Property, (b) any activity, including construction, carried on or undertaken on or off 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 located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under the Property, (c) loss of or damage to any property or the environment (including clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, (d) any 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 to record a Lien on the land records, or (e) any residual contamination on or under the Land, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Substances, and irrespective of whether any of such activities were or will be -48- Participation Agreement 53 undertaken in accordance with applicable laws, regulations, codes and ordinances; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.3 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee, or any Affiliate of such Indemnitee (it being understood that, unless the applicable Indemnitee was in possession of the Property and caused the Claim, the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee, or any Affiliate of such Indemnitee, caused or contributed to such Claim) or (2) any Claim to the extent attributable to acts or events occurring after the expiration of the Term or the return or remarketing of the Property so long as the Certificate Trustee, the Construction Lender and the Certificate Purchaser are not exercising remedies against the Lessee in respect of the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. SECTION 13.4. Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 13.1 or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and, at the request of the Indemnitee, provided collateral security satisfactory to the Indemnitee, and, the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any risk of imposition of criminal liability or any material risk of imposition of material civil liability on such Indemnitee 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, in the case of civil liability, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified Claim(s), or (C) an Event of Default under the Lease has occurred and is continuing. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without the prior written -49- Participation Agreement 54 consent of the Indemnitee which consent shall not be unreasonably withheld or delayed in the case of a money settlement not involving an admission of liability of such Indemnitee. Each Indemnitee shall supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 13.1 or 13.3, and Lessee shall reimburse the Indemnitee for the reasonable out-of-pocket expenses of supplying such information and documents. 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 13.3 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 13.1 or 13.3 with respect to such Claim, does not admit any criminal liability or civil liability on behalf of the Lessee in connection with such Claim, and uses reasonable efforts to advise the Lessee on the status of proceedings from time to time during the pendency of such Claim. Upon payment in full of any Claim by the Lessee pursuant to Section 13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. SECTION 13.5. General Tax Indemnity. (a) Indemnification. The Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. (b) Contests. If any claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 13.5, or if any Tax Indemnitee shall determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 13.5 may be payable, such Tax Indemnitee shall promptly (and in any event, within 20 days) notify the Lessee in writing (provided that failure to so notify the Lessee within 20 days shall not alter such Tax Indemnitee's rights under this Section 13.5 except to the -50- Participation Agreement 55 extent such failure precludes or materially adversely affects the ability to conduct a contest of any indemnified Taxes) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 30 days after the receipt of such notice by the Lessee; provided, however, that in the case of any such claim or proceeding, if such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 30-day period, such Tax Indemnitee shall in such notice to the Lessee, so inform the Lessee, and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 10 days after the receipt of such notice by the Lessee unless the Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 10-day period. The Lessee shall be entitled for a period of 30 days from receipt of such notice from the Tax Indemnitee (or such shorter period as the Tax Indemnitee has notified the Lessee is required by law or regulation for the Tax Indemnitee to commence such contest), to request in writing that such Tax Indemnitee contest the imposition of such Tax, at the Lessee's expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee, (y) such contest must be pursued in the name of the Tax Indemnitee, but can be pursued independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) the Tax Indemnitee so requests, then the Lessee shall be permitted to control the contest of such claim, provided that in the case of a contest described in clause (y), if the Tax Indemnitee determines in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of the Tax Indemnitee and provides a written explanation to the Lessee of such determination, the Tax Indemnitee may elect to control or reassert control of the contest, and provided, that by taking control of the contest, Lessee acknowledges that it is responsible for the Imposition ultimately determined to be due by reason of such claim, and provided, further, that in determining the application of clauses (x) and (y) of the preceding sentence, each Tax Indemnitee shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, the Tax Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or the Tax Indemnitee required to contest) any claim, (A) if such Tax Indemnitee provides the Lessee with a legal opinion of independent counsel that such action, suit or proceeding involves a material 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 of any thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Tax Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Tax Indemnitee in respect of the Taxes subject to such claim and any and all expenses for which the Lessee is responsible hereunder reasonably -51- Participation Agreement 56 foreseeable in connection with the contest of such claim, (C) unless the Lessee shall have agreed to pay and shall pay, to such Tax Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Imposition including all reasonable legal, accounting and investigatory fees and disbursements, or (D) if such contest shall involve the payment of the Tax prior to the contest, unless the Lessee shall provide to the Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs to such Tax Indemnitee). In addition for Tax Indemnitee controlled contests and claims contested in the name of the Tax Indemnitee in a public forum, no contest shall be required: (A) unless the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Tax Indemnitee for which the Lessee may be liable to pay an indemnity under this Section 13.5(b)) exceeds $500,000 and (B) unless, if requested by the Tax Indemnitee, the Lessee shall have provided to the Tax Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder which shall be an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. The party conducting the contest shall consult in good faith with the other party and its counsel with respect to the contest of such claim for Taxes (or claim for refund) but the decisions regarding what actions to be taken shall be made by the controlling party in its sole judgement, provided, however, that if the Tax Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Tax Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Tax Indemnitee with respect to the Taxes subject to such offer shall not exceed the amount which it would have owed if such settlement offer had been accepted. In addition, the controlling party shall keep the noncontrolling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof. Each Tax Indemnitee shall supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 13.5(b), and the Lessee shall promptly reimburse such Indemnitee for the reasonable out-of-pocket expenses of supplying such information and documents. No Tax Indemnitee shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any claim which is entitled to be indemnified under this Section 13.5 (and with respect to which contest is required under this Section 13.5(b)) without the prior written consent of the Lessee, unless such Tax Indemnitee waives its right to be indemnified under this Section 13.5 with respect to such claim. Notwithstanding anything contained herein to the contrary, a Tax Indemnitee will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to the -52- Participation Agreement 57 imposition of any Tax if such Tax Indemnitee shall waive its right to indemnification under this Section 13.5 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver). (c) Payments. Any Imposition indemnifiable under this Section 13.5 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 13.5 shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before two Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 13.5 shall be made directly to the Tax Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Participation Agreement. Upon the request of any Tax Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. (d) Reports. In the case of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 13.5 and of which the Lessee has knowledge, the Lessee shall promptly notify the Tax Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by the 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 the Tax Indemnitee otherwise requests that such report, return or statement be filed in the name of or by such Tax Indemnitee, the Lessee shall prepare such report, return or statement for filing by such Tax Indemnitee in such manner as shall be satisfactory to such Tax Indemnitee and send the same to the Tax Indemnitee for filing no later than 15 days prior to the due date therefor. In any case in which the Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow the Tax Indemnitee to file such report, return or statement. (e) Withholding Taxes. (i) The Lessor or its agent shall withhold any Taxes required by Applicable Law to be withheld on any payment to the Certificate Trustee, the Certificate Purchaser, any other Participant or Sub-Participant or the Construction Lender, except to the extent that the Certificate Trustee, the Certificate Purchaser, -53- Participation Agreement 58 any other Participant or Sub-Participant or the Construction Lender has furnished such information to the Lessor or its agent as shall be sufficient under Applicable Law to entitle such Person to an exemption from withholding Taxes. Except to the extent set forth in Section 13.10, the amount payable to the Certificate Trustee, the Certificate Purchaser, any other Participant or Sub-Participant and the Construction Lender shall be reduced by the amount of any withholding Taxes required to be withheld by the Lessor or its agent pursuant to the preceding sentence, and the Lessee and the Lessor shall have no liability or obligation to the Certificate Trustee, the Certificate Purchaser or the Construction Lender with respect to any such withholding Taxes. (ii) If and to the extent the Lessor or its agent has in good faith attempted to comply with its obligation to withhold Taxes in accordance with clause (i) and a claim regarding withholding Taxes is made against the Lessor or its agent, as between the Lessee and the Lessor or its agent, the Lessee shall be responsible for, and the Lessee shall indemnify and hold harmless the Lessor (without duplication of any indemnification required by subsection (a)) on an After Tax Basis against, such claim to the extent, but only to the extent, the Lessor or its agent has actually paid funds to a taxing authority with respect to such withholding taxes or receives a demand for such payment from any taxing authority. (iii) Each Participant agrees to reimburse the Lessor or its agent for any withholding Taxes for which the Lessor or its agent becomes liable and to reimburse the Lessee for any Taxes or other amounts paid by the Lessee pursuant to clause (ii) hereof. (iv) For purposes of this Section 13.5(e), it shall be assumed that the Lease constitutes a loan for United States Federal income tax purposes (as is the parties' intention). Subject to the provisions of Section 9.3, all amounts referenced in this Section 13.5 payable or incurred during the Interim Term shall be paid through Advances to the extent they are included in the Approved Construction Budget. SECTION 13.6. Funding Losses. If any payment or prepayment of principal or conversion of interest rate with respect to any Construction Loan is made on any day other than the last day of an Interest Period applicable thereto, or if the Lessor fails to borrow any Construction Loan after notice has been given to any Participant in accordance with Article III or IV, the Lessee shall reimburse each Participant within fifteen (15) days after demand for any resulting loss or expense incurred by it, including any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment, prepayment, conversion or failure to borrow, provided that such Participant shall have delivered to the Lessee a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error, and provided, further, that such loss shall in no event exceed the interest on the Construction Loans which would have been payable for the -54- Participation Agreement 59 balance of such Interest Period less the Applicable Margin. Such Participant will, at the request of the Lessee, furnish such additional information concerning the determination of such loss as the Lessee may reasonably request. This Section 13.6 shall also be for the benefit of the Certificate Purchaser for the period that the Certificate Yield Rate is determined in respect of the Eurodollar Rate and shall be applied to such Certificate Purchaser as if the outstanding Certificate Amount were Construction Loans. SECTION 13.7. Regulation D Compensation. For so long as any Participant is required to maintain reserves against "Eurocurrency liabilities" (or any other category of liabilities which include deposits by reference to which the interest on Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Participant to United States residents), and, as a result, the cost to such Participant (or its Funding Office) of making or maintaining its Construction Loans or Certificate Amount is increased, then such Participant may require the Lessee to pay, contemporaneously with each payment of interest on the Construction Loans or Certificate, an additional amount on the related Construction Loan or Certificate Amount of such Participant at a rate per annum up to but not exceeding the excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements and (ii) the applicable Eurodollar Rate. Any Participant wishing to require payment of such additional amount (x) shall so notify the Lessee in which case such additional interest on the Construction Loans or Certificate Amount of such Participant shall be payable to such Participant at the place indicated in such notice with respect to each Interest Period commencing at least three Business Days after the giving of such notice and (y) shall furnish to the Lessee at least five Business Days prior to each date on which interest is payable on the Construction Loans or Certificate an officer's certificate setting forth the amount to which such Participant is then entitled under this Section (which shall be consistent with such Participant's good faith estimate of the level at which the related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Lessee may reasonably request as to the computation set forth therein. Subject to the provisions of Section 9.3, all amounts referenced in this Section 13.7 payable or incurred during the Interim Term shall be paid through Advances to the extent they are included in the Approved Construction Budget. SECTION 13.8. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) deposits in dollars (in the applicable amounts) are not being offered to the Construction Lender or the Certificate Purchaser in the relevant market for such Interest Period, or (b) the Construction Lender or the Certificate Purchaser advises the Certificate Trustee that the Eurodollar Rate as determined by the Construction Lender or the Certificate Purchaser will not adequately and fairly reflect the cost to the Construction Lender or the Certificate Purchaser of funding its Construction Loans or Certificate Amount, as the case may be, for such Interest Period, -55- Participation Agreement 60 the Certificate Trustee shall forthwith give notice thereof to the Lessee, whereupon until the Construction Lender or the Certificate Purchaser notifies the Certificate Trustee and the Lessee that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Construction Lender or the Certificate Purchaser, as the case may be, to make Construction Loans or Certificate Amounts shall be suspended and (ii) each outstanding Construction Loan or Certificate shall begin to bear interest at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto. SECTION 13.9. Illegality. If, on or after the date of this Participation Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Participant (or its Funding Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for the Construction Lender or the Certificate Purchaser (or its Funding Office) to make, maintain or fund its Construction Loans or Certificate Amounts and the Construction Lender or the Certificate Purchaser shall so notify the Certificate Trustee, the Certificate Trustee shall forthwith give notice thereof to the other Participants and the Lessee, whereupon the Construction Lender or the Certificate Purchaser shall, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a different Funding Office if such designation will avoid the illegality or impossibility and will not, in the judgment of the Construction Lender or the Certificate Purchaser, be otherwise disadvantageous to the Construction Lender or the Certificate Purchaser, and if it will be disadvantageous to the Construction Lender or impractical to designate a different Funding Office, the Construction Loan or Certificate Amounts will automatically convert into an Alternate Base Rate Construction Loan or Certificate on the Scheduled Payment Date applicable to such Loan or investment if the Construction Lender or the Certificate Purchaser may lawfully continue to maintain and fund such Loan or investment to such day or (b) immediately if the Construction Lender or Certificate Purchaser shall determine that it may not lawfully continue to maintain and fund such Construction Loan or Certificate Amount to such day. If such notice is given the Lessee shall be entitled upon its request to a reasonable explanation of the factors underlying such notice. SECTION 13.10. Increased Cost and Reduced Return. (a) In the event that the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Participant with any request or directive after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) does or shall subject such Participant to any additional tax of any kind whatsoever with respect to the Operative Documents or any Loan or Certificate Amount made by it, or change the basis or the applicable rate of -56- Participation Agreement 61 taxation of payments to such Participant of principal, interest or any other amount payable hereunder (except for the imposition of or change in any tax on or measured by the overall net income of such Participant (other than any such tax imposed by means of withholding)); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Participant which are not otherwise included in determination of the rate of interest on or, as applicable, the Certificate Yield Rate with respect to, Construction Loans, Refinancing Loans or the Certificate Amount; or (iii) does or shall impose on such Participant any other condition; and the result of any of the foregoing is to increase the cost to such Participant of making or maintaining such Loans or Certificate Amount or to reduce any amount receivable hereunder or under any Note or Certificate with respect thereto, then in any such case, the Lessee shall promptly pay such Participant, upon its demand, any additional amounts necessary to compensate such Participant for such increased cost or reduced amount receivable which such Participant deems to be material as determined by such Participant with respect to its Refinancing Loans, Construction Loans or Certificate Amount. (b) If any Participant shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Participant (or any entity directly or indirectly controlling such Participant) as a consequence of such Participant's obligations under the Operative Documents to a level below that which such Participant (or any entity directly or indirectly controlling such Participant) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Participant to be material, then from time to time, within 15 days after demand by such Participant (with a copy to the Certificate Trustee), the Lessee shall pay to such Participant such additional amount or amounts as will compensate such Participant (or its Parent) for such reduction. (c) Each Participant will promptly notify the Lessee and the Certificate Trustee of any event of which it has knowledge, occurring after the date hereof, which will entitle such Participant to compensation pursuant to this Section and will, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a -57- Participation Agreement 62 different Funding Office or take any other reasonable action if such designation or action will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Participant, be otherwise disadvantageous to such Participant. A certificate of any Participant claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Participant may use any reasonable averaging and attribution methods. Subject to the provisions of Section 9.3, all amounts referenced in this Section 13.10 payable or incurred during the Interim Term shall be paid through Advances to the extent they are included in the Approved Construction Budget. SECTION 13.11. Indemnity Payments in Addition to Lease Obligations. The Lessee acknowledges and agrees that the Lessee's obligations to make indemnity payments under this Section 13 are separate from, in addition to, and do not reduce, the Lessee's obligation to pay under the Lease the Lease Balance. ARTICLE XIV. MISCELLANEOUS SECTION 14.1. Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Participation Agreement, the transfer of the Property to the Certificate Trustee, the construction of any Improvements, any disposition of any interest of the Certificate Trustee in the Property or any Improvements or any interest of the Certificate Purchaser in the Trust and the payment of the Notes and any disposition thereof, the Expiration Date, and the payment in full in cash of the Lease Balance, and the termination of the Operative Documents, 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. SECTION 14.2. No Broker, etc. Each of the parties hereto represents to the others that it has not retained or employed any broker, finder or financial adviser to act on its behalf in connection with this Participation Agreement or the transactions contemplated herein, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act. Any party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. SECTION 14.3. Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be given in writing by United States mail, by nationally recognized courier service, by hand or by facsimile and any such notice shall become effective five Business days after being deposited in the mails, certified or registered with -58- Participation Agreement 63 appropriate postage prepaid or one Business Day after delivery to a nationally recognized courier service specifying overnight delivery or, if delivered by hand, when received, or, if transmitted by facsimile, when transmitted (upon electronic confirmation thereof) and shall be directed to the address or facsimile number of such Person as indicated on Schedule III. From time to time any party may designate a new address for purposes of notice hereunder by written notice to each of the other parties hereto in accordance with this Section. SECTION 14.4. Counterparts. This Participation Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 14.5. Amendments. The provisions of this Participation Agreement may from time to time be amended, modified or waived, provided that such amendment, modification or waiver is in writing and consented to by the Lessee, the Certificate Trustee, the Construction Lender and the Certificate Purchaser; provided further, however, that the covenants contained in Section 10.3 of this Participation Agreement may be waived as set forth in Section 10.4. Neither any Operative Document nor any of the terms thereof may be terminated (except upon payment in full of the Lease Balance plus Make-Whole Premiums, if any, or effective exercise and consummation of the Remarketing Option in accordance with Article XX of the Lease and payment in full of all amounts due in accordance therewith), amended, supplemented, waived or modified without the written agreement or consent of each party thereto and, regardless of whether the Construction Lender and the Certificate Purchaser are parties thereto, the Construction Lender and the Certificate Purchaser; provided, however, that no such termination, amendment, supplement, waiver or modification that would increase the obligations of the Lessee thereunder or deprive the Lessee of any of its rights thereunder, or otherwise adversely affect the Lessee, shall be effective against the Lessee without the written agreement or consent of the Lessee, which consent shall not be unreasonably withheld or delayed. SECTION 14.6. Headings, etc. The Table of Contents and headings of the various Articles and Sections of this Participation Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. SECTION 14.7. Parties in Interest. Except as expressly provided herein, none of the provisions of this Participation Agreement are intended for the benefit of any Person except the parties hereto. The Lessee shall not assign or transfer any of its rights or obligations under the Operative Documents without the prior written consent of the Certificate Trustee, the Construction Lender and the Certificate Purchaser, which may be withheld in the sole discretion of any of the foregoing parties. SECTION 14.8. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. SECTION 14.9. Severability. Any provision of this Participation Agreement that is -59- Participation Agreement 64 prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 14.10. Liability Limited. (a) It is expressly understood and agreed by the parties hereto that (a) this Participation Agreement is executed and delivered by Wilmington Trust Company, not individually or personally, except as expressly stated herein, but solely as Certificate Trustee of Brush Creek Business Trust II, a statutory Delaware business trust created under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it under the Trust Agreement, (b) each of the representations, undertakings and agreements herein made by the Certificate Trustee on the part of the Trust or Certificate Trustee is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company, except as expressly stated herein, but is made and intended for the purpose of binding only the Trust or Certificate Trustee and (c) except as expressly stated herein, under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or Certificate Trustee or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Certificate Trustee or the Trust under this Participation Agreement or the other Operative Documents. (b) No Participant shall have any obligation to any other Participant or to the Lessee, the Certificate Trustee, the Certificate Purchaser or the Construction Lender with respect to transactions contemplated by the Operative Documents, except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. SECTION 14.11. Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and effectuate the intent and purposes of this Participation Agreement, the other Operative Documents, and the transactions contemplated hereby and thereby (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); provided, however, that the Lessee shall not be required to pay expenses pursuant to this Section to the extent arising from a breach or alleged breach by the Construction Lender or the Certificate Purchaser of any agreement entered into in connection with the assignment or participation of any Loan or Certificate Amount. The Lessee, at its own expense and without need of any prior request from any other party, shall take such action as may be necessary (including any action specified in the preceding sentence), or (if -60- Participation Agreement 65 the Certificate Trustee shall so request) as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Document. Subject to the provisions of Section 9.3, all amounts referenced in this Section 14.11 payable or incurred during the Interim Term shall be paid through Advances to the extent they are included in the Approved Construction Budget. SECTION 14.12. SUBMISSION TO JURISDICTION. THE LESSEE, THE CONSTRUCTION LENDER, THE CERTIFICATE PURCHASER AND THE CERTIFICATE TRUSTEE HEREBY SUBMIT TO THE FULLEST EXTENT PERMITTED BY LAW TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND OF ANY COURT OF THE COMMONWEALTH OF PENNSYLVANIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE LESSEE, THE CONSTRUCTION LENDER, THE CERTIFICATE PURCHASER AND THE CERTIFICATE TRUSTEE IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THE FOREGOING MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 14.13. Confidentiality. The Certificate Trustee, the Certificate Purchaser and the Construction Lender represent, warrant, covenant and agree that they will maintain the confidentiality of any written or oral information provided under or referenced in the Operative Documents by or on behalf of the Lessee that has been identified by its source as confidential ("Confidential Information"), subject to the Certificate Trustee's, the Certificate Purchaser's and the Construction Lender's (a) obligation to disclose any such Confidential Information pursuant to applicable law or pursuant to an order under applicable laws and regulations or pursuant to a subpoena or other legal process (but only after 10 days prior notice to the Lessee (unless during such 10-day period the Certificate Trustee, the Certificate Purchaser or the Construction Lender shall be subject to criminal liability, or material civil liability for which the Lessee has not agreed to indemnify the relevant party) and an opportunity to challenge such order or subpoena during such period), (b) right to disclose any such Confidential Information to its bank examiners, Affiliates, auditors, counsel and other professional advisors but only on a need to know basis in connection with the Operative Documents and only if such Persons are similarly bound in a separate writing to the provisions of this Section 14.13, (c) right to disclose any such Confidential Information in connection with any litigation or dispute involving the Participants and the Lessee or any of its Subsidiaries and Affiliates and (d) right to provide such information to Participants, Sub-Participants, prospective Sub-Participants to which sales of participating interests are permitted pursuant to this Participation Agreement and prospective assignees to which assignments of interest are permitted pursuant to this Participation Agreement, but only if such Participants, Sub-Participant, prospective Sub-Participant or prospective assignee agrees in writing to maintain the confidentiality of such information on terms substantially similar to those -61- Participation Agreement 66 of this Section as if it were a "Participant" party hereto. Notwithstanding the foregoing, any such information supplied to a Participant, Sub-Participant, prospective Sub-Participant or prospective assignee under this Participation Agreement shall cease to be Confidential Information if it is or becomes known to such Person by other than unauthorized disclosure, or if it becomes a matter of public knowledge. SECTION 14.14. No Bar. Subject to Section 14.10, nothing set forth herein or in any other Operative Document shall bar, limit, preclude, prevent, stay or otherwise adversely affect the right or ability of any party hereto to bring and pursue any action against any other party hereto for any breach or alleged breach of its obligations hereunder or under any other Operative Document. SECTION 14.15. WAIVER OF JURY TRIAL. EACH OF THE LESSEE, THE CERTIFICATE TRUSTEE, THE CERTIFICATE PURCHASER AND THE CONSTRUCTION LENDER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 14.16. Construction Consultant. The Construction Lender shall, from time to time, be entitled to hire a Construction Consultant upon the submission by the Construction Lender of a certificate to the Lessee describing in detail the work, information, services or other monitoring which the Construction Consultant has been retained to provide. The Lessee shall promptly reimburse the Construction Lender for the reasonable fees of the Construction Consultant, which amounts shall be payable through Advances to the extent provided in the Approved Construction Budget. SECTION 14.17. Cooperation in Connection with Subdivisions. Construction Lender and Certificate Purchaser acknowledge that Lessee intends to develop as many as two additional buildings (the "Additional Buildings") on the Land in the future, and that such development may require shifting of lot lines, resubdivisions or similar land use actions to effect such development. Construction Lender, the Tranche A Lender, the Tranche B Lender and Certificate Purchaser, and each of their successors and assigns, hereby agree to take such further actions and execute and deliver such further documents as may be required to effect such lot line changes or subdivision modifications in connection with the development and leasing of the Additional Buildings so long as (i) the Base Term of the Lease has commenced and no Default shall then exist under any Operative Document, and such matters do not impair the value, utility or remaining useful life of the Property, which shall be confirmed by an appraisal of the Property, in form and substance satisfactory to the Lenders and the Certificate Purchaser, performed by an appraiser selected by the Lenders and the Certificate Purchaser, (ii) such matters are reasonably necessary in connection with the development of the Additional Buildings, (iii) such matters will not cause the Property or any portion thereof to fail to comply in any respect with the provisions of the Lease or any other Operative Document or any Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all -62- Participation Agreement 67 applicable architectural approval requirements), or otherwise cause a Default under any Operative Document, (iv) all governmental consents or approvals required prior to such matters have been obtained, and all filings required prior to such action have been made, (v) such matters will not result in any down-zoning of the Property or any portion thereof or a material reduction in the maximum density or development rights available to the Property under all Requirements of Law, (vi) the Lessee shall remain obligated under this Lease and under any instrument executed by the Lessee consenting to the assignment of the Lessor's interest in this Lease as security for indebtedness, in each such case in accordance with their terms, as though such matters had not been effected, and the obligations of the Lessee, the Construction Agent and each Guarantor, and the rights and benefits of each Participant as against the Lessee, Construction Agent and Guarantor, under any Operative Document shall not be impaired, (vii) the Lessor and the Lenders shall receive endorsements to the existing title policy and a revised Survey insuring Lessor's and Lenders' right, title and interest in and to the Property, (viii) Lessee, Construction Agent and each Guarantor shall take sure further acts and execute such further documents as shall be reasonably requested by the Lessor or any Lender in connection with this Section 14.17. Such additional actions of the Lessor, Construction Lender, Tranche A Lender and Tranche B Lender may include, without limitation, (i) the execution or consent to a resubdivision of the Land to accommodate the Additional Buildings as positioned on one or more separately subdivided parcels, (ii) execution and delivery of easements and rights of way necessary or desirable for parking and traffic flow in the office complex, (iii) execution and delivery of easements for utilities and other similar services to the Additional Buildings, and (iv) the release of property on which Additional Buildings and appurtenant land (including grading areas and parking areas) and improvements will be developed from the liens, encumbrances and restrictions of the Ground Lease (and any memorandum thereof), the Lease (and any memorandum thereof), the Mortgage and the other Operative Documents. -63- Participation Agreement 68 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. Attest: FORE SYSTEMS, INC., as Lessee, Guarantor and Construction Agent /s/ CHRISTOPHER H. GEBHARDT By:/s/ BRUCE E. HANEY - -------------------------------- ------------------------------------- Name: BRUCE E. HANEY ----------------------------------- Title: SR. VP & CHIEF FINANCIAL OFFICER ---------------------------------- Account Information for Advances: S-1 Participation Agreement 69 Attest: WILMINGTON TRUST COMPANY not in its individual capacity, except as expressly stated herein, but solely as Certificate Trustee /s/ Illegible By:/s/ DONALD G. MACKELCAN - -------------------------------- ------------------------------------- Name: DONALD G. MACKELCAN ----------------------------------- Title: ASSISTANT VICE PRESIDENT ---------------------------------- Remittance Instructions for the Construction Lender and the Certificate Purchaser: S-2 Participation Agreement 70 Attest: MELLON FINANCIAL SERVICES CORPORATION #4, as Certificate Purchaser /s/ MICHAEL SLOYER By:/s/ STEPHEN R. VIEHE - -------------------------------- ------------------------------------- Name: STEPHEN R. VIEHE ----------------------------------- Title: VICE PRESIDENT ---------------------------------- S-3 Participation Agreement 71 Attest: MELLON BANK, N.A., as the Construction Lender /s/ MICHAEL SLOYER By:/s/ MICHAEL T. ANSELMO - -------------------------------- ------------------------------------- Name: MICHAEL T. ANSELMO ----------------------------------- Title: VICE PRESIDENT ---------------------------------- S-4 Participation Agreement 72 APPENDIX 1 to Participation Agreement Definitions and Interpretation 73 Exhibit 10.1 APPENDIX 1 to Participation Agreement, Lease, Construction Loan Agreement and Mortgage (Construction Program for a Manufacturing/Office Facility in Allegheny County, Pennsylvania) ---------------------------------- 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 (including the Plans and Specifications) as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Operative Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; -1- APPENDIX 1 74 (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 (x) reference to the Certificate Trustee refers to the Certificate Trustee acting on behalf of the Trust and is intended to be binding on the Trust as a separate legal entity. B. Accounting Terms. In each Operative Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. 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" is defined in Section 6 of the Construction Loan Agreement. "Account" is defined in Section 5.1 of the Construction Loan Agreement. "Actual Loss" means the all-in costs and expenses incurred by Lessor, and any other damages incurred by Lessor (except in connection with an Unrelated Indemnity Event) under the Operative Documents and under Applicable Laws, less the value of the Property as determined after an Event of Default by (i) a sale of the Property, (ii) the re-leasing of the Property or (iii) the Appraiser. The Lessor shall in its sole discretion determine which of the methods described in clauses (i), (ii) or (iii) above that Lessor elects to use to determine Actual Loss. Furthermore, if the Lessor elects the method described in clause (iii) above, then upon a later sale or releasing of the Property (which sale or re-leasing shall occur within a reasonable time following the method in clause (iii)) pursuant to clauses (i) or (ii) above, the Actual Loss shall be recalculated based on such amounts and any appropriate adjustments shall be made as provided in the Operative Documents. "Advance" means an advance of funds by the Lessor to the Construction Agent pursuant to Article III of the Participation Agreement. -2- APPENDIX 1 75 "Affiliate" means, when used with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person. "After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient (less any tax savings actually realized) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Alternate Base Rate" means, for any period, an interest rate per annum equal to the sum of (i) the Federal Funds Effective Rate most recently determined by the Lender plus .50% and (ii) the Applicable Margin or Certificate Margin, as the case may be. If the aforesaid rate changes from time to time after the date of the Construction Loan Agreement, the Alternate Base Rate shall be automatically increased or decreased, if appropriate and as the case may be, without notice to the Lessee or the Lessor, as of the effective time of each change, provided that the Lender shall endeavor to notify the Lessor of any such change but shall have no liability for any failure to do so. "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 (including wetlands) and those pertaining to the construction, use or occupancy of the Property) and any restrictive covenant or deed restriction or easement of record affecting the Property or any other material asset of the Lessee. "Applicable Margin" means at any time with respect to Eurodollar Rate Construction Loans, 1/2 of 1%. "Appraisal" means an appraisal, prepared by Barone, Murtha, Shonberg & Associates, Inc. or another reputable appraiser selected by the Lenders and approved by the Certificate Purchaser, of the Land and Improvements on an as-built basis in accordance with the Plans and Specifications, to be delivered pursuant to Section 6.1(j) of the Participation Agreement. "Appraiser" means an independent MAI appraiser having no less then three (3) years of experience appraising real property in Western Pennsylvania, selected by the Lessor. "Approved Construction Budget" means the budget attached as Schedule 2 to the Construction Agency Agreement. "Approved Construction Schedule" means the schedule attached as Schedule 3 to the Construction Agency Agreement. "Appurtenant Rights" means (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Land or the Improvements, including the use of any streets, ways, alleys, -3- APPENDIX 1 76 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. "Architect" means, collectively, Studios Architecture, and any other reputable additional or substitute architect engaged from time to time by the Lessee in connection with the construction of the Improvements. Any requirement in any Operative Document that a certificate of the Architect be delivered shall be satisfied by delivery of certificate(s) from one or more of the foregoing so long as such certificates collectively satisfy the requirements set forth in such Operative Documents. "Assignment of Construction Agency Agreement" means the Construction Agency Agreement Assignment, dated as of the Initial Advance Date, from the Certificate Trustee to the Lender. "Assignment of Leases and Rents" means the Assignment of Leases and Rents and Assignment of Open End Mortgage, dated as of the Documentation Date, from the Certificate Trustee, as assignor, to the Lenders, as assignees. "Available Certificate Purchaser Commitment" means an amount equal to the excess, if any, of (a) the amount of the Certificate Purchaser Commitment over (b) the aggregate original amount of the Certificate Amounts. "Available Commitments" means the Available Lenders Commitment and the Available Certificate Purchaser Commitment. "Available Lenders Commitment" means at any time, an amount equal to the excess, if any, of (a) the amount of the Construction Loan Commitment over (b) the aggregate original principal amount of all Construction Loans. "Bankruptcy Code" is defined in Section 6(f) of the Loan Agreement. "Base Date" means the Construction Period Termination Date. "Base Term" is defined in Section 2.3 of the Lease. "Basic Rent" means, the sum of (i) the Lenders Basic Rent and (ii) the Certificate Purchaser Basic Rent, calculated as of the applicable date on which Basic Rent is due. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Board" means the Board of Governors of the Federal Reserve System of the United States (or any successor). "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in Wilmington, Delaware or Pittsburgh, Pennsylvania or (if interest or Certificate -4- APPENDIX 1 77 Yield is being determined by reference to the Eurodollar Rate) London, England are generally authorized or obligated, by law or executive order, to close. "Capital Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is, or is required to be, accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" means all obligations under Capital Leases of any Person, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Casualty" means any damage or destruction of all or any portion of the Property as a result of a fire or other casualty. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. sections 9601 et. seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certificate" means the certificate issued under the Trust Agreement, substantially in the form of Exhibit A thereto, and any and all certificates issued in replacement or exchange therefor. "Certificate Amount" is defined in Section 3.2 of the Participation Agreement. "Certificate Balance" means as of any date of determination an amount equal to the sum of the outstanding Certificate Amounts together with all accrued and unpaid Certificate Yield thereon. "Certificate Margin" means at any time with respect to Certificate Amounts, 4%. "Certificate Purchaser" means Mellon Financial Services Corporation #4, a Pennsylvania corporation. "Certificate Purchaser Basic Rent" means the sum of (i) amounts due with respect to the Certificate Amounts and (ii) the amount of accrued Certificate Yield due on the Certificate Amounts, in each case determined in accordance with Section 4.1 of the Participation Agreement as of any Payment Date and excluding any interest at the applicable Overdue Rate on any installment of Certificate Purchaser Basic Rent not paid when due and any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Certificate Purchaser Basic Rent. "Certificate Register" is defined in Section 2.4 of the Trust Agreement. "Certificate Trustee" means Wilmington Trust Company, a banking corporation organized in the State of Delaware, not in its individual capacity, but solely as trustee of Brush Creek Business Trust II, a statutory Delaware business trust created under the Trust Agreement, and any successor or replacement Certificate Trustee expressly permitted under the Operative Documents. "Certificate Yield" is defined in Section 4.1(a) of the Participation Agreement. -5- APPENDIX 1 78 "Certificate Yield Payment Advance" is defined in Section 4.1(d) of the Participation Agreement. "Certificate Yield Rate" means, (i) for the period from and including the Initial Advance Date until the Construction Period Termination Date, the Eurodollar Rate and thereafter, the yield calculated with reference to the rate given (a) on the USD Screen of Bloomberg Financial Markets Service (the "Service") at 11:00 a.m. Eastern standard time three Business Days prior to such date, or if such rate is unavailable, then (b) by the Statistical Release No. H.15 (519) then most recently published by the F.R.S. Board prior to such date (the "Statistical Release") as the yield, in either case, of a hypothetical U.S. Treasury security with a remaining term equal to the remaining term to maturity (rounded to the nearest month) of the Certificate (assuming that the Certificate will mature on December 31, 2007), provided, if no maturity exactly corresponds to the remaining assumed term to maturity of the Certificate, yields for the two published maturities most closely corresponding to such maturity shall be selected by (x) reference to the Service, or if such Service is unavailable, then (y) the Statistical Release, and the yield shall be interpolated from such yields on a straight-line basis, rounding in each period to the nearest month, plus (ii) the Certificate Margin. "Certifying Party" is defined in Section 22.1 of the Lease. "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. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. "Collateral" means all of the Trust Estate now owned or hereafter acquired, upon which a Lien is purported to be created by the Security Documents. "Collateral Account" is defined in Section 2 of the Pledge and Security Agreement. "Collateral Requirement" is defined in Section 2(e)(ii) of the Pledge and Security Agreement. "Collateral Value" has the meaning attributed to it in the Pledge and Security Agreement. "Commitment" means (i) with respect to the Lenders, the obligation of the Lenders to make Construction Loans to the Certificate Trustee at the request of the Lessee in an aggregate principal amount not to exceed the amount set forth opposite each Lender's name on Schedule IV to the Participation Agreement, as such amount may be reduced from time to time in accordance with the provisions of the Construction Loan Agreement, (ii) with respect to the Certificate Purchaser, the obligation of the Certificate Purchaser to make available Certificate Amounts to the Certificate Trustee at the request of the Lessee in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite the Certificate Purchaser's name on Schedule IV to the Participation Agreement, (and (iii) with respect to the Certificate Trustee, the obligation of the Certificate Trustee to make Advances (to the extent the Certificate Trustee receives Certificate Amounts, Construction Loans and Refinancing Loans). -6- APPENDIX 1 79 "Commitment Percentage" means, as to any Participant, the percentage set forth opposite such Participant's name under the heading "Commitment Percentage" on Schedule IV to the Participation Agreement. "Commitment Period" means the period from and including the Initial Advance Date to the date immediately preceding the Base Date or such earlier date on which the Commitments shall terminate as provided in the Operative Documents. "Completion Date" means the date Substantial Completion occurs. "Condemnation" means any condemnation, requisition, confiscation, seizure or other taking (or sale in lieu thereof) of the use, access, occupancy, material 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 vehicular traffic flow to the Property so as to result in a material adverse change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title vests in the condemning authority. "Confidential Information" is defined in Section 14.13 of the Participation Agreement. "Consolidated Available Earnings" means, for any period, the Consolidated EBITR for such period. "Consolidated EBITR", means for any period, Consolidated Net Income for such period, before giving effect to any extraordinary gains or losses calculated pursuant to GAAP for such period, plus, to the extent deducted in the calculation of Consolidated Net Income for such period, the sum of (i) Federal, State, local and foreign income taxes for such period, (ii) Consolidated Interest Expense and (iii) Consolidated Rental Expense. "Consolidated Fixed Charges" means, for any period, the sum of (i) Consolidated Interest Expense plus (ii) Consolidated Rental Expense for such period. "Consolidated Funded Indebtedness" means, to the extent the following would be reflected on a balance sheet of the Lessee and its Subsidiaries on a consolidated basis prepared in accordance with GAAP, the principal amount or principal equivalent of all Debt of the Lessee and its Subsidiaries having a final maturity of more than one year from the date of determination (or which is renewable or extendable at the option of the obligor for a period of more than one year from the date of determination), excluding Consolidated Short-Term Funded Indebtedness. "Consolidated Indebtedness" means, at any time, the sum of all Consolidated Funded Indebtedness and Consolidated Short Term Funded Indebtedness at such time. -7- APPENDIX 1 80 "Consolidated Interest Expense" means, for any period, the gross consolidated interest expense of the Lessee and its Subsidiaries for such period. "Consolidated Net Income (or Loss)" means, for any period, the consolidated net earnings (or loss) after taxes of the Lessee and its Subsidiaries for such period, but excluding all nonrecurring items separately stated in computing income from continuing operations. "Consolidated Rental Expense" means, for any period, all payment obligations of the Lessee and its Subsidiaries accrued during such period under agreements for rent, lease, hire or use of any real or personal property, including obligations in the nature of operating leases but excluding Capital Lease Obligations. "Consolidated Shareholders' Equity" means, as of any date of determination, all amounts (without duplication) which, in accordance with GAAP, would be included under shareholder's equity on a consolidated balance sheet of the Lessee and its Subsidiaries. "Consolidated Short Term Funded Indebtedness" means all or the portion of Debt with a maturity of less than one year from the date of determination. "Construction" means the construction and installation of all Improvements contemplated by the Plans and Specifications. "Construction Agency Agreement" means the Construction Agency Agreement, dated as of the Initial Advance Date, between the Certificate Trustee and the Construction Agent. "Construction Agency Agreement Event of Default" means a "Construction Agency Agreement Event of Default" as defined in Section 5.1 of the Construction Agency Agreement. "Construction Agency Person" means the Lessee, the Construction Agent, the Architect, the Guarantor, the Prime Contractor, any other contractor or subcontractor or other Person directly or indirectly performing work or providing services or materials on the Property, or relating to the Construction or the Property, through and including the period ending on the Completion Date (regardless of when such Person commenced performing such work or providing such services or materials, including any period prior to the Documentation Date), and all of their respective officers, directors, shareholders, partners, employees, agents, consultants (on the Property), service-providers (on the Property), successors and assigns. "Construction Agent" means Fore Systems, Inc., as construction agent under the Construction Agency Agreement. "Construction Breakage Costs" shall mean any costs or expenses incurred by Lessor or any Participant in connection with the termination of any of the Construction Documents following the occurrence of a Construction Agency Event of Default. -8- APPENDIX 1 81 "Construction Consultant" means such consulting engineer as the Construction Lender may select to monitor the Construction on behalf of the Construction Lender, the Certificate Purchaser and the Lessor. "Construction Costs" shall mean the amounts required to construct the Improvements (including Soft Costs) and to pay Transaction Costs in accordance with the Plans and Specifications and the Operative Documents. "Construction Documents" is defined in Section 2.6 of the Construction Agency Agreement. "Construction Documents Assignment" means the Assignment of Construction Documents that is attached to the Construction Agency Agreement as Exhibit A. "Construction Lender" means Mellon Bank, N.A., a national banking association, in its capacity as lender under the Construction Loan Agreement. "Construction Loan" is defined in Section 2.1 of the Construction Loan Agreement. "Construction Loan Agreement" means the Construction Loan Agreement, dated as of the Initial Advance Date, among the Certificate Trustee, as borrower, and the Lenders. "Construction Loan Agreement Default" means any event, act or condition which with notice or lapse of time, or both, would constitute a Construction Loan Agreement Event of Default. "Construction Loan Agreement Event of Default" is defined in Section 6.1(a) of the Construction Loan Agreement. "Construction Loan Balance" means as of any date of determination an amount equal to the principal amounts outstanding under the Construction Loans. "Construction Loan Commitment" means the Commitment of the Lenders in the amount set forth on Schedule I to the Participation Agreement. "Construction Loan Documents" means the Construction Loan Agreement, the Notes and the Security Documents. "Construction Loan Expiration Date" is defined in Section 2.3 of the Construction Loan Agreement. "Construction Period" means the period commencing on the Initial Advance Date and ending on the Construction Period Termination Date. "Construction Period Termination Date" means the earlier of (i) the date on which Substantial Completion has occurred with respect to the construction of the Facility, and (ii) March 31, 2000. -9- APPENDIX 1 82 "Control" means (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, the possession directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Custodian" means Mellon Bank, in its capacity as custodian under the Custody Agreement. "Custody Agreement" has the meaning attributed to it in the Pledge and Security Agreement. "Debt" means, for any Person, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all obligations of such Person under any conditional sale or other title retention agreement relating to property purchased by such Person, (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (iv) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as Capital Leases, (v) all obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (i) through (iv) above, and (vi) all current or past due liabilities of such Person in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "Deed" means a special warranty deed with respect to the real property comprising the Property, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to such real property to the Lessee, subject only to Permitted Liens and substantially in the form of Exhibit I to the Participation Agreement. "Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Default Completion Costs" shall mean any and all costs of any kind or description incurred by any Participant or the Lessor in completing the construction of the Improvements following a Construction Agency Event of Default in excess of those set forth in the Approved Construction Budget, including, without limitation, costs of removal and restoration of defective work, shut down and startup costs for any party under any of the Construction Documents, redesign, rebidding, repermitting and other costs incurred in connection with any revision of the Plans and Specifications, construction supervision costs, carry during any period of delay in the completion of the Improvements beyond the Outside Completion Date, legal fees incurred in connection with the negotiation, enforcement, termination or any other action or proceeding in connection with any of the Construction Documents or any of the foregoing. "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. -10- APPENDIX 1 83 "Eligible Project Costs" shall mean, as of any date of determination, the aggregate amount of Construction Costs accrued, and following a Construction Agency Event of Default, any Default Completion Costs or Construction Breakage Costs which may become payable that are properly capitalized in accordance with GAAP, or which are incurred, at any time prior to the Completion Date, whether or not paid, in each case which are properly capitalized in accordance with GAAP, but excluding (i) all Certificate Yield which is capitalized during the Interim Term pursuant to the Operative Documents, (ii) all Transaction Expenses other than Transaction Expenses properly capitalized in accordance with GAAP, and (iii) any payments under Sections 13.5, 13.7, 13.10 and 14.11 of the Participation Agreement to the extent such amounts are included in the Approved Construction Budget under the heading "Eligible Project Costs Reimbursables". Attached to the Construction Agency Agreement as Schedule 2 is the Approved Construction Budget, which details the Eligible Project Costs. "End of the Term Report" is defined in Section 13.2(a) of the Participation Agreement. "Environmental Audit" means a Phase One environmental site assessment (the scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of the Property. "Environmental Law" means, whenever enacted or promulgated, any applicable Federal, state, county or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, covenant, criteria, guideline, administrative or court order, judgment, decree, injunction, code or requirement or any agreement with a Governmental Authority: (x) relating to pollution (or the cleanup, removal, remediation or encapsulation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including air, water, vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or (y) concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity, in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance, whether such common law or equitable doctrine is now or hereafter recognized or developed. Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. section 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. section 1251 et seq.; the Clean Air Act, 42 U.S.C. sections 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. section 4321; the Refuse Act, 33 U.S.C. sections 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. sections 1801-1812; the Toxic Substances Control Act, 15 U.S.C. sections 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. sections 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. sections 300f et seq., each as -11- APPENDIX 1 84 amended and as now or hereafter in effect, and their state and local counterparts or equivalents, including any regulations promulgated thereunder. "Environmental Violation" means any activity, occurrence or condition that violates or results in non-compliance in any material respect with any Environmental Law. "Equipment" means all screens, awnings, shades, blinds, curtains, draperies, carpets, storm doors and windows, heating, electrical, and mechanical equipment, lighting, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, window cleaning apparatus, underground sprinkler systems and other fire prevention and extinguishing apparatus and materials and security systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time or any successor Federal statute. "ERISA Affiliate" means each entity required to be aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code. "ERISA Group" means Fore Systems, Inc., a Delaware corporation, and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Fore Systems, Inc., are treated as a single employer under Section 414 of the Code. "Eurocurrency Reserve Requirements" means, for any day the percentage (expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as determined in good faith by the Construction Lender (which determination shall be conclusive), which is in effect on such day as prescribed by the Board representing the maximum reserve requirement (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities") of a member bank in the Federal Reserve System. The Eurodollar Rate shall be adjusted automatically as of the effective date of each change in the Eurocurrency Reserve Requirements. "Eurodollar Rate" means with respect to each day during the applicable Interest Period, the rate per annum determined by the Construction Lender by dividing (the resulting quotient to be rounded upward to the nearest 1/100 of 1%) (a) the rate of interest (which shall be the same for each day in such Interest Period) determined in good faith by the Construction Lender in accordance with its usual procedures (which determination shall be conclusive) to be the average of the rates per annum for deposits in Dollars offered to major money center banks in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the first day of such Interest Period for delivery on the first day of such Interest Period in amounts comparable to the proposed Construction Loan (or, if there are no such comparable amounts actively traded, the smallest amounts actively traded) and having maturities comparable to such Interest Period, by (b) a number equal to 1.00 minus the Eurocurrency Reserve Requirements. The "Eurodollar Rate" may also be expressed by the following formula: [average of the rates offered to major money ] [center banks in the London interbank market ] -12- APPENDIX 1 85 Eurodollar Rate =[as determined by the Construction Lender as set forth above] [1.00 - Eurocurrency Reserve Requirements ] "Event of Default" means a Lease Event of Default, a Construction Agency Agreement Event of Default, or a Loan Agreement Event of Default. "Excepted Payments" means: (a) all indemnity payments (excluding indemnity payments made pursuant to Section 13.2 of the Participation Agreement) to which the Certificate Trustee, Trust Company, Lenders, the Certificate Purchaser or any of their respective Affiliates, agents, officers, directors or employees is entitled; (b) any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 15.2 or Articles XVI, XVIII or XX of the Lease) payable under any Operative Document to reimburse the Certificate Trustee, Trust Company, the Certificate Purchaser or any of their respective Affiliates (including the reasonable expenses of the Certificate Trustee, Trust Company, the Certificate Purchaser or such Affiliates incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Document; (c) any amount payable to the Certificate Purchaser by any transferee permitted under the Operative Documents of the interest of the Certificate Purchaser as the purchaser thereof (or a portion thereof); (d) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies other than such proceeds or payments payable to the Lender or the Certificate Purchaser; (e) any insurance proceeds under policies maintained by the Certificate Trustee, Trust Company or the Certificate Purchaser; (f) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Certificate Trustee, Trust Company or the Certificate Purchaser; (g) all right, title and interest of the Certificate Purchaser or the Certificate Trustee to the Property or any portion thereof or any other property to the extent any of the foregoing has been released from the Liens of the Mortgage, the Assignment of Lease and Rents and the Construction Agency Agreement Assignment pursuant to the terms thereof following the payment of the Loan Balance; (h) all proceeds from Collateral (as defined in the Pledge and Security Agreement) held in the Collateral Account; and -13- APPENDIX 1 86 (i) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (h) above. "Excess Proceeds" means the excess, if any, of the aggregate of all awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the sum of the Lease Balance paid by the Lessee pursuant to Articles XIV and XV of the Lease with respect to such Casualty or Condemnation, and all proceeds received by the Lessor in connection with any sale of the Property pursuant to the Lessor's exercise of remedies under Section 16.2 of the Lease or the Lessee's exercise of the Remarketing Option under Article XX of the Lease over the amounts owing by Lessee under the Operative Documents at such time. "Existing Lease" means that certain Lease and Open End Mortgage dated as of December 13, 1995, between Lessor and Lessee. "Expiration Date" means October 31, 2007, or the scheduled expiration of the then current Renewal Term, if any. "Expiration Date Purchase Obligation" means the Lessee's obligation, pursuant to Section 18.2 of the Lease, to purchase all (but not less than all) of the Improvements on the Expiration Date. "Facility" means the manufacturing/office building to be constructed on the Land pursuant to the Construction Agency Agreement as shown on the Plans and Specifications. "Fair Market Sales Value" means 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 all of the Property or the Improvements (without regard to the Land), as applicable. The Fair Market Sales Value of the Improvements shall be determined based on the assumption that, except for purposes of Article XVI of the Lease and Section 13.2 of the Participation Agreement, the Improvements are in the condition and state of repair required under Section 9.1 of the Lease and the Lessee is in compliance with the other requirements of the Operative Documents. "Fixtures" means all fixtures relating to the Improvements, including all components thereof, located in or on the Improvements, together with all replacements, modifications, alterations and additions thereto. "Force Majeure Event" means any event (the existence of which was not known and would not reasonably have been expected to be discovered through the exercise of commercially reasonable due diligence by the Lessee or the Construction Agent, taking into account the contemplated use of the Land and the Construction, prior to the Initial Advance Date) beyond the control of the Lessee, the Construction Agent and any Construction Agency Person, including, but not limited to, strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, government activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's or any Construction Agency Person's financial condition or failure to pay or any -14- APPENDIX 1 87 event, cause or condition which could have been avoided or which could be remedied through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds. "Funding Date" means the tenth Business Day of any calendar month. "Funding Office" means the office of each Participant identified on Schedule VI to the Participation Agreement as its Funding Office. "Funding Request" is defined in Section 3.4(a) of the Participation Agreement. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time consistently applied in accordance with a Person's past accounting practices or concurred in by such Person's independent certified public accountants certifying the relevant audited 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, any Governmental Authority, or required by any Applicable Law, and shall include all environmental and operating permits and licenses that are required 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 Proceeds" means the gross proceeds from the sale of the Property in accordance with Section 20.1 of the Lease without deduction for any marketing, closing, legal or other costs, prorations or commissions. "Gross Proceeds from Improvements" means the portion of the Gross Proceeds allocable to the Improvements, which amount shall be determined based upon the relative cost of the Improvements to the cost of the Land and Improvements. "Ground Lease" means the Ground Lease, dated as of the date hereof, by and between Fore Systems, Inc., as landlord, and the Certificate Trustee, as Tenant. "Guarantor" means FORE Systems, Inc., a Delaware corporation, as guarantor under the Guaranty, and FORE Systems Holding Corporation, a Delaware corporation, as guarantor under the Guaranty Agreement. "Guaranty" means the Guaranty, dated as of the Date, made by the Guarantor in favor of the Lenders and the Certificate Purchaser. "Guaranty Agreement" means the Guaranty Agreement, dated as of the Initial Advance Date, made by FORE Systems Holding Corporation and Lessee in favor of the Lenders and the Certificate Purchaser. -15- APPENDIX 1 88 "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 materially 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 as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law. "Hazardous Condition" means any condition that violates or threatens to violate, or that results in or threatens noncompliance with, any Environmental Law. "Hazardous Substance" means any of the following: (i) any petroleum or petroleum product, 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, harmful or hazardous to the environment or human health or safety, as defined 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 fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever ("Taxes") (including (i) real and personal property taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes, intangible 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 Term), and in each case all interest, additions to tax and penalties thereon, which at any time may be levied, assessed or imposed by any Federal, state or local authority upon or with respect to (a) any Tax Indemnitee, the Property or any part thereof or interest therein, or the Lessee or any sublessee or user of the Property; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, activity conducted on, delivery, insuring, use, operation, improvement, transfer, return or other disposition of such Property or any part thereof or interest therein; (c) the Notes or other indebtedness with respect to the Property or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from the Property or any part thereof or interest therein; (e) the Operative Documents or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Construction Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; (h) the issuance of the Notes; or (i) otherwise in connection with the transactions contemplated by the Operative Documents. -16- APPENDIX 1 89 Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Imposition" shall not mean or include: (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental or property taxes) that are imposed by any Governmental Authority and that are based upon or measured by the gross or net income or gross or net receipts (including any minimum taxes, withholding taxes or taxes on, measured by or in the nature of capital, net worth, excess profits, items of tax preference, capital stock, franchise, business privilege or doing business taxes); provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii) any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs, or relates to a period, after the termination of the Lease (but not any Tax or imposition that relates to any period prior to the termination of the Lease with respect to the Property to which such Imposition relates); (iii) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5(b) of the Participation Agreement, provided that the foregoing shall not limit the Lessee's obligation under Section 13.5(b) of the Participation Agreement to advance to such Tax Indemnitee amounts with respect to Taxes that are being contested in accordance with Section 13.5(b) of the Participation Agreement or any expenses incurred by such Tax Indemnitee in connection with such contest; (iv) any Taxes or impositions imposed upon a Tax Indemnitee with respect to any voluntary transfer, sale, financing or other voluntary disposition of any interest in the Property or any part thereof, or any interest therein or any interest or obligation under the Operative Documents or any Note or Certificates, or from any sale, assignment, transfer or other disposition of any interest in a Tax Indemnitee or any Affiliate thereof, (other than any transfer in connection with (1) the exercise by the Lessee of its Purchase Option or any termination option or other purchase of the Property by the Lessee, (2) the occurrence of a Lease Event of Default or a Loan Agreement Event of Default, (3) a Casualty or Condemnation affecting the Property, or (4) any sublease, modification or addition to the Property by the Lessee); (v) any Taxes or impositions imposed on a Tax Indemnitee, to the extent such Tax Indemnitee actually receives a credit (or otherwise has a reduction in a liability for Taxes) in respect thereof against Taxes that are not indemnified under the Participation Agreement (but only to the extent such credit is not taken into account in calculating the indemnity payment on an After Tax Basis); (vi) any Taxes imposed against or payable by a Tax Indemnitee resulting from, or that would not have been imposed but for, the gross negligence or willful misconduct of such Tax Indemnitee; -17- APPENDIX 1 90 (vii) Taxes imposed on or payable by a Tax Indemnitee to the extent such Taxes 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 the Lessee's breach of its representations, warranties or covenants set forth in the Operative Documents); (viii) Taxes to the extent resulting from such Tax Indemnitee's failure to comply with the provisions of Section 13.5(b) of the Participation Agreement, which failure precludes or materially adversely affects the ability to conduct a contest pursuant to Section 13.5(b) of the Participation Agreement (unless such failure is caused by the Lessee's breach of its obligations); (ix) Taxes which are included in Property Improvements Cost if and to the extent actually paid by Construction Agent; (x) Taxes imposed on or with respect to or payable as a result of activities of a Tax Indemnitee or Affiliate thereof unrelated to the transactions contemplated by the Operative Documents; Notwithstanding the foregoing, the exclusions from the definition of Impositions set forth in clauses (i), (ii), (iv), and (x) (to the extent that any such tax is imposed by its express terms in lieu of or in substitution for a Tax set forth in clauses (i), (ii), (iv), and (x)) above shall not apply (but the other exclusions shall apply) to any Taxes or any increase in Taxes imposed on a Tax Indemnitee net of any decrease in taxes realized by such Tax Indemnitee, to the extent that such tax increase or decrease would not have occurred if on each Funding Date the Lessor and the Lender had advanced funds to the Lessee in the form of a loan secured by the Property in an amount equal to the Property Improvement Cost funded on such Funding Date, with debt service for such loan equal to the Basic Rent payable on each Scheduled Payment Date and a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Loans and Certificate purchaser Amounts at the end of the term of the Lease. "Improvement Costs" shall for purposes of the definition of "Soft Costs" mean the maximum amount of up to Fourteen Million, Two Hundred Ten Thousand and xx/100 Dollars ($14,210,000.00) adjusted from time to time solely as provided in the Construction Agency Agreement. "Improvements" means the Site Work, Facility, Fixtures, Equipment, and other improvements of every kind existing at any time and from time to time (including those constructed pursuant to the Construction Agency Agreement and those purchased with amounts advanced by the Participants pursuant to the Participation Agreement) on or under the Land, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time. "Indemnitee" means the Certificate Trustee, in its individual and its trust capacity, the Lenders, the Certificate Purchaser, their respective Affiliates and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents. -18- APPENDIX 1 91 "Initial Advance Date" is defined in Section 2.2 of the Participation Agreement. "Initial Collateral" has the meaning attributed to it in the Pledge and Security Agreement. "Insurance Requirements" means all terms and conditions of any insurance policy either required by the Lease to be maintained by the Lessee or required by the Construction Agency Agreement to be maintained by the Construction Agent, and all requirements of the issuer of any such policy. "Interest Payment Construction Loan" is defined in Section 2.2 of the Construction Loan Agreement. "Interest Period" means, with respect to any Construction Loan and on and prior to the Refinancing, the Certificate: (a) initially, the period commencing on the funding with respect to such Construction Loan and Certificate and ending on the tenth Business Day of the next succeeding month; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and Certificate and ending any month from one, two, three, six, nine and twelve months thereafter; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Construction Loan Expiration Date shall end on the Construction Loan Expiration Date; (iii) the Lessee shall select Interest Periods so as not to require a payment or prepayment of any Construction Loan during an Interest Period for such Construction Loan; and (iv) any Interest Period in respect of a Certificate shall end on the date the Refinancing is consummated. "Interim Term" is defined in Section 2.3 of the Lease. "Investment Company Act" means the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder. "Land" means the parcel of real property described on Exhibit A to the Lease and all Appurtenant Rights attached thereto. -19- APPENDIX 1 92 "Lease" means the Lease and Open End Mortgage, dated as of the Initial Advance Date, between the Lessor and the Lessee. "Lease Balance" means, as of any date of determination, an amount equal to the sum of the Loan Balance and the Certificate Balance. "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 16.1 of the Lease. "Lenders" means collectively, the Construction Lender together with its successors and assigns from time to time including the Tranche A Lenders and the Tranche B Lenders in connection with the Refinancing. "Lenders Basic Rent" means, as determined as of any Payment Date, the sum of (i) amounts due with respect to scheduled repayments of the principal of the Loans and (ii) the interest due on the Loans, excluding any interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due and any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Basic Rent. "Lenders Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to perfect a security interest in favor of the Lenders in the Equipment located on the Property or in any Improvements on the Property. "Lessee" means Fore Systems, Inc., a Delaware corporation, as lessee or mortgagor under the Lease. "Lessor" means the Certificate Trustee. "Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement. "Lessor Lien" means any Lien against the Property, the Trust Estate, the Lease or any payment of Rent as a result of (a) any act of or Claim against the Lessor, Trust Company or any Participant not resulting from the transactions contemplated by the Operative Documents, or (b) any Claim against the Lessor, Trust Company or any Participant, with respect to Taxes against which Lessee is not required to indemnify Lessor, Trust Company or any Participant, in its individual capacity, pursuant to Article IX of the Participation Agreement. "Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind, including any irrevocable license, conditional sale or other title retention agreement, any lease in the nature thereof, or any other right of or arrangement with any creditor to have its claim satisfied out of any specified property or asset with the proceeds therefrom prior to the satisfaction of -20- APPENDIX 1 93 the claims of the general creditors of the owner thereof, whether or not filed or recorded, or the filing of, or agreement to execute as "debtor", any financing or continuation statement under the Uniform Commercial Code of any jurisdiction or any federal, state or local lien imposed pursuant to any Environmental Law. "Loan Agreement Default" means any event or condition which with notice or lapse of time, or both, would constitute a Loan Agreement Event of Default. "Loan Agreement Event of Default" means a Construction Loan Agreement Event of Default or an event of default under a Refinancing Credit Facility Agreement. "Loan Agreements" means collectively the Construction Loan Agreement and the Refinancing Credit Facility Agreements, or any of them. "Loan Balance" means as of any date of determination the sum of the Construction Loan Balance and, following the Refinancing, the Refinancing Loan Balance. "Loan Documents" means, collectively, the Construction Loan Documents and the Refinancing Loan Documents. "Loans" means, collectively, the Construction Loans and, following the Refinancing, the Refinancing Loans. "Make-Whole Premium" means as at any date a payment with respect to the Certificate, a Tranche A Loan or Tranche B Loan is made prior to [Insert Date of Scheduled Termination of Base Term] the excess, if any, of (i) the present value as at the payment date (determined using a discount rate equal to the Reference Treasury Yield plus 50 basis points) of the sum of the remaining principal of the Loan or Certificate Amounts being prepaid and the amount of interest or yield (exclusive of interest or yield accrued to the date of prepayment) that would have been payable in respect of the principal or Certificate Amount being prepaid if such prepayment had not been made, over (ii) the aggregate principal amount of the Certificate or such Loan then to be so prepaid. To the extent that the Reference Treasury Yield plus the 0.50% at the time of determination of the Make-Whole Premium is equal to or higher than the Certificate Yield Rate or the interest rate on the Loan being prepaid, whichever is applicable, the Make-Whole Premium shall be zero. "Marketable Collateral" means, at any time, any Debt instrument issued by the United States Treasury maturing not more than three (3) years after such time or any certificates of deposit issued by Mellon Bank or investments in Dreyfus Treasury Prime Cash Management or such other money market mutual fund which invests solely in U.S. Treasury Securities acceptable to Mellon Bank. "Marketing Period" means the period commencing on the date 365 days prior to the Expiration Date and ending on the Expiration Date. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $1,000,000. -21- APPENDIX 1 94 "Maximum Guaranteed Amount" means 89.95% of Eligible Project Costs. "Mellon Bank" is defined in the preamble to the Participation Agreement. "Mellon Prime Rate" means the interest rate per annum announced from time to time by Mellon Bank as its prime rate. The Mellon Prime Rate may be greater or less than other interest rates charged by Mellon Bank to other borrowers and is not solely based or dependent upon the interest rate which Mellon Bank may charge any particular borrower or class of borrowers. "Mellon Revolver Facility" means the Revolving Line of Credit Agreement, dated as of September 30, 1997, between Mellon Bank and the Lessee. "Modifications" is defined in Section 10.1(a) of the Lease. "Mortgage" means the Mortgage, dated as of the Initial Advance Date made by the Certificate Trustee in favor of the Lender and satisfactory in form and substance to the Lender in order to create a first priority mortgage lien on the Property. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Net Proceeds" means all amounts paid in connection with any Casualty or Condemnation or any sale of the Property pursuant to Lessor's exercise of remedies under Section 16.2 of the Lease or the Lessee's exercise of the Remarketing Option under Article XX of the Lease, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Lender or the Lessor is entitled to be reimbursed pursuant to the Lease. "Note" is defined in Section 2.3 of the Construction Loan Agreement. "Obligations" means all obligations and liabilities of the Lessee, the Construction Agent, each Guarantor and each other obligor under the Operative Documents, the Refinancing Loan Documents and the Swap Agreement (including, with respect to the Swap Agreement, all rights of the Lessor thereunder). "Operative Documents" means the following: (a) the Participation Agreement; (b) the Lease; (c) the Trust Agreement; (d) the Certificate; (e) the Construction Loan Agreement; (f) the Note; (g) the Guaranty; -22- APPENDIX 1 95 (h) the Pledge and Security Agreement; (i) the Assignment of Leases and Rents; (j) the Deed; (k) the Mortgage; (l) the Construction Agency Agreement; (m) the Assignment of Construction Agency Agreement; (n) the Construction Documents Assignment; (o) the Guaranty Agreement; (p) the Ground Lease; (q) the Memorandum of Ground Lease.. "Original Executed Counterpart" is defined in Section 26.10 of the Lease. "Outside Completion Date" means March 31, 2000. "Overdue Rate" means the lesser of (x) the maximum interest rate then permitted under applicable law and (y) the greater of (A) 12% per annum and (B) the Mellon Prime Rate plus 4%. "Participants" means the Lenders and the Certificate Purchaser, collectively. "Participation Agreement" means the Participation Agreement, dated as of the Documentation Date, among the Lessee, as Lessee, Guarantor, and Construction Agent, the Trust Company, the Certificate Trustee, the Certificate Purchaser, and the Lender. "Payment Date" means (a) any Scheduled Payment Date, (b) any date on which interest or principal is payable pursuant to Section 2.6(c)(ii) of the Construction Loan Agreement in connection with any prepayment of the Construction Loans and any date on which a Refinancing Credit Facility Agreement is prepaid in whole or in part. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means with respect to the Property: (i) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents; (ii) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease; (iii) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 12.1 of the Lease; (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 -23- APPENDIX 1 96 Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts not to exceed $500,000 that either are not more than 30 days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 12.2 of the Lease; (v) Liens of any of the types referred to in clause (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest set forth in Section 12.1 of the Lease; (vii) easements, rights of way and other encumbrances on title to real property pursuant to Section 11.2 of the Lease; (viii) Lessor Liens; (ix) Liens created by the Lessee with the consent of the Lessor; and (x) Liens described on the title insurance policy and consented to by Mellon delivered pursuant to Section 6.1(k) of the Participation Agreement other than Liens described in clause (iv) or (vi) above that are not removed within 30 days of their origination. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental authority or any other entity. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Plans and Specifications" means the plans and specifications for the Construction, as more particularly described in Exhibit B to the Construction Agency Agreement. "Pledge and Security Agreement" means the Pledge and Security Agreement, dated as of the Initial Advance Date, among FORE Systems Holding Corporation, the Lenders, the Certificate Trustee and Mellon Bank, as custodian thereunder. -24- APPENDIX 1 97 "Prime Contractor" means, collectively, Mascaro Incorporated and Penn Transportation or such other Person who shall, with the prior written consent of the Lenders and the Certificate Purchaser, have been designated by the Lessee to act as the prime contractors for purposes of the Construction. "Property" means the Land and all of the Improvements at any time located on or under the Land. "Property Improvements Cost" means out-of pocket costs of the Construction Agent incurred and properly payable under the Construction Agency Agreement in accordance with the Operative Documents, including all Soft Costs and all costs allocable to Site Work. "Purchase Notice" is defined in Section 18.1 of the Lease. "Purchase Option" is defined in Section 18.1 of the Lease. "Purchase Option Price" is defined in Section 18.1 of the Lease. "Qualified Assets" is defined in Section 2(e) of the Pledge and Security Agreement. "Reference Treasury Yield" means, relative to any prepayment of the Tranche A Loans, Tranche B Loans and Certificates, the yield calculated with reference to the rate given (i) on the USD screen of Bloomberg Financial Markets Service at 11:00 a.m., Eastern standard time three Business Days prior to the date of such prepayment, or if such rate is unavailable then (ii) by the Statistical Release No. H.15 (519) then most recently published by the F.R.S. Board three Business Days prior to the date of such prepayment, as the yield, in either case, of a hypothetical U.S. Treasury security with a remaining term equal to the weighted average remaining term to maturity (rounded to the nearest month) of the Loan or Certificate being prepaid in whole or in part. If no maturity exactly corresponds to the weighted average remaining term to maturity of the Tranche A Loans, Tranche B Loans or Certificates, yields for two published maturities most closely corresponding to such weighted average shall be selected in the Statistical Release and the yield shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each period to the nearest month. "Refinancing" means the refinancing of the Construction Loan Balance on or prior to the Base Date pursuant to the Refinancing Loan Documents, which shall be in form and substance satisfactory to Mellon Bank and Mellon Financial Service Corporation #4 in its sole discretion. "Refinancing Credit Facility Agreements" means the loan agreements, credit facilities or other similar extensions of credit entered into by the Lessor, as borrower, with Mellon Bank and Mellon Financial Services Corporation #4, in form and substance satisfactory to such entities in their sole discretion pursuant to one or more such agreements, the proceeds of which are used to repay in full the Construction Loan Balance and all other amounts owing under the Construction Loan Agreement. "Refinancing Loan Balance" means as of the date of determination an amount equal to the sum of the principal amounts outstanding under the Refinancing Credit Facility Agreements. -25- APPENDIX 1 98 "Refinancing Loan Documents" means the Refinancing Credit Facility Agreements, the notes evidencing the Lessor's obligations thereunder and any mortgages, deeds of trust, security agreements, assignments or the similar agreements securing the Lessor's obligations under any Refinancing Credit Facility Agreement. "Refinancing Loans" means the Tranche A Loan or Tranche B Loan or both. "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance that constitutes an Environmental Violation. "Remarketing Option" is defined in Section 20.1 of the Lease. "Remarketing Payments" means any of the following: Gross Proceeds from Improvements, the Termination Rental Amount and any payment made by Lessee pursuant to Section 13.2 of the Participation Agreement. "Renewal Option" is defined in Section 19.1 of the Lease. "Renewal Term" is defined in Section 19.1 of the Lease. "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease. "Requesting Party" is defined in Section 22.1 of the Lease. "Required Modification" is defined in Section 10.1(a) of the Lease. "Required Participants" means those Participants holding an aggregate of 51% of the outstanding Loans and Certificate Amounts. "Requirements of Law" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property, the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. section 1201 et. seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Lease. -26- APPENDIX 1 99 "Responsible Employee" means the Chief Executive Officer, Treasurer, or Chief Financial Officer of the Construction Agent. "Responsible Employee's Certificate" means a certificate signed by any Responsible Employee, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Scheduled Payment Date" means the tenth Business Day of each calendar month during the Interest Period and the last day of each Interest Period, and any date on which a payment is due under a Refinancing Credit Facility Agreement. Each Scheduled Payment Date following the Refinancing should fall on the same date as each "Scheduled Payment Date" as such term is defined in the Existing Lease. "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Security Documents" means the collective reference to the Mortgage, the Assignment of Leases and Rents and the Construction Agency Agreement Assignment, the Guaranty, the Pledge and Security Agreement, and all other security documents hereafter delivered to the Lenders granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Certificate Trustee under any of the Loan Agreements and/or under any of the other Loan Documents. "Shortfall Amount" means, as of the Expiration Date, the amount that the Lease Balance will exceed the Loan Balance upon the completion of a sale of the Improvements pursuant to Article XX of the Lease. "Significant Casualty" means (x) the actual or constructive total loss of the Facility or damage to the Facility to an extent rendering repair impractical or uneconomical, in any case as reasonably determined in good faith and as certified to the Participants by the Board of Directors of the Lessee or (y) damage to the Facility which results in an insurance settlement on the basis of a total loss or a constructive total loss (including title insurance proceeds) in respect of a total loss of the Facility. "Significant Condemnation" means (a) a Condemnation that involves a taking of Lessor's entire title to the Land, or (b) a Condemnation that in the good faith judgment of the Lessee, as certified to the Participants by the Board of Directors of the Lessee, either (i) renders the Facility unsuitable for continued use as property of the type of the Facility or (ii) is such that restoration of the Facility to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible. "Site Work" shall mean all work necessary in connection with the development of the Land and the construction of the Improvements, including, but not limited to, site planning services, grading (including obtaining any necessary slope easement rights from adjacent land owners and installation and proper compaction, reinforcement, and seeding of such slopes), pedestrian and vehicular connections, landscaping, seeding, and planting, storm drainage, utility connections, tap-ins, and extensions, installation of all utility lines, any required off-site improvements not to exceed $50,000.00 coordination and securing of local site utility approvals, securing appropriate zoning approvals, installation, paving, striping, and lighting of all parking areas, installation and lighting of all pedestrian walkways and circulation areas, all as shown on the Plans and Specification submitted by the Lessee. -27- APPENDIX 1 100 "Site Work Costs" shall for purposes of the definition of "Soft Costs" mean the maximum amount of One Million, Five Hundred Eighty-Five Thousand and xx/100 Dollars ($1,585,000.00) "Soft Costs" shall mean all costs contained in the Approved Construction Budget, of whatever kind or nature, of performing the Site Work and the construction of the Improvements (other than the purchase price for the Land and Lessee's costs in connection with the acquisition of the Land, such as the cost of title insurance, the Improvement Costs, and the Site Work Costs), but including Transaction Expenses, engineering costs for Site Work, costs of architects and engineers with respect to inspection of the Construction and the issuance of certificates as provided in the Operative Documents, and sums expended by the Lessee prior to the date hereof properly allocated to or otherwise included in Soft Costs. "Solvent" means with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability taking into account any subrogation and contribution rights. "Submitted Financial Statements" means the financial statements of Fore Systems, Inc. for the fiscal year ended in 1997 which were audited by PriceWaterhouseCoopers, copies of which have been delivered to the Lender. "Sub-Participant" is defined in Section 12.2 of the Participation Agreement. "Subsidiary" of any Person means any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of: (a) the outstanding capital stock having Voting Power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might having Voting Power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture, or -28- APPENDIX 1 101 (c) the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Substantial Completion" means such time as the conditions set forth in Article VII of the Participation Agreement are satisfied with respect to any Facility. "Subtenant" is defined in Section 6.2 of the Lease. "Supplemental Rent" means any and all amounts, liabilities and obligations (other than Basic Rent) which the Certificate Trustee agrees or is otherwise obligated to pay under the Loan Agreement, the Trust Agreement, the Ground Lease or any other Operative Document (whether or not designated as Supplemental Rent) to the Lender, the Certificate Purchaser, or any other Person, including Make-Whole Premiums, indemnities and damages for breach of any covenants, representations, warranties or agreements, or any other amounts designated as Supplemental Rent under the Operative Documents. "Swap Agreement" means any agreement among Lessee, Lessor and/or one or more third parties which has the effect of fixing the Treasury Rate and/or Eurodollar Rate for the Term. "Tangible Net Worth" means, as of any date of determination, all amounts (without duplication) which, in accordance with GAAP, would be included under shareholder's equity on a balance sheet of the Lessee and its Subsidiaries, excluding intangible assets such as patents, copyrights, trademarks, franchises and goodwill. "Tax Indemnitee" means the Lessor, the Certificate Purchaser, the Certificate Trustee, Trust Company and each Participant. "Taxes" is defined in the definition of Impositions. "Tenant Improvement Work" means the performance of finish work for the Improvements to make such Improvements ready for occupancy by the Lessee. "Term" is defined in Section 2.3 of the Lease. "Termination Date" means the earlier of (i) the date as defined in Section 15.2(a) and 16.2(e) of the Lease, and (ii) [the "Termination Date" as such term is defined in the Existing Lease.] "Termination Notice" is defined in Section 15.1 of the Lease. "Termination Rental Amount" means an amount equal to 79.44758% of the aggregate amount of Advances made by Lessor on each Funding Date; provided, however, in the event Lessee is required to make a Supplemental Rent payment in accordance with Section 5.3(h) of the Construction Agency Agreement, the principal amounts of the Tranche A Loans, Tranche B Loans and the Certificate Amount shall be recalculated, such that the Lease may be treated as an operating lease under Statement of Financial Accounting Standards No. 13, to account for any such Supplemental Rent payment and any -29- APPENDIX 1 102 Certificate Yield paid in connection therewith (minus any interest earned on the Money Market Account, as defined in Section 5.1(d) of the Construction Loan Agreement) being minimum lease payments at the inception of the Base Term, with such Supplemental Rent not being in excess of an amount that would cause the Termination Rental Amount as recalculated minus the present value of Certificate Yield payable thereon (plus any interest earned on the Money Market Account) to be less than zero, and the Termination Rental Amount shall equal the principal amount of the Tranche A Loans, as recalculated, and; provided, further, in the event of an Unrelated Indemnity Event, the Termination Rental Amount and all Basic Rent related to the Unrelated Indemnity Event shall be calculated based on the aggregate amount of Advances made by Lessor, but shall not include sums advanced by Lessor for or related to the Unrelated Indemnity Event. "Total Assets" means such term as it appears in the Submitted Financial Statements with respect to any Person, and in subsequent audited financial statements of such entity, determined in accordance with those generally accepted accounting principles applied in the preparation of the Submitted Financial Statements. "Total Capitalization" means the principal amount of all Consolidated Indebtedness plus Consolidated Shareholders' Equity. "Tranche A Lenders" means Mellon Bank. "Tranche A Loans" means any Refinancing Loan other than a Tranche B Loan. "Tranche B Lender" means Mellon Financial Services Corporation #4, a Pennsylvania corporation. "Tranche B Loans" means any Refinancing Loan made by the Tranche B Lender. "Transaction Expenses" means all costs and expenses in connection with the preparation, execution and delivery of the Operative Documents, the Refinancing Loan Documents and the transactions contemplated by the Operative Documents and the Refinancing Loan Documents including: (a) the reasonable fees, out-of-pocket expenses and disbursements of counsel, local counsel and special counsel for each of the Lessor, the Certificate Purchaser, the Certificate Trustee, the Lenders, the Lessee in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents, and the Refinancing Loan Documents and the reasonable initial fees and expenses of the Lessor; (b) the reasonable fees, out-of-pocket expenses and disbursements of any law firm or other external counsel to each of the Lessor, the Certificate Purchaser, the Certificate Trustee, and the Lenders in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee, (2) any enforcement of any rights or remedies against the Lessee or the Guarantor in respect of the Operative Documents and (3) the Refinancing; -30- APPENDIX 1 103 (c) fees relating to residual value insurance obtained by the Lessor or any Participant, not to exceed $3,000; (d) any and all Taxes and fees incurred in recording, registering or filing any Operative Document, Refinancing Loan Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents or the Refinancing Loan Documents, unless the Operative Documents or the Refinancing Loan Documents expressly provide that such Taxes or fees are required to be paid by a Person other than the Lessee; (e) any title fees, premiums and escrow costs and other expenses relating to title insurance and the closings contemplated by the Operative Documents or the Refinancing Loan Documents, and any expenses incurred by the Construction Lender for analysis of the construction costs and inspection of the Property in connection with the Advances, and all premiums for insurance during the Construction Period; (f) all expenses relating to all Environmental Audits and appraisals prepared from time to time under the Operative Documents or the Refinancing Loan Documents; (g) all fees relating to Lenders' Construction Consultant; (h) the initial and ongoing fees and reasonable expenses of the Certificate Trustee and its special counsel; (i) any other reasonable out-of-pocket fees and expenses incurred by any Participant in connection with the negotiation and consummation of the transactions contemplated by the Operative Documents or the Refinancing Loan Documents; (j) fees payable by the Lessee under Sections 4.5 and 4.6 of the Participation Agreement; and (k) all other fees, costs and expenses payable by Lessee under the Operative Documents (except in connection with a Default or Event of Default) not otherwise included as Soft Costs, to the extent amounts are included in the Approved Construction Budget under the heading "Eligible Project Costs Reimbursables". "Transferee" is defined in Section 12.3 of the Participation Agreement. "Treasury Rate" means, relative to the Tranche B Loans, the yield calculated with reference to the rate given (i) on the USD screen of Bloomberg Financial Markets Service at 11:00 a.m., Eastern standard time three (3) Business Days prior to the date the Tranche B Lender advances its Tranche B Loan, or if such rate is unavailable then (ii) by the Statistical Release No. H.15 (519) then most recently published by the F.R.S. Board three (3) Business Days prior to the date the Tranche B Lender advances its Tranche B Loan, as the yield, in either case, of a hypothetical U.S. Treasury security with an interpolated rate, using -31- APPENDIX 1 104 the most actively traded five year and ten year U.S. Treasury securities, with a weighted average remaining term of eight years. "Trigger Event" is defined in Section 2.7 of the Construction Agency Agreement. "Trust" means Brush Creek Business Trust II, a statutory Delaware business trust. "Trust Agreement" means the Amended and Restated Trust Agreement, dated as of the Documentation Date, between the Certificate Purchaser and Trust Company. "Trust Company" means the institution serving as Certificate Trustee or any successor financial institution acting as Certificate Trustee under the Operative Documents, in each case in its individual capacity. "Trust Estate" is defined in Section 1.2(b) of the Trust Agreement. "UCC Financing Statements" means collectively the Lender Financing Statements and the Lessor Financing Statements. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction. "Unrelated Event" means any Construction Agency Event of Default relating to Construction other than a Construction Agency Event of Default resulting from (i) the Willful Act or Omission of any Construction Agency Person, (ii) acts described in Section 16.1(g) or (h) of the Lease, (iii) fraudulent acts of any Construction Agency Person, (iv) illegal acts of any Construction Agency Person or (v) application of funds by any Construction Agency Person except as expressly permitted by the Operative Documents and which, in the case of clause (i) above, could not have been avoided or remedied by the exercise of commercially reasonable efforts by any Construction Agency Person, assuming the availability of Commitments. "Unrelated Indemnity Event" means an event arising from or related to an act or omission of any Person other than a Construction Agency Person which occurs notwithstanding the compliance by all Construction Agency Persons with the provisions of the Operative Documents. "Voting Power" means, with respect to securities issued by any Person, the combined voting power of all securities of such person which are issued and outstanding at the time of determination and which are entitled to vote in the election of directors of such Person, other than securities having such power only by reason of the happening of a contingency. -32- APPENDIX 1 105 "Willful Act or Omission" means an act or omission of any Construction Agency Person which is not the direct result of a Force Majeure Event. -33- APPENDIX 1 EX-10.2 3 FORE SYSTEMS, INC. 1 Exhibit 10.2 ================================================================================ LEASE AND OPEN END MORTGAGE THIS DOCUMENT SECURES FUTURE ADVANCES Dated as of December 14, 1998 between FORE SYSTEMS, INC., as the Lessee and Mortgagor and WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly stated herein, but solely as certificate trustee of BRUSH CREEK BUSINESS TRUST II, as the Lessor and Mortgagee ================================================================================ Construction Program For a Manufacturing/Office Facility in Allegheny County, Pennsylvania ================================================================================ This Lease and Open End Mortgage is subject to a lien in favor of the Lenders under a Construction Loan Agreement dated as of the date hereof, among the Lessee and the Lenders, as amended or supplemented from time to time. This Lease has been executed in several counterparts. To the extent, if any, that this Lease and Open End Mortgage constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on this Lease and Open End Mortgage may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by Mellon Bank, N.A. on or following the signature page hereof. 2 TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I. DEFINITIONS.....................................................3 1.1. Definitions; Interpretation..............................................................................3 ARTICLE II. PURCHASE AND LEASE.............................................3 2.1. Acceptance and Lease of Property.........................................................................3 2.2. Acceptance Procedure.....................................................................................3 2.3. Lease Term...............................................................................................3 2.4. Title....................................................................................................3 2.5. Waiver by Lessor of Lien and Distraint...................................................................4 ARTICLE III. PAYMENT OF RENT...............................................4 3.1. Rent.....................................................................................................4 3.2. Payment of Basic Rent....................................................................................4 3.3. Supplement Rent..........................................................................................4 3.4. Method of Payment........................................................................................5 ARTICLE IV. QUIET ENJOYMENT................................................5 4.1. Quiet Enjoyment..........................................................................................5 ARTICLE V. NET LEASE, ETC..................................................5 5.1. Net Lease................................................................................................5 5.2. No Termination or Abatement..............................................................................6 5.3. No Bar...................................................................................................6 ARTICLE VI. SUBLEASES......................................................6 6.1. Subletting...............................................................................................6 6.2. Assignment of Subleases and Business Interruption Insurance to Lessor....................................7 ARTICLE VII. LESSEE ACKNOWLEDGMENTS.................................................7 7.1. Condition of the Property................................................................................7 7.2. Risk of Loss.............................................................................................8 ARTICLE VIII. POSSESSION AND USE OF THE PROPERTY, ETC........................................8 8.1. Utility Charges..........................................................................................8 8.2. Possession and Use of the Property.......................................................................8 8.3. Compliance with Requirements of Law and Insurance Requirements...........................................8 8.4. Assignment by Lessee.....................................................................................9 ARTICLE IX. MAINTENANCE AND REPAIR; RETURN..........................................9 9.1. Maintenance and Repair; Return...........................................................................9 ARTICLE X. MODIFICATIONS, ETC..............................................9
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10.1. Modifications, Substitutions and Replacements...........................................................9 ARTICLE XI. WARRANT OF TITLE; EASEMENTS............................................10 11.1. Warrant of Title.......................................................................................10 11.2. Grants and Releases of Easements; Lessor's Waivers.....................................................11 ARTICLE XII. PERMITTED CONTESTS....................................................11 12.1. Permitted Contests in Respect of Applicable Law........................................................11 12.2. Permitted Contests in Respect of Real Property Taxes...................................................12 12.3. Joinder of Lessor......................................................................................12 ARTICLE XIII. INSURANCE...................................................12 13.1. Public Liability and Workers' Compensation Insurance...................................................12 13.2. Hazard and Other Insurance.............................................................................13 13.3. Insurance Coverage.....................................................................................13 ARTICLE XIV. CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS.........................................14 14.1. Casualty and Condemnation..............................................................................14 14.2. Environmental Matters..................................................................................16 14.3. Notice of Environmental Matters........................................................................16 ARTICLE XV. TERMINATION OF LEASE..........................................17 15.1. Mandatory Partial or Complete Termination Upon Certain Events..........................................17 15.2. Termination Procedures.................................................................................17 ARTICLE XVI. EVENTS OF DEFAULT............................................18 16.1. Lease Events of Default................................................................................18 16.2. Remedies...............................................................................................20 16.3. Waiver of Certain Rights...............................................................................23 16.4. Ownership of Common Stock..............................................................................23 16.5. Limitation of Recourse During the Interim Term.........................................................24 ARTICLE XVII. LESSOR'S RIGHT TO CURE......................................24 17.1. The Lessor's Right to Cure the Lessee's Lease Defaults.................................................24 ARTICLE XVIII. PURCHASE PROVISIONS.................................................25 18.1. Purchase Option........................................................................................25 18.2. Expiration Date Purchase Obligation....................................................................25 18.3. Acceleration of Purchase Obligation....................................................................25 ARTICLE XIX. RENEWAL TERMS...............................................26 19.1. Renewal................................................................................................26 ARTICLE XX. REMARKETING OPTION.................................................27 20.1. Option to Market.......................................................................................27
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20.2. Certain Obligations Continue...........................................................................29 20.3. Termination of Operative Documents.....................................................................29 ARTICLE XXI. PROCEDURES RELATING TO PURCHASE OR REMARKETING..........................................30 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other Events...................................................30 ARTICLE XXII. ESTOPPEL CERTIFICATES............................................31 22.1. Estoppel Certificates..................................................................................31 ARTICLE XXIII. ACCEPTANCE OF SURRENDER.............................................31 23.1. Acceptance of Surrender................................................................................31 ARTICLE XXIV. NO MERGER OF TITLE.............................................32 24.1. No Merger of Title.....................................................................................32 ARTICLE XXV. INTENT OF THE PARTIES.............................................32 25.1. Ownership of the Property..............................................................................32 25.2. Open-End Mortgage......................................................................................33 ARTICLE XXVI. MISCELLANEOUS..................................................34 26.1. Survival; Severability; Etc............................................................................34 26.2. Amendments and Modifications...........................................................................34 26.3. No Waiver..............................................................................................34 26.4. Notices................................................................................................34 26.5. Successors and Assigns.................................................................................34 26.6. Headings and Table of Contents.........................................................................34 26.7. Counterparts...........................................................................................35 26.8. GOVERNING LAW..........................................................................................35 26.9. Limitations on Recourse................................................................................35 26.10. Original Lease.........................................................................................35 26.11. SUBMISSION OF JURISDICTION.............................................................................35 26.12. POWER TO CONFESS JUDGMENT..............................................................................36 26.13. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING.........................................................36 26.14. No Merger..............................................................................................37 SCHEDULE 1 SCHEDULE 1 TO LEASE AND OPEN END MORTGAGE
iii 5 LEASE AND OPEN END MORTGAGE THIS DOCUMENT SECURES FUTURE ADVANCES THIS LEASE AND OPEN END MORTGAGE (this "Lease"), dated as of December 14, 1998, is between WILMINGTON TRUST COMPANY, a banking corporation organized in the State of Delaware, having an office at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, not in its individual capacity, except as otherwise expressly stated herein, but solely as trustee of BRUSH CREEK BUSINESS TRUST II, as the Lessor and as mortgagee (the "Lessor"), and FORE SYSTEMS, INC., a Delaware corporation, having a principal office at 1000 Fore Drive, Warrendale, Pennsylvania 15086, as the Lessee and as mortgagor (the "Lessee"). W I T N E S S E T H: -------------------- WHEREAS, the Lessee is the owner of the fee simple interest in the Land described on Exhibit A attached hereto and made a part hereof; WHEREAS, pursuant to the terms of the Ground Lease, the Lessee has leased to the Lessor, and the Lessor has leased from the Lessee, the Land; WHEREAS, the Lessor wishes to sublease to the Lessee, and the Lessee wishes to sublease from the Lessor, the Land; WHEREAS, the Lessor wishes to finance the development of certain Improvements on the Land to be used by the Lessee; WHEREAS, pursuant to a Participation Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the "Participation Agreement"), among the Lessee, the Lessor, the Certificate Purchaser and the Construction Lender, the Participants have agreed to finance the development of certain Improvements on the Land to be used by the Lessee; WHEREAS, pursuant to the terms of the Construction Agency Agreement, the Lessee, as Construction Agent, will construct certain Improvements which will be the property of the Lessor and will become part of the Property subject to the terms of this Lease; and NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 2 Lease 6 ARTICLE I DEFINITIONS 1.1. Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Lease have the respective meanings specified in Appendix 1 to the Participation Agreement; and the rules of interpretation set forth in Appendix 1 to the Participation Agreement shall apply to this Lease. ARTICLE II PURCHASE AND LEASE 2.1. Acceptance and Lease of Property. Subject to the terms and conditions of this Lease, on the Initial Advance Date the Lessor shall demise and sublease to the Lessee hereunder for the Term (as hereinafter defined) the Lessor's interest in the Land, and shall demise and lease to the Lessee for the Term the Lessor's interest in the Improvements together with any Improvements which hereafter may be constructed thereon pursuant to the Construction Agency Agreement or this Lease, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to sublease from the Lessor for the Term the Lessor's interest in the Land, and to lease from the Lessor for the Term the Lessor's interest in any Improvements on the Land and in any Improvements on the Land which hereafter may be constructed thereon pursuant to the Construction Agency Agreement or this Lease. 2.2. Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by the Lessee of this Lease shall, without further act, constitute the irrevocable acceptance by the Lessee of all of the Property for all purposes of this Lease and the other Operative Documents on the terms set forth therein and herein, and that all of the Property, together with any Improvements constructed thereon pursuant to the Construction Agency Agreement or this Lease, shall be deemed to be included in the leasehold estate of this Lease and shall be subject to the terms and conditions of this Lease as of the Initial Advance Date. 2.3. Lease Term. This Lease shall commence and be in full force and effect on the Initial Advance Date. The Interim Term (the "Interim Term") shall begin on the Initial Advance Date and shall end on the earlier of (i) the Completion Date and (ii) the Property becoming subject to this Lease pursuant to the last sentence of Section 5.1 of the Construction Agency Agreement. The Base Term (the "Base Term") shall begin on the Base Date and end on the Termination Date, unless the Base Term is renewed or earlier terminated in accordance with the provisions of this Lease (the Interim Term and Base Term, as renewed in accordance with the provisions of this Lease, are referred to collectively as the "Term"); provided, however, that in no event shall the Term end later than the tenth (10th) anniversary of the Termination Date. 2.4. Title. The Property is leased to the Lessee without any representation or warranty, express or implied, by the Lessor and subject to the rights of parties in possession, the existing state of title (including Permitted Liens other than Lessor Liens) and all applicable Requirements of Law. The Lessee shall in no event have any recourse against the Lessor for any defect in or exception to title to the Property other than to the extent resulting from Lessor Liens. 2.5. Waiver by Lessor of Lien and Distraint. The Lessor expressly waives, releases and relinquishes unto the Lessee (i) any and all rights the Lessor has or may have to acquire, perfect or benefit from any statutory or common law lien against any personal property of the Lessee provided to landlords under any Applicable Law and (ii) any and all rights the Lessor has or may have to distraint of the personal property of the Lessee arising from statutory or common law rights provided to landlords under any 3 Lease 7 Applicable Law; provided, however, the foregoing shall in no way negate or otherwise adversely affect any Lien on any Equipment, Fixtures or other property of the Lessee located in the Property for which the Lessee has granted a Lien unto the Lessor pursuant to the Operative Documents. ARTICLE III PAYMENT OF RENT 3.1. Rent. (a) During the Term, the Lessee shall pay Basic Rent on each Payment Date, on the date required under Section 20.1(i) in connection with the Lessee's exercise of the Remarketing Option and on any date on which this Lease shall terminate. Notwithstanding the foregoing, Lessee shall be under no obligation to pay Basic Rent with respect to the Facility prior to the expiration of the Interim Term. (b) Basic Rent shall be due and payable in lawful money of the United States and shall be paid by wire transfer of immediately available funds on the due date therefor to such account or accounts at such bank or banks or to the Lessor or in such other manner as the Lessor shall from time to time direct in a written notice to the Lessee. (c) Neither the Lessee's inability or failure to take possession of all or any portion of the Property when delivered by the Lessor, whether or not attributable to any act or omission of the Lessee or any act or omission of the Lessor, or for any other reason whatsoever, shall delay or otherwise affect the Lessee's obligation to pay Rent for the Property in accordance with the terms of this Lease. 3.2. Payment of Basic Rent. Basic Rent shall be paid absolutely net to the Lessor, so that this Lease shall yield to the Lessor the full amount thereof, without setoff, deduction or reduction. 3.3. Supplement Rent. The Lessee shall pay to the Lessor or the Person entitled thereto any and all Supplemental Rent (including the payment required pursuant to Section 5.3(h) of the Construction Agency Agreement) promptly as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent, the Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall pay to the Lessor, as Supplemental Rent, among other things, on demand, to the extent permitted by applicable Requirements of Law, interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added under any agreement with a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. 3.4. Method of Payment. Each payment of Rent shall be made by the Lessee to the Lessor prior to 11:00 a.m., Eastern standard time at the place of payment in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such 4 Lease 8 payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Payments received after 1:00 p.m., Eastern standard time on the date due shall for the purpose of Section 16.1 hereof be deemed received on such day; provided, however, that for the purposes of the second sentence of Section 3.3 hereof, such payments shall be deemed received on the next succeeding Business Day and, unless the Lessor is otherwise able to invest or employ such funds on the date received, subject to interest at the Overdue Rate as provided in such Section 3.3. ARTICLE IV QUIET ENJOYMENT 4.1. Quiet Enjoyment. Subject to Sections 2.4 hereof and Section 10.1(e) of the Participation Agreement, and subject to the rights of the Lessor contained in Article XV and the other terms of the Operative Documents to which the Lessee is a party, the Lessee shall peaceably and quietly have, hold and enjoy the Property for the Term, free of any claim or other action by the Lessor or anyone claiming by, through or under the Lessor (other than the Lessee) with respect to any matters arising from and after the Initial Advance Date. Such right of quiet enjoyment is independent of, and shall not affect the Lessor's rights otherwise to initiate legal action to enforce, the obligations of the Lessee under this Lease. ARTICLE V NET LEASE, ETC. 5.1. Net Lease. This Lease shall constitute a net lease. Any present or future law to the contrary notwithstanding, this Lease shall not terminate, nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of the Lessee hereunder be affected (except as expressly herein permitted and by performance of the obligations in connection therewith) by reason of: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of the Property or any part thereof, or the failure of the Property to comply with all Requirements of Law, including any inability to occupy or use the Property by reason of such non-compliance; (ii) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of the Property or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of the Property or any part thereof including eviction; (iv) any defect in title to or rights to the Property or any Lien on such title or rights or on the Property; (v) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Lessor or any Participant; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee, the Lessor, any Participant or any other Person, or any action taken with respect to this Lease by any trustee or receiver of the Lessee, the Lessor, any Participant or any other Person, or by any court, in any such proceeding; (vii) any claim that the Lessee has or might have against any Person, including the Lessor, any vendor, manufacturer, contractor of or for any portion of the Property or any Participant; (viii) any failure on the part of the Lessor to perform or comply with any of the terms of this Lease (other than performance by the Lessor of its obligations set forth in Section 2.1 hereof), of any other Operative Document or of any other agreement; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Lease against or by the Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof; (x) the impossibility or illegality of performance by the Lessee, the Lessor or both; (xi) any action by any court, administrative agency or other Governmental Authority; (xii) any restriction, prevention or curtailment of or interference with the construction on or any use of the Property or any part thereof; or (xiii) any other cause or circumstances whether similar or dissimilar to the foregoing and whether or not the Lessee shall have notice or knowledge of any of the foregoing. The parties intend that the obligations of the Lessee hereunder shall be covenants and agreements that are 5 Lease 9 separate and independent from any obligations of the Lessor hereunder or under any other Operative Documents and the obligations of the Lessee shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Lease. 5.2. No Termination or Abatement. The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting the Lessor or any Participant, or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator of the Lessor or any Participant or by any court with respect to the Lessor or any Participant. The Lessee hereby waives all right (i) to terminate or surrender this Lease (except as expressly provided herein) or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Lease in accordance with its terms and the Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions contained in this Lease. 5.3. No Bar. Notwithstanding the foregoing, nothing set forth herein shall bar, limit, preclude, prevent, stay or otherwise adversely affect the Lessee's right or ability to bring and pursue any action for monetary damages against the Lessor or any other Person for any breach or alleged breach of its obligations hereunder. ARTICLE VI SUBLEASES 6.1. Subletting. Lessee agrees to occupy 100% of the Property at all times during the Term and to use the Property for manufacturing, engineering and corporate headquarters office purposes, and for no other use, except as expressly provided in this Section 6.1. The Lessee may not, without the prior written consent of the Lessor (which may be granted or withheld in the sole discretion of the Lessor), sublease (or sub-sublease) or license the Property or any portion thereof to any Person, or permit the Property or any portion thereof to be used or occupied by any other Person. Any such sublease or attempted sublease of the Property or any portion thereof without the prior written consent of the Lessor shall be void and of no force or effect. Except as expressly set forth in this Section 6.1, the Lessee may, without the consent of the Lessor, sublease space in the Facility, provided that the aggregate amount of such subleased space does not exceed 33% of the aggregate space in the Facility, and provided that (i) no Lease Event of Default shall have occurred and be continuing, (ii) the proposed subtenant shall have a financial standing, be of a character, be engaged in a business, and propose to use the Property in a manner in keeping with the standards set forth in this Lease, (iii) the character of the business to be conducted or the proposed use of the Facility by the proposed subtenant shall not violate any provision or restrictions herein relating to the use or occupancy of the Property, (iv) the subletting shall be expressly subject to all of the terms, covenants, conditions and obligations on Lessee's part to be observed and performed under this Lease and the further condition and restriction that the sublease shall not be assigned, encumbered or otherwise transferred or the subleased premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the subtenant to be used or occupied by others, without the prior written consent of the Lessor in each instance, which may be withheld in the Lessor's sole discretion, (v) the subletting shall end no later than one (1) day before the Expiration Date, and (vi) at no time shall there be more than four (4) occupants, including the Lessee, in the Facility. No sublease or other relinquishment of possession of the Property shall in any way discharge or diminish any of the Lessee's obligations to the Lessor hereunder and the Lessee shall remain directly and primarily liable under this Lease as to the 6 Lease 10 Property, or portion thereof, so sublet. Any sublease of the Property shall expressly be made subject to and subordinated to this Lease and to the rights of the Lessor hereunder. 6.2. Assignment of Subleases and Business Interruption Insurance to Lessor. To secure the prompt and full payment by the Lessee of the Rent, the Lessee hereby assigns to the Lessor, subject to the conditions hereinafter set forth, all of the Lessee's right, title and interest in and to all subleases affecting the Property and all rents, issues and profits accruing thereunder, and all guarantees and security deposits with respect to such subleases, and the Lessee hereby confers upon the Lessor, the Lenders, the Certificate Purchaser and their respective agents and representatives, a right of entry in, and sufficient possession of, the Property to permit and insure the collection by the Lessor of the rentals and other sums payable under such subleases together with the proceeds of any business interruption insurance maintained as provided under Section 13.2 hereof; provided, however, that such assignment, although presently effective, is given solely as security, and the Lessor hereby irrevocably waives the right to exercise the Lessor's rights pursuant to this Section until and unless a Lease Event of Default shall occur and be continuing. The Lessee hereby irrevocably directs each tenant under any such sublease (each, a "Subtenant") to pay to the Lessor the rentals or other sums payable under such Subtenant's sublease when, as and if directed to do so by the Lessor in a written notice to such Subtenant in which the Lessor shall certify that a Lease Event of Default shall have occurred and be continuing under this Lease. The Lessee hereby irrevocably notifies and directs each Subtenant to pay such amounts to the Lessor in the event such Subtenant receives any such notice from the Lessor, and the Lessee hereby irrevocably waives any claims for non-payment of such rentals or other sums that might arise as a result of such payments to the Lessor. The exercise of the Lessor's right of entry under this Section shall not constitute an eviction of the Lessee from the Property or any portion thereof. ARTICLE VII LESSEE ACKNOWLEDGMENTS 7.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE LESSOR WILL OWN AND HOLD TITLE TO THE IMPROVEMENTS, THE CONSTRUCTION AGENT IS SOLELY RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN, DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR, TRUST COMPANY, THE CERTIFICATE PURCHASER OR THE LENDERS AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF OR ON THE INITIAL ADVANCE DATE. NEITHER THE LESSOR, TRUST COMPANY, THE CERTIFICATE PURCHASER NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER THE LESSOR, TRUST COMPANY, THE CERTIFICATE PURCHASER NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER 7 Lease 11 THAN FOR LESSOR LIENS) OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW. 7.2. Risk of Loss. During the Term the risk of loss of or decrease in the enjoyment and beneficial use of the Property as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee, and the Lessor shall in no event be answerable or accountable therefor. ARTICLE VIII POSSESSION AND USE OF THE PROPERTY, ETC. 8.1. Utility Charges. The Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on the Property during the Term. The Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by the Lessee and the amount of any credit or refund received by the Lessor on account of any utility charges paid by the Lessee, net of the costs and expenses reasonably incurred by the Lessor in obtaining such credit or refund, shall be promptly paid over to the Lessee. 8.2. Possession and Use of the Property. The Property shall be used in a manner consistent with the Construction Agency Agreement and, after the Base Date, as a first class manufacturing, engineering and corporate headquarters office facility, and for no other purpose, and in a manner consistent with the standards applicable to properties of a similar nature in the geographic area in which the Facility is located. Lessee (or its sublessees in accordance with Section 6.1) shall continuously use and occupy substantially all of the useable area of the Facility during the Term. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Property as contemplated by this Lease and the Construction Agency Agreement. The Lessee shall not commit or permit any waste of the Property or any part thereof. 8.3. Compliance with Requirements of Law and Insurance Requirements. Subject to the terms of Article XII relating to permitted contests, the Lessee, at its sole cost and expense, shall (a) comply in all respects with all Requirements of Law (including all Environmental Laws) and Insurance Requirements relating to the Property, including the use, construction, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XX, whether or not compliance therewith shall require structural or extraordinary changes in the Improvements or interfere with the use and enjoyment of the Property, and (b) procure, maintain and comply in all respects with all licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, maintenance and operation of the Property and for the use, operation, maintenance, repair and restoration of the Improvements. 8.4. Assignment by Lessee. The Lessee may not assign this Lease or any of its rights or obligations hereunder in whole or in part to any Person. ARTICLE IX MAINTENANCE AND REPAIR; RETURN 9.1. Maintenance and Repair; Return. (a) The Lessee, at its sole cost and expense, shall maintain the Property in a first class condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind 8 Lease 12 and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Requirements of Law and Insurance Requirements and on a basis consistent with the operation and maintenance of properties comparable in type and location to the Property. (b) The Lessor shall under no circumstances be required to build any improvements on the Property, make any repairs, replacements, alterations or renewals of any nature or description to the Property, make any expenditure whatsoever in connection with the Property (other than for Advances made in accordance with and pursuant to the terms of the Participation Agreement and the other Operative Documents) or maintain the Property in any way. The Lessor shall not be required to maintain, repair or rebuild all or any part of the Property, and the Lessee waives any right to (i) require the Lessor to maintain, repair, or rebuild all or any part of the Property, or (ii) make repairs at the expense of the Lessor pursuant to any Requirement of Law, Insurance Requirement, contract, agreement, or covenant, condition or restriction in effect at any time during the Term. (c) The Lessee shall, upon the expiration or earlier termination of this Lease, vacate and surrender such Property to the Lessor in its then-current, "AS IS" condition, subject to the Lessee's obligations under Sections 8.3, 9.1(a), 10.1, 11.1, 14.1(d), 14.2 and 20.1 of this Lease, unless the Lessee has purchased the Property from the Lessor as provided herein. ARTICLE X MODIFICATIONS, ETC. 10.1. Modifications, Substitutions and Replacements. The Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to the Property or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that: (i) except for any Modification required to be made pursuant to a Requirement of Law or an Insurance Requirement (a "Required Modification"), no Modification shall impair the value, utility or useful life of the Property or any part thereof from that which existed immediately prior to such Modification; (ii) the Modification shall be done expeditiously and in a good and workmanlike manner; (iii) the Lessee shall comply with all Requirements of Law (including all Environmental Laws) and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy, and the structural integrity of the Property shall not be materially adversely affected; (iv) subject to the terms of Article XII relating to permitted contests, the Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within thirty (30) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification; (v) such Modifications shall comply with Sections 8.3 and 9.1(a); and (vi) the Lessee shall be required to obtain the prior written approval of the Lessor, which approval shall not be unreasonably withheld, with respect to any alterations (other than Required Modifications and/or alterations authorized by the Construction Agency Agreement) that shall (A) affect any structural element of the Improvements or any major building system and cost in excess of $500,000 or (B) materially change the nature of the Facility or the amount of usable area therein or the utility thereof for the purposes contemplated by the Lessor and the Lessee as of the date hereof. All Modifications shall remain part of the realty and shall be subject to this Lease and title thereto shall immediately vest in the Lessor; provided, however, that Modifications that (x) are not Required Modifications and (y) were not financed by the Lessor and are readily removable without impairing the value, utility or remaining useful life of the Property shall be the property of the Lessee and shall not be subject to this Lease. So long as no Lease Event of Default has occurred and is continuing, the Lessee may place upon the Property any trade 9 Lease 13 fixtures, machinery, equipment or other property belonging to the Lessee or third parties and may remove the same at any time during the Term, subject, however, to the terms of Section 9.1(a); provided that such trade fixtures, machinery, equipment or other property do not materially impair the value, utility or remaining useful life of the Property; provided, further, that the Lessee shall keep and maintain at the Property and shall not remove from the Property any Equipment financed or otherwise paid for (directly or indirectly) by the Lessor, the Certificate Purchaser or any Lender pursuant to the Participation Agreement. ARTICLE XI WARRANT OF TITLE; EASEMENTS 11.1. Warrant of Title. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XII relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon the Property or any Modifications or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by the Lenders pursuant to the Loan Agreement or the other Loan Documents, other than Lessor Liens, Permitted Liens and Liens on machinery, equipment, general intangibles and other personal property not financed by the proceeds of the Loans or Certificate Amounts. (b) Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, TRUST COMPANY, THE CERTIFICATE PURCHASER NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR, THE CERTIFICATE PURCHASER OR ANY LENDER IN AND TO THE PROPERTY. 11.2. Grants and Releases of Easements; Lessor's Waivers. Provided that no Lease Event of Default shall have occurred and be continuing and subject to the provisions of Articles VII, IX and X and Section 8.3 the Lessor hereby consents in each instance (and shall obtain the consent of any Lenders as may reasonably be requested by the Lessee) to the following actions by the Lessee, in the name and stead of the Lessor, but at the Lessee's sole cost and expense: (a) the granting of easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the use, repair, or maintenance of the Property as herein provided; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of the Property; (c) if required by applicable Governmental Authority in connection with the Construction, the dedication or transfer of unimproved portions of the Property for road, highway or other public purposes; and (d) the execution of amendments to any covenants and restrictions affecting the Property; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not impair the value, utility or remaining useful life of the Property, (ii) such grant, release, dedication, transfer, annexation or amendment is reasonably necessary in connection with the use, maintenance, alteration or improvement of the Property, (iii) such grant, release, dedication, transfer, annexation or amendment will not cause the Property or any portion thereof to fail to 10 Lease 14 comply in any respect with the provisions of this Lease or any other Operative Documents and all Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements); (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer, annexation or amendment have been obtained, and all filings required prior to such action have been made; (v) such grant, release, dedication, transfer, annexation or amendment will not result in any down-zoning of the Property or any portion thereof or a material reduction in the maximum density or development rights available to the Property under all Requirements of Law; (vi) the Lessee shall remain obligated under this Lease and under any instrument executed by the Lessee consenting to the assignment of the Lessor's interest in this Lease as security for indebtedness, in each such case in accordance with their terms, as though such grant, release, dedication, transfer, annexation or amendment had not been effected and (vii) the Lessee shall pay and perform any obligations of the Lessor under such grant, release, dedication, transfer, annexation or amendment. The Lessor acknowledges the Lessee's right to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements and other personal property located at the Property other than Equipment, and Lessor agrees to execute from time to time Lessor waiver forms in favor of any purchase money seller, lessor or lender which has financed or may finance in the future such items. Without limiting the effectiveness of the foregoing, provided that no Lease Event of Default shall have occurred and be continuing, the Lessor shall, upon the request of the Lessee, and at the Lessee's sole cost and expense, execute and deliver (and cause the Lenders to execute and deliver) any instruments necessary or appropriate to confirm any such grant, release, dedication, transfer, annexation or amendment to any Person permitted under this Section 11.2 including landlord waivers with respect to any of the foregoing. ARTICLE XII PERMITTED CONTESTS 12.1. Permitted Contests in Respect of Applicable Law. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law relating to the Property shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not, in the reasonable opinion of the Lessor, the Lenders and the Certificate Purchaser, involve (A) any risk of criminal liability being imposed on the Lessor, Trust Company, the Lenders, the Certificate Purchaser or the Property, or (B) any material risk of (1) foreclosure, forfeiture or loss of the Property, or any material part thereof, or (2) the nonpayment of Rent or (C) any risk of (1) the sale of, or the creation of any Lien (other than a Permitted Lien) on, any part of the Property, (2) material civil liability being imposed on the Lessor, Trust Company, the Certificate Purchaser, any Lender or the Property, or (3) enjoinment of, or interference with, the use, possession or disposition of the Property in any material respect. 12.2. Permitted Contests in Respect of Real Property Taxes. Notwithstanding anything to the contrary contained in Article XIII of the Participation Agreement or any other provision of any Operative Documents, Lessee shall have the absolute right to contest, appeal or otherwise challenge (i) any assessment of the Property for real property Tax imposed by any Governmental Authority, (ii) the millage rates imposed for real property Tax by any Governmental Authority, (iii) the allocation of the items constituting real property and personal property included within the Property made by any Governmental Authority in connection with such real property Tax and (iv) the uniformity or constitutionality of such real property Tax; provided, however, (A) such contest is diligently pursued and prosecuted in good faith to 11 Lease 15 completion by the Lessee, (B) no Lease Event of Default has occurred and is continuing, (C) the Property is not subject to imminent foreclosure or sale by any Governmental Authority and (D) neither the Lessor nor any Participant will be subject to criminal liability or any material civil liability in connection with such contest, appeal or challenge. 12.3. Joinder of Lessor. The Lessor will not be required to join in any proceedings pursuant to this Article XII unless a provision of any Applicable Law requires, or, in the good faith opinion of the Lessee, it is helpful to the Lessee, that such proceedings be brought by or in the name of the Lessor; and in that event the Lessor will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) no Lease Event of Default or Lease Default has occurred and is continuing and (ii) the Lessee pays all related expenses and indemnifies the Lessor and the Participants to the satisfaction of the respective indemnitees. ARTICLE XIII INSURANCE 13.1. Public Liability and Workers' Compensation Insurance. (a) During the Term the Lessee shall procure and carry, at the Lessee's sole cost and expense, and shall cause each contractor to procure and carry, commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on the Property and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates who own or operate similar properties. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by the Lessee or its Affiliates with respect to similar properties that they own and that are in accordance with normal industry practice, but in any case shall provide liability coverage of at least $5,000,000 per person, $10,000,000 per occurrence and $5,000,000 for property damage per occurrence. The policy shall be endorsed to name the Lessor, Trust Company, the Certificate Purchaser and the Lenders as additional insureds. The policy shall also specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which the Lessor, Trust Company, the Certificate Purchaser or the Lenders may have in force. (b) The Lessee shall, in the construction of the Improvements (including in connection with any Modifications thereof) and the operation of the Property, comply with the applicable workers' compensation laws. 13.2. Hazard and Other Insurance. During the Term the Lessee shall keep, or cause to be kept, the Property insured against loss or damage by fire and other risks on terms and in amounts that are no less favorable than insurance covering other similar properties owned by the Lessee or its Affiliates and that are in accordance with normal industry practice, but in any event in amounts not less than the then full insurable value (actual replacement value) of the Improvements and Equipment. During the construction of any Improvements the Lessee shall also maintain or cause to be maintained builders' risk insurance in form and substance as set forth on Schedule 1, together with such additional requirements to the extent comparable to the insurance required for projects similar to the construction contemplated by the Operative Documents. All insurance proceeds in respect of any loss or occurrence for which the proceeds related thereto are (i) less than or equal to $1,000,000, in the absence of the occurrence and continuance of an Event of Default, shall be adjusted by and paid to the Lessee for application toward the reconstruction, repair or refurbishment of the Property and (ii) greater than $1,000,000, shall be adjusted jointly by the Lessee and the Lessor (unless an Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by the Lessor) and held by the Lessor for application in accordance with 12 Lease 16 Article XIV hereof. In addition, the Lessee shall at all times during the Term maintain business interruption insurance payable in an aggregate amount not less than $10,000,000. 13.3. Insurance Coverage. (a) The Lessee shall furnish the Lessor, the Certificate Purchaser and the Lenders with certificates showing the insurance required under Sections 13.1 and 13.2 to be in effect and naming the Lessor, Trust Company, the Certificate Purchaser and the Lenders as additional insureds with respect to liability coverage (excluding worker's compensation insurance), naming the Lenders, the Lessor, the Certificate Purchaser and the Lessee as their interests may appear with respect to casualty coverage and naming the Lenders as loss payee with respect to casualty coverage and showing the mortgagee endorsement required by Section 13.3(c) with respect to such coverage. All such insurance shall be maintained at the cost and expense of the Lessee, except that during the Interim Term such insurance shall be maintained at the cost and expense of the Lessor. Such certificates shall include a provision for no less than thirty (30) days' advance written notice by the insurer to the Lessor and the Lenders in the event of cancellation or reduction of such insurance. In addition, the Lessee shall cause the Lessor, the Trust Company, the Certificate Purchaser and the Lenders as additional insureds under all liability policies maintained with respect to the Construction. (b) The Lessee agrees that the insurance policy or policies required by Section 13.2, shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should the Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy, and that the insurance in favor of the Lessor, Trust Company, the Certificate Purchaser and the Lenders and their respective rights under and interests in said policies shall not be invalidated or reduced by any act or omission or negligence of the Lessee or any other Person having any interest in the Property. The Lessee hereby waives any and all such rights against the Lessor, Trust Company, the Certificate Purchaser and the Lenders to the extent of payments made under such policies. (c) Except as otherwise permitted by clause (d), all such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by the Lessee shall have a general policyholder rating of "A" and a financial rating of at least "12" or (if not so rated) be otherwise reasonably acceptable to the Lenders and the Certificate Purchaser. All insurance policies required by Section 13.2 shall include a standard form mortgagee endorsement in favor of the Lenders. (d) The Lessee may meet the requirements of this Article XIII with respect to liability and worker's compensation insurance through one or more policies covering more than one location of Lessee. Except during the Interim Term, the Lessee may meet the requirements of this Article XIII with respect to worker's compensation insurance through a self-insurance program of the Lessee and its Affiliates. (e) The Lessor shall not carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XIII except that the Lessor may carry separate liability insurance so long as (i) the Lessee's insurance is designated as primary and in no event excess or contributory to any insurance the Lessor may have in force which would apply to a loss covered under the Lessee's policy and (ii) each such insurance policy 13 Lease 17 will not cause the Lessee's insurance required under this Article XIII to be subject to a coinsurance exception of any kind. (f) Except during the Interim Term, the Lessee shall pay as they become due all premiums for the insurance required by Section 13.1 and Section 13.2, and shall renew or replace each policy prior to the expiration date thereof. Throughout the Term, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), the Lessee shall deliver to the Lessor, the Certificate Purchaser and the Lenders certificates of insurance evidencing that all insurance required by this Article XIII is being maintained by the Lessee and is in effect. (g) The Lessee agrees that notwithstanding anything to the contrary in this Article XIII, during the Interim Term, the insurance policy or policies required by Section 13.1 and 13.2 shall not (i) be funded by a program of self-insurance (or any similar funding mechanism), and (ii) carry any deductible or similar co-payment of any kind in excess of $1,000. During the Interim Term, the amount of any deductibles permitted under this clause (g) shall be paid through Advances to the extent available under the Approved Construction Budget, including contingencies listed therein to the extent not previously utilized. ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 14.1. Casualty and Condemnation. (a) Subject to the provisions of this Article XIV, if all or a portion of the Facility is subject to a Casualty or if the use, access, occupancy, easement rights or title to the Facility or any part thereof, is the subject of a Condemnation, then (i) in the case of any Casualty where the cost of restoration of the Facility is less than or equal to $1,000,000, any insurance proceeds payable with respect to such Casualty shall be paid directly to the Lessee, or if received by the Lessor or the Lenders, shall be paid over to the Lessee for the reconstruction, refurbishment and repair of the Facility, (ii) in the case of any Casualty not constituting a Significant Casualty where the cost of restoration of the Facility is greater than $1,000,000, any insurance proceeds payable with respect to such Casualty shall be paid directly to the Lessor, and at the option of the Lessee (x) to be applied, in accordance with the then prevailing construction loan guidelines of the Lenders, to reimburse the Lessee for the reconstruction, refurbishment and repair of the Facility, or (y) to be applied toward the payment of the Lease Balance with respect to the Facility, (iii) in the case of a Significant Casualty, any insurance proceeds payable with respect to such Casualty shall be paid to the Lenders to be applied in the Lenders' discretion to the restoration of the Facility or toward the payment of the Lease Balance with respect to the Facility and (iv) in the case of a Condemnation of any part of the Land (not including the Facility) that does not render the Facility unsuitable for continued use as property of the type of the Facility immediately prior to such Condemnation, any award or compensation relating thereto shall be paid to the Lessee and in the case of all other Condemnations such award or compensation shall be paid to the Lenders to be applied in their reasonable discretion to the restoration of the Property or toward the payment of the Lease Balance; provided, however, that if a Lease Event of Default shall have occurred and be continuing, all such awards, compensation or insurance proceeds shall be paid directly to the Lenders or, if received by the Lessee, shall be held in trust for the Lenders, and shall be paid over by the Lessee to the Lenders (or, if the Loans have been fully paid, to the Lessor). If, contrary to such provision, any such award, compensation or insurance proceeds are paid to the Lessee or the 14 Lease 18 Lessor rather than to the Lenders, the Lessee and the Lessor, as the case may be, hereby agree to transfer any such payment to the Lenders. All amounts held by the Lessor or the Lenders when a Lease Event of Default exists hereunder on account of any award, compensation or insurance proceeds either paid directly to the Lessor or the Lenders or turned over to the Lessor or the Lenders shall either be (i) paid to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with paragraph (d) of this Section 14.1, or (ii) applied to the purchase price of the Facility on the date of purchase pursuant to Section 15.1 hereof or the Lessor's remedies pursuant to Article XVI hereof, with any Excess Proceeds being payable to the Lessee. (b) The Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At the Lessee's reasonable request, and at the Lessee's sole cost and expense, the Lessor and the Lenders shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Lessor and the Lessee agree that this Lease shall control the rights of the Lessor and the Lessee in and to any such award, compensation or insurance payment. (a) If the Lessor or the Lessee shall receive notice of a Casualty or of an actual, pending or threatened Condemnation of the Facility or any interest therein, the Lessor or the Lessee, as the case may be, shall give notice thereof to the other and to the Lenders promptly after the receipt of such notice. (d) If pursuant to this Section 14.1 and Section 15.1 this Lease shall continue in full force and effect following a Casualty or Condemnation with respect to the Facility, the Lessee shall, at its sole cost and expense (and, without limitation, if any award, compensation or insurance payment is not sufficient to restore the Facility in accordance with this paragraph, the Lessee shall pay the shortfall[, subject in all events to Section 14.1(g) below]), promptly and diligently repair any damage to the Facility caused by such Casualty or Condemnation in conformity with the requirements of Sections 9.1 and 10.1 using the as-built Plans and Specifications for the Facility (as modified to give effect to any subsequent Modifications, any Condemnation affecting the Facility and all applicable Requirements of Law) so as to restore the Facility to at least the same operation, use and value as existed immediately prior to such Casualty or Condemnation with such Modification as the Lessee may elect in accordance with Section 10.1. In such event, title to the Facility shall remain with the Lessor. Upon completion of such restoration, the Lessee shall furnish the Lessor an architect's certificate of substantial completion and a Responsible Employee's Certificate confirming that such restoration has been completed pursuant to this Lease. (e) In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its obligations and pay any amounts due on the Expiration Date or pursuant to Articles XVIII and XXI. (f) Absent a Lease Event of Default, Excess Proceeds received by the Lessor or the Lenders in respect of a Casualty or Condemnation shall be turned over to the Lessee. (g) Notwithstanding any provision to the contrary contained herein (including in Article XV) or in the other Operative Documents, should a Casualty or Condemnation occur during the Interim Term (A) as the result of an Unrelated Indemnity Event, such Casualty or Condemnation shall not be an Event of Default under any Operative Document and such Casualty or Condemnation shall not give rise to any obligation on the part of the Lessee, Construction, Holding 15 Lease 19 or Guarantor under any indemnity obligation under the Operative Documents, including under Article XIII of the Participation Agreement or (B) as the result of a non-willful act or omission of any Construction Agency Person, Lessee, Construction Agent, Holding and Guarantor shall not be required to pay more than the Maximum Guaranteed Amount on a recourse basis for any damages or other payments arising from such Casualty or Condemnation. Notwithstanding any provision to the contrary in the Operative Documents, during the Interim Term in the event of a Casualty or Condemnation covered in Section 14.1(g)(A), all proceeds shall be paid to the Participants and distributed pursuant to the Construction Loan Agreement and all negotiating and adjustments with any insurance company or Governmental Authority shall be conducted solely by the Participants. The Lessee shall have no right to participate in or be included in any way in such proceeds, negotiations or adjustments. 14.2. Environmental Matters. Promptly upon the Lessee's actual knowledge of the existence of an Environmental Violation, the Lessee shall notify the Lessor in writing of such Environmental Violation. If the Lessor elects not to terminate this Lease pursuant to Section 15.1, at the Lessee's sole cost and expense, the Lessee shall promptly and diligently commence any response, clean up, remedial or other action necessary to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 8.3. If the Lessor does not deliver a Termination Notice with respect to such Property pursuant to Section 15.1, the Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessor a report describing the Environmental Violation and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in compliance in all respects with applicable Environmental Law. Nothing in this Article XIV shall reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3 of the Participation Agreement. 14.3. Notice of Environmental Matters. Promptly, but in any event within ten (10) Business Days after the date the Lessee has actual knowledge thereof, the Lessee shall provide to the Lessor written notice of any material pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with the Property. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and the Lessee's proposed response thereto. In addition, the Lessee shall provide to the Lessor, within ten (10) Business Days of receipt, copies of all material written communications with any Governmental Authority relating to any Environmental Violation in connection with the Property. The Lessee shall also promptly provide such detailed reports of any such material environmental claims as may reasonably be requested by the Lessor, the Lenders or the Certificate Purchaser. In the event that the Lessor receives written notice of any material pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with the Property, the Lessor shall promptly give notice thereof to the Lessee. ARTICLE XV TERMINATION OF LEASE 15.1. Mandatory Partial or Complete Termination Upon Certain Events. Subject to the provisions of Section 14.1(g), if either: (a) a Significant Condemnation occurs; or (b) a Significant Casualty occurs; or 16 Lease 20 (c) an Environmental Violation is discovered the cost of remediation of which would exceed $100,000, and the Lessee has not within ten (10) Business Days of such discovery of such Environmental Violation deposited with the Custodian (x) additional cash in the Collateral Account in an amount equal to the anticipated cost of the remediation (which anticipated cost shall be subject to review and adjustment by the Participants after consultation with an environmental engineer) of such Environmental Violation, together with an amount equal to any other costs and expenses which are reasonably likely to be incurred in connection with such Environmental Violation, or (y) in lieu of cash in the amounts described in clause (x) above, Marketable Collateral having a Collateral Value equivalent to the amount of cash required to be deposited in accordance with clause (x); or (d) an Environmental Violation occurs or is discovered the cost of remediation of which would exceed $5,000,000; and the Lessor shall have given written notice to the Lessee that the Lease is to be terminated with respect to the Facility as a consequence of the occurrence of such an event (a "Termination Notice"), then, the Lessee shall be obligated to purchase the Lessor's interest in the Facility on or prior to the date occurring thirty (30) days after the date of the Termination Notice by paying the Lessor an amount equal to the Lease Balance and any Supplemental Rent (exclusive of the Make-Whole Premium in connection with a termination as the result of an occurrence under clause (a) or (b) above, and with a Make-Whole Premium in connection with a termination as the result of an occurrence under clause (c) or (d) above) then due and payable. 15.2. Termination Procedures. On the date of the payment by the Lessee of the entire Lease Balance and any accrued but unpaid interest and yield in accordance with Section 15.1 (such date, the "Termination Date"), this Lease shall terminate with respect to the Facility and, concurrent with the Lessor's receipt of such payment, (a) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a quitclaim deed with respect to the Facility, an assignment (without recourse, representation or warranty by the Lessor other than as to the absence of Lessor Liens) of the Lessor's interest in and to the Ground Lease, a quitclaim bill of sale with respect to the Equipment and an assignment of the Lessor's entire interest in the Facility (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds not previously received by the Lessor and existing subleases and security deposits thereunder), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Mortgage and any Lessor Liens attributable to the Lessor; (b) the Facility shall be conveyed to such Person "AS IS" and in its then present physical condition; and (c) in the case of a termination pursuant to clause (a) or (b) of Section 15.1, the Lessor shall convey to the Lessee any Net Proceeds with respect to the Casualty or Condemnation giving rise to the termination of this Lease theretofore received by the Lessor or at the request of the Lessee, such amounts shall be applied against sums due hereunder. 17 Lease 21 ARTICLE XVI EVENTS OF DEFAULT 16.1. Lease Events of Default. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Lease Event of Default" and a "Lease Event of Default" as such term is defined in the Existing Lease: (a) the Lessee shall fail to make payment of (i) any Basic Rent after the same has become due and payable or (ii) any Purchase Option Price, Loan Balance or Lease Balance, including amounts due pursuant to Section 15.1, 18.1, 18.2, 18.3 or 20.1; provided, however, that the failure to make any payment described in clause (i) or (ii) shall not constitute a Lease Event of Default so long as (x) such payment is made within five (5) days of the date such payment is due and payable, (y) such failure shall not have occurred more than five (5) times during the Term, and (z) such failure shall not have occurred for more than two consecutive payments due under this Lease; or (b) the Lessee shall fail to make payment of any Supplemental Rent (other than Supplemental Rent referred to in clause (a) of this Section) due and payable within five (5) Business Days after receipt of notice thereof; or (c) the Lessee shall fail to maintain insurance as required by Article XIII of this Lease or shall violate the observance of its obligations under Sections 6.1 or 8.2 hereof, or under Section 10.3 of the Participation Agreement; or (d) The Lessee shall fail to observe or perform any term, covenant or condition of the Lessee under this Lease or the Participation Agreement other than those described in Section 16.1(a), (b) or (c) hereof, or shall fail to perform or observe in any respect any covenant, condition or agreement to be performed or observed by it under any other Operative Document (except those described in the parenthetical of Section 16.1(f)), and, in each such case, such failure shall have continued for thirty (30) days after the earlier of (i) delivery to the Lessee of written notice thereof from Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge of such failure; provided, however, that if such failure is capable of cure but cannot be cured by payment of money or cannot be cured by diligent efforts within such thirty (30)-day period but such diligent efforts shall be properly commenced within the cure period and the Lessee is diligently pursuing, and shall continue to pursue diligently, remedy of such failure, the cure period shall be extended for an additional period of time as may be necessary to cure not to exceed an additional one hundred fifty (150) days or to extend beyond the Expiration Date; provided further, that failure by the Lessee to fully comply with the requirements of Section 20.1 hereof shall not be subject to any cure period; or (e) any representation or warranty made by the Lessee in any of the Operative Documents shall prove to have been inaccurate in any material respect at the time made, and if such inaccuracy can be cured, it shall not have been cured within forty-five (45) days, after the earlier of (i) delivery to the Lessee of written notice thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge of such inaccuracy; or (f) a default by Lessee or Holding beyond any applicable grace period shall have occurred and be continuing under the Construction Agency Agreement, the Guaranty, the Guaranty 18 Lease 22 Agreement, the Pledge and Security Agreement, the Existing Lease, the Swap Agreement or any "Operative Document" as such term is defined in the Existing Lease, or any of the agreements, documents or instruments executed in connection with the Mellon Revolver Facility (other than a default arising solely under Sections 6.1(o), 8.3(z), 10.1(a)(vi) and (vii) or from the Allegheny Agreements, as defined in the Existing Lease (except for a failure by Lessee to pay sums due under the Allegheny Agreements) and, during the Interim Term, Section 10.3 of the Participation Agreement under the Existing Lease (if the failure to comply with such Section shall arise from, be caused by or relate to, any act or omission of the Lessee, anything within the reasonable control of the Lessee or anything that could have been avoided through the use of best efforts by the Lessee), Sections 3.1(d) and 3.1(j) of the Guaranty Agreement under the Existing Lease, Sections 13.2 and 16.4 of the Lease under the Existing Lease, Sections 3(a)(4), 4(i)(1) and 5(i) of the Note and Security Agreement pertaining to the Mellon Revolver Facility), or the Existing Lease shall have terminated; or (g) the Lessee shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) file a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof, (iii) make a general assignment for the benefit of its creditors, (iv) consent to the appointment of a receiver of itself or the whole or any substantial part of its property, (v) fail to cause the discharge of any custodian, trustee or receiver appointed for it, or the whole or a substantial part of its property within sixty (60) days after such appointment, or (vi) file a petition or answer seeking or consenting to reorganization under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof; or (h) insolvency proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof shall be filed against the Lessee and not dismissed within sixty (60) days from the date of its filing, or a court of competent jurisdiction shall enter an order or decree appointing, without the consent of the Lessee, a receiver of the Lessee, or the whole or a substantial part of any of its property, and such order or decree shall not be vacated or set aside within ninety (90) days from the date of the entry thereof; or (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $500,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $500,000; or (j) any final, non-appealable judgments or orders for the payment of money individually or in the aggregate in excess of $2,695,150 (which amount shall be adjusted annually, on the date of the submission by the Lessee of the financial statements referred to in Section 10.1(a)(i) of the 19 Lease 23 Participation Agreement, to an amount equal to 0.5% of the Tangible Net Worth of the Lessee as shown on such financial statements) shall be rendered against the Lessee, and such judgment or order shall continue unsatisfied, unstayed (pursuant to laws, rules or court orders) and unbonded for a period of thirty (30) days; or (k) an event of default (beyond any applicable grace and cure period) as defined in any agreement, mortgage, indenture or instrument, under which there may be issued, or by which there may be secured or evidenced, any Debt of the Lessee, whether such Debt now exists or shall hereafter be created, shall occur and such Debt individually or in the aggregate shall exceed $5,393,000 (which amount shall be adjusted annually, on the date of the submission by the Lessee of the financial statements referred to in Section 10.1(a)(i) of the Participation Agreement, to an amount equal to 1.0% of the Tangible Net Worth of the Lessee as shown on such financial statements); provided, however, an Event of Default shall occur under this Section only if the event of default causing the acceleration of Debt is the result of an event of default by the Lessee that would constitute an Event of Default under this Lease, such as (by way of example) the failure to make payments when due on such Debt; or (l) any Lien granted under any Operative Document shall, in whole or in part, terminate, cease to be effective against, or cease to be the legal, valid, binding and enforceable obligation of, the Lessee as a result of any act or omission of the Lessee; or (m) the Lessee or Holding shall directly or indirectly contest the validity of any Operative Document in any manner in any court of competent jurisdiction or any Lien granted by any Operative Document, or the Lessee shall repudiate, or purport to discontinue or terminate, the Guaranty or Guaranty Agreement, or the Guaranty or Guaranty Agreement shall cease to be a legal, valid and binding obligation or shall cease to be in full force and effect for any reason. 16.2. Remedies. Upon the occurrence of any Lease Event of Default and at any time thereafter, the Lessor may, so long as such Lease Event of Default is continuing, do one or more of the following as the Lessor in its sole discretion shall determine, without limiting any other right or remedy the Lessor may have on account of such Lease Event of Default (including the obligation of the Lessee to purchase the Property as set forth in Section 18.3): (a) The Lessor may, by notice to the Lessee, rescind or terminate this Lease as of the date specified in such notice; however, (i) no reletting, reentry or taking of possession of the Property (or any portion thereof) by the Lessor will be construed as an election on the Lessor's part to terminate this Lease unless a written notice of such intention is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, the Lessor may at any time thereafter elect to terminate this Lease for a continuing Lease Event of Default and (iii) no act or thing done by the Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of the Property shall be valid unless the same be made in writing and executed by the Lessor; (b) The Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor, return the Property promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Articles VII and IX and Section 8.3 hereof as if the Property were being returned at the end of the Term, and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (ii) without prejudice to any other remedy which the Lessor 20 Lease 24 may have for possession of the Property, and to the extent and in the manner permitted by Applicable Law, enter upon the Property and take immediate possession of (to the exclusion of the Lessee) the Property or any part thereof and expel or remove the Lessee and any other Person who may be occupying the Property, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to the Lessor's other damages, the Lessee shall be responsible for all costs and expenses incurred by the Lessor, the Lenders and/or the Certificate Purchaser in connection with any reletting, including reasonable brokers' fees and all costs of any alterations or repairs made by the Lessor; (c) The Lessor may (i) sell all or any part of the Property at public sale free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds (except that Excess Proceeds are payable to and shall be paid to the Lessee) with respect thereto (except to the extent required by clause (ii) below if the Lessor shall elect to exercise its rights thereunder) in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be; and (ii) if the Lessor shall so elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that the Lessor's actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount) (in lieu of Basic Rent due for periods commencing on or after the Payment Date coinciding with such date of sale (or, if the sale date is not a Payment Date, the Payment Date next preceding the date of such sale)), an amount equal to (A) the excess, if any, of (1) the Lease Balance calculated as of such Payment Date (including all Rent due and unpaid to and including such Payment Date), over (2) the net proceeds of such sale (that is, after deducting all costs and expenses incurred by the Lessor, the Lenders and the Certificate Purchaser incident to such conveyance, including repossession costs, brokerage commissions, prorations, transfer taxes, fees and expenses for counsel, title insurance fees, survey costs, recording fees, and any repair costs); plus (B) interest at the Overdue Rate on the foregoing amount from such Payment Date until the date of payment; (d) The Lessor may, at its option, elect not to terminate this Lease and continue to collect all Basic Rent, Supplemental Rent, and all other amounts due the Lessor (together with all costs of collection) and enforce the Lessee's obligations under this Lease as and when the same become due, or are to be performed, and at the option of the Lessor, upon any abandonment of the Property by the Lessee or re-entry of same by the Lessor, the Lessor may, in its sole and absolute discretion, elect not to terminate this Lease and may make the necessary repairs in order to relet the Property, and relet the Property or any part thereof for such term or terms (which may be for a term extending beyond the Term of this Lease) and at such rental or rentals and upon such other terms and conditions as the Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by the Lessor from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Documents in such order, proportion and priority as the Lessor may elect in the Lessor's sole and absolute discretion. If such rentals received from such reletting during any period are less than the Rent with respect to the Property to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor, to the Lessor on the next Payment Date; (e) Unless the Property has been sold in its entirety, the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under 21 Lease 25 paragraph (b), (c) or (d) of this Section 16.2 with respect to the Property or portions thereof, demand, by written notice to the Lessee specifying a date (a "Termination Date") not earlier than 10 days after the date of such notice, that the Lessee purchase, on such Termination Date, the Improvements (or the remaining portion thereof) in accordance with the provisions of Article XXI and Section 18.2; (f) The Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any period(s), and such suits shall not in any manner prejudice the Lessor's right to collect any such damages for any subsequent period(s), or the Lessor may defer any such suit until after the expiration of the Term, in which event such suit shall be deemed not to have accrued until the expiration of the Term; (g) The Lessor may retain and apply against the Lessor's damages all sums which the Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, the Lessee pursuant to the terms of this Lease; or (h) If a Lease Event of Default shall have occurred and be continuing, the Lessor, as a matter of right and without notice to the Lessee, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Property, and the Lessee hereby irrevocably consents to any such appointment. Any such receiver(s) shall have all of the usual powers and duties of receivers in like or similar cases and all of the powers and duties of the Lessor in case of entry, and shall continue as such and exercise such powers until the date of confirmation of the sale of the Property unless such receivership is sooner terminated. (i) To the maximum extent permitted by law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Property or any interest therein. (j) The Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement, shall prejudice or in any manner affect the Lessor's right to realize upon or enforce any other security now or hereafter held by the Lessor, it being agreed that the Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Lessor in such order and manner as the Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Lessor. In no event shall the Lessor, in the exercise of the remedies provided in this instrument (including in connection with the assignment of rents to Lessor, or the appointment of a receiver and the entry of such receiver on to all or any part of the Property), be deemed a "mortgagee in possession," and the Lessor shall not in 22 Lease 26 any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. (k) An action of mortgage foreclosure as now provided by Pennsylvania Procedural Rules 1141 to 1148, both inclusive, or other appropriate proceedings now or hereafter prescribed by law, may forthwith be commenced and prosecuted to judgment, execution and sale, for the collection of the whole amount of such Lease Balance and the Make-Whole Premium, together with all fees, costs and expenses of such proceedings, including reasonable attorney's fees and expenses. And all errors in such proceedings, together with any stays of or exemptions from execution, or extensions of time of payment, which may be given by any Act or Acts of Assembly now in force, or which may be enacted hereafter, are hereby forever waived and released. If, pursuant to the exercise by the Lessor of its remedies pursuant to this Section 16.2, the Lease Balance and all other amounts due and owing from the Lessee under this Lease and the other Operative Documents have been paid in full, then the Lessor shall remit to the Lessee any excess amounts received by the Lessor. Amounts received by the Lessor from the Collateral Account will be applied against the Lessee's liabilities hereunder. 16.3. Waiver of Certain Rights. If this Lease shall be terminated pursuant to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or repossession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor with respect to the election of remedies; and (d) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this Article XVI. 16.4. Ownership of Common Stock. In the event that (i) during the Interim Term as the result of any act or omission of Lessee, or anything within the control of Lessee, or anything that could not have been avoided through the use of best efforts by Lessee, or (ii) during the Base Term more than 50% of the common stock of the Lessee shall at any time be owned by any single Person and/or the Affiliates of such Person, which is not an owner of more than 50% of the common stock of the Lessee as of the Documentation Date, without the prior written consent of the Board of Directors of the Lessee, the Construction Lender, the Certificate Purchaser and all Tranche A Lenders and Tranche B Lenders, then the principal amount of the Construction Loan, the Certificate, the Tranche A Notes and/or Tranche B Notes held by such non-consenting Construction Lender, Certificate Purchaser, Tranche A Lenders and/or Tranche B Lenders, as the case may be, shall at the option of any such Person become immediately due and payable. 16.5. Limitation of Recourse During the Interim Term. Notwithstanding any provision to the contrary contained in this Lease or any other Operative Documents, prior to the commencement of the Base Term, the aggregate amount payable by the Lessee on a recourse basis under this Article XVI and under Section 18.3 as the result of a Construction Agency Event of Default which is due solely to an Unrelated Event shall be subject to the limitations on recourse liability set forth in Section 13.1B.(2) of the Participation Agreement and (ii) prior to the commencement of the Base Term, before requiring Lessee to pay amounts in connection with a Construction Agency Event of Default as set forth in Section 13.1B.(2), Lessor shall determine Lessor's Actual Loss with respect to such Construction Agency Event of Default, it being agreed that upon the occurrence of a Construction Agency Event of Default, Lessor may exercise one or more of Lessor's remedies set forth in Sections 16.2(a), (b), (c), (f), (g) and (k), and Lessee shall be liable to Lessor only for an amount on a recourse basis (excluding any amounts which Lessor may receive upon a sale of the Property) equal to the lesser of Lessor's Actual Loss and the amount Lessee may be 23 Lease 27 required to pay pursuant to Section 13.1B.(2) of the Participation Agreement (and in the case of any Construction Agency Event of Default not related to an Unrelated Event, Lessee shall be liable for the full Actual Loss, and the foregoing limits in Section 13.1B(2) of the Participation Agreement shall not apply); provided, however, in the event that Lessor, in the course of exercising Lessor's remedies, determines that the Actual Loss to Lessor is in excess of the Actual Loss previously determined, Lessee shall pay to Lessor such excess amounts immediately upon demand, but in no event shall Lessee be required to pay on a recourse basis (excluding any amounts which Lessor may receive upon a sale of the Property) sums to Lessor in excess of that Lessee may be required to pay pursuant to Section 13.1B.(2) of the Participation Agreement (except in the case of a Construction Agency Event of Default not related to an Unrelated Event, in which case Lessee shall be liable for the full Actual Loss, and the foregoing limits in Section 13.1B(2) of the Participation Agreement shall not apply). ARTICLE XVII LESSOR'S RIGHT TO CURE 17.1. The Lessor's Right to Cure the Lessee's Lease Defaults. The Lessor, upon two (2) Business Days prior notice (except that in any circumstance in which there is a risk of imminent harm to any Person or property or any possibility of criminal liability to any Participant, no notice shall be required), without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Default or Lease Event of Default for the account and at the sole cost and expense of the Lessee, including the failure by the Lessee to maintain the insurance required by Article XIII, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon the Property for such purpose and take all such action thereon as may be necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee. All reasonable out-of-pocket costs and expenses so incurred (including fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by the Lessor, shall be paid by the Lessee to the Lessor on demand. ARTICLE XVIII PURCHASE PROVISIONS 18.1. Purchase Option. Without limitation of the Lessee's purchase obligation pursuant to Sections 18.2 or 18.3, the Lessee shall have the option at any time (exercisable by giving the Lessor irrevocable written notice (the "Purchase Notice") of the Lessee's election to exercise such option) to purchase the Improvements on the date specified in such Purchase Notice at a price equal to the Lease Balance(the "Purchase Option Price") (plus all other amounts owing in respect of Rent including Supplemental Rent theretofore accruing), provided, however, that Lessee may only give notice of and exercise the Purchase Option (hereinafter defined) under this Section 18.1 simultaneously with and on the same date of Lessee's exercise of its rights with respect to all "Improvements" under Section 18.1 of the Existing Lease, as such term is defined in the Existing Lease, and may only exercise its rights under Section 18.1 of the Existing Lease with respect to all "Improvements" (and not merely with respect to the "Manufacturing Facility") as such terms are defined in the Existing Lease, and may only do so simultaneously with its exercise of its rights under this Section 18.1. The Lessee shall deliver the Purchase Notice to the Lessor not more than three hundred sixty (360) days and not less than ninety (90) days prior to such purchase. If the Lessee exercises its option to purchase the Improvements pursuant to this Section 18.1 (the "Purchase Option"), the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, title and interest in and to the Improvements as of the date specified in the Purchase Notice upon receipt of the Purchase Option Price in accordance with Section 21.1(a) and the "Purchase Option Price" as such term is defined in the Existing Lease in accordance with Section 21.1(a) of the Existing Lease. 24 Lease 28 18.2. Expiration Date Purchase Obligation. Unless (a) the Lessee shall have properly exercised the Purchase Option pursuant to Section 18.1 and purchased the Improvements pursuant thereto, or (b) the Lessee shall have properly exercised the Remarketing Option and shall have fulfilled all of the conditions of clauses (a) through (k) of Section 20.1 hereof and the Lessor shall have sold its interest in the Improvements pursuant thereto, then, subject to the terms, conditions and provisions set forth in this Article, and in accordance with the terms of Section 21.1(a), the Lessee shall purchase from the Lessor, and the Lessor shall convey to the Lessee, on the Expiration Date all of the Lessor's interest in the Improvements for an amount equal to the Lease Balance (plus all other amounts owing in respect of Rent including Supplemental Rent theretofore accruing). The Lessee may designate, in a notice given to the Lessor not less than ten (10) Business Days prior to the closing of such purchase (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause the Lessee to be released, fully or partially, from any of its obligations under this Lease, including the obligation to pay the Lessor the Lease Balance on such Expiration Date. 18.3. Acceleration of Purchase Obligation. (a) The Lessee shall be obligated to purchase for an amount equal to the Lease Balance (plus all other amounts owing in respect of Rent including Supplemental Rent theretofore accruing) the Lessor's interest in the Improvements (notwithstanding any prior election to exercise its Purchase Option pursuant to Section 18.1) (i) automatically and without notice upon the occurrence of any Lease Event of Default specified in clause (g) or (h) of Section 16.1 and (ii) as provided for at Section 16.2(e) immediately upon written demand of the Lessor upon the occurrence of any other Lease Event of Default in existence at the expiration of the Interim Term. (b) After the expiration of the Interim Term, the Lessee shall be obligated to purchase for an amount equal to the Lease Balance (plus all other amounts owing in respect of Rent including Supplemental Rent theretofore accruing) immediately upon written demand of the Lessor the Lessor's interest in the Improvements at any time during the Term when (i) the Lessor ceases to have title as contemplated by Section 11.1 or (ii) any Operative Document to which the Lessee is a party shall cease to be in full force and effect, or shall cease to give the Lessor or the Lenders the Liens, rights, powers and privileges purported to be created thereby or (iii) the purchase obligation under the Existing Lease shall have been accelerated for reasons other than an acceleration as a result of a default under provisions in the Existing Lease and documents related to the Existing Lease as expressly listed in Section 16.1(f). 25 Lease 29 ARTICLE XIX RENEWAL TERMS 19.1. Renewal. Subject to the conditions set forth herein, the Lessee and the Lessor may agree to renew the Base Term for the Property for one or more terms (each, a "Renewal Term"), with each such Renewal Term to commence on the first day following the Expiration Date then in effect for the Property and end on the fifth anniversary of such day, provided, however, that Lessee may only exercise its renewal rights under this Section 19.1 simultaneously with and on the same day of Lessee's exercise of its rights under Section 19.1 of the Existing Lease. The effective extension of the Base Term for the "Property" as such term is defined the Existing Lease and the Property under this Lease shall be subject to the satisfaction of each of the conditions contained in Section 19.1 of the Existing Lease and each of the following conditions: (a) the Lessee shall have delivered, not later than 365 days prior to the Expiration Date then in effect for the Property, written notice to the Lessor and each Participant of the Lessee's request to extend the Base Term for the Property; (b) on both the date of delivery of the notice referred to in clause (a) and on the Expiration Date then in effect for the Property, (i) no Event of Default shall have occurred and be continuing, and (ii) by delivery of written notice of its intent to renew the Base Term, the Lessee shall be deemed to represent to the Lessor as to the matters set forth in clause (i) of this condition (b); (c) the Lessee shall not have exercised the Remarketing Option with respect to the Improvements; and (d) the Certificate Purchaser, the Tranche A Lenders and the Tranche B Lender, in the exercise of their sole discretion, shall have agreed with the Lessee (w) to the extension of the Maturity Date with respect to the Loans and Certificate Amounts, (x) upon the Rent applicable for such Renewal Term, (y) upon the conditions for permitting such renewal (including the delivery of an appraisal satisfactory in form and substance to each Participant and such other conditions as any Participant, in its sole discretion, may request) and (z) upon such other modification to this Lease as the Participants and the Lessor then deem appropriate; provided, however, that in no event shall there be more than two Renewal Terms for the Property. ARTICLE XX REMARKETING OPTION 20.1. Option to Market. Subject to the fulfillment of each of the conditions set forth in this Section 20.1, the Lessee shall have the option (the "Remarketing Option") to market and complete the sale of the Improvements for the Lessor , provided, however, that Lessee may only exercise the Remarketing Option under this Section 20.1 simultaneously with and on the same date of Lessee's exercise of its rights under Section 20.1 of the Existing Lease. The Lessee's effective exercise and consummation of the "Remarketing Option" as such term is defined under the Existing Lease, and the Remarketing Option hereunder shall be subject to the due and timely fulfillment of each of the provisions set forth in Section 20.1 of the Existing Lease and each of the following provisions as to the Land and Improvements as of the dates set forth below. 26 Lease 30 (a) Not later than 365 days prior to the Expiration Date, the Lessee shall give to the Lessor written notice of the Lessee's exercise of the Remarketing Option. In connection with the Remarketing Option, the Land and Improvements shall be sold together in the same transaction to the same purchaser(s). At any time after electing to exercise the Remarketing Option and prior to the sale of the Property (or the execution and delivery of a binding agreement to sell the Property) pursuant to the Remarketing Option, the Lessee may elect, in its sole discretion, to exercise the Purchase Option. (b) Not later than one hundred twenty (120) days prior to the Expiration Date, the Lessee shall deliver to the Lessor an Environmental Audit for the Property. Such Environmental Audit shall be prepared by an environmental consultant selected by the Lessor in the Lessor's reasonable discretion and shall contain conclusions reasonably satisfactory to the Lessor as to the environmental status of the Property. If any such Environmental Audit indicates any exceptions, the Lessee shall have also delivered a Phase Two environmental assessment by such environmental consultant prior to the Expiration Date showing the completion of the remedying of such exceptions in compliance with Applicable Law. (c) On the date of the Lessee's notice to the Lessor of the Lessee's exercise of the Remarketing Option, no Lease Event of Default or Lease Default shall exist, and thereafter, no Lease Event of Default or Lease Default shall exist. (d) The Improvements shall have been constructed in accordance with the Plans and Specifications not later than one day prior to the Expiration Date. The Lessee shall have completed in all material respects all Modifications, restoration and rebuilding of the affected Property pursuant to Sections 10.1 and 14.1 (as the case may be), shall have removed any walkways and other Improvements connecting the Property to any other property, to the extent requested by any Participant, and shall have fulfilled in all material respects all of the conditions and requirements in connection therewith pursuant to said Sections, in each case by the date on which the Lessor receives the Lessee's notice of the Lessee's exercise of the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. The Lessee shall have also paid the cost of all Modifications commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 12.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the last day of the Term. Any Permitted Liens (other than Lessor Liens) on the Property that were contested by the Lessee shall be removed prior to the Expiration Date. (e) During the Marketing Period, the Lessee shall, as nonexclusive agent for the Lessor, use commercially reasonable efforts to sell the Lessor's interest in the Improvements (as well as its interest in the Land) for cash and will attempt to obtain for the Improvements the highest purchase price therefor, and in any event not less than the Lease Balance. The Lessee will be responsible for hiring brokers and making the Property available for inspection by prospective purchasers. The Lessee shall promptly upon request permit inspection of the Property and any maintenance records relating to the Property by the Lessor, any Participant and any potential purchasers, and shall otherwise do all things necessary to sell and deliver possession of the Property to any purchaser. All such marketing of the Property shall be at the Lessee's sole expense. The Lessee shall allow the Lessor and any potential qualified purchaser reasonable access to the Property for the purpose of inspecting the same. 27 Lease 31 (f) The Lessee shall submit all bids to the Lessor and the Participants, and the Lessor will have the right to review the same and the right to submit any one or more bids. All bids shall be on an all-cash basis unless the Lessor and the Participants shall otherwise agree in their sole discretion. The Lessee shall procure bids from one or more bona fide prospective purchasers and shall deliver to the Lessor and the Participants not less than ninety (90) days prior to the Expiration Date a binding written unconditional (except as set forth below), irrevocable offer by such purchaser or purchasers offering the highest all cash bid to purchase the Property (unless otherwise agreed to by the Lessor and the Participants). No such purchaser shall be the Lessee, or any Subsidiary or Affiliate of the Lessee. The written offer must specify the Expiration Date as the closing date unless the Lessor and the Participants shall otherwise agree in their sole discretion. (g) In connection with any such sale of the Property, the Lessee will provide to the purchaser all customary "seller's" indemnities, representations and warranties regarding title, absence of Liens (except Lessor Liens) and the condition of such Property, including an environmental indemnity to the extent the same are required by the purchaser. The Lessee shall have obtained, at its cost and expense, all required governmental and regulatory consents and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of the Property. As to the Lessor, any such sale shall be made on an "as is, with all faults" basis without representation or warranty by the Lessor other than the absence of Lessor Liens. Any agreement as to such sale shall be made subject to the Lessor's rights hereunder and shall be in form and substance satisfactory to the Lessor. Should the Lessee submit a bona fide, arms-length offer from a third-party to purchase the Property acceptable to the Participants, and the provisions of this Section 20.1 shall have been satisfied in the sole discretion of the Participants, and provided that no Lease Event of Default shall have occurred and be continuing, the Lessor shall notify the Lessee of its approval of the offer and acknowledge that the Lessor will deliver the agreements and instruments which it is obligated to deliver pursuant to Section 21.1. (h) The Lessee shall pay or cause to be paid directly, and not from the sale proceeds, any prorations, credits, costs and expenses of the sale of the Property, whether incurred by the Lessor or the Lessee, including the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (i) Lessee shall pay to the Lessor on the Expiration Date (or to such other Person as the Lessor shall notify the Lessee in writing, or in the case of Supplemental Rent, to the Person entitled thereto) an amount equal to Basic Rent and all other amounts under any Operative Document which have accrued as of the Expiration Date, in the type of funds specified in Section 3.4 hereof. (j) Lessee shall pay to the Lessor on or prior to the Expiration Date the amounts, if any, required to be paid pursuant to Section 13.2 of the Participation Agreement. (k) Lessee shall pay to the Lessor on the Expiration Date the Termination Rental Amount. (l) The purchase of the Property shall be consummated on the Expiration Date and the Gross Proceeds from Improvements shall be paid directly to the Lessor or its assignee; provided, however, that if the sum of the Gross Proceeds from Improvements, the amounts, if any, required to be paid pursuant to Section 13.2 of the Participation Agreement, the principal portion of Basic Rent and the Termination Rental Amount exceeds the Lease Balance (minus amounts paid by the 28 Lease 32 Lessor solely as a result of Unrelated Indemnity Events) as of such date, then the excess shall be paid to the Lessee on the Expiration Date. If one or more of the foregoing provisions or the provisions set forth in Section 20.1 of the Existing Lease shall not be fulfilled as of the date set forth above with respect to the Property, then the Lessor shall declare by written notice to the Lessee the Remarketing Option and the "Remarketing Option" as such term is defined in the Existing Lease to be null and void (whether or not it has been theretofore exercised by the Lessee), in which event all of the Lessee's rights under this Section 20.1 and under Section 20.1 of the Existing Lease shall immediately terminate and the Lessee shall be obligated to purchase the Improvements pursuant to Section 18.2 and the "Improvements" as such term is defined in the Existing Lease on the Expiration Date. Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Lessor in connection with any proposed sale of the Improvements. Notwithstanding anything to the contrary in this Section 20.1, Section 5.2(iii) of the Participation Agreement and of the "Participation Agreement" as such term is defined in the Existing Lease shall be controlling. 20.2. Certain Obligations Continue. During the Marketing Period, the obligation of the Lessee to pay Rent (including the installment of Basic Rent due on the Expiration Date) shall continue undiminished until payment in full of all other amounts due to the Lessor with respect to the Property under the Operative Documents to which the Lessee is a party. The Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise to take action in connection with any such sale, other than as expressly provided in this Article XX. 20.3. Termination of Operative Documents. Upon the closing of the sale of the Property pursuant to the Remarketing Option in accordance with Article XX of this Lease and payment by Lessee of all other obligations then due and payable hereunder and under the other Operative Documents, the obligation of the Lessee to pay any remaining Lease Balance (exclusive of those obligations that expressly survive the Expiration Date) shall terminate and become null and void, all Liens created under the Operative Documents shall be terminated of record and the Lease Balance shall be deemed to be fully paid in its entirety; provided, that such obligations shall be reinstated in their entirety if at any time any payment (in whole or in part) of any such obligations is rescinded or must otherwise be restored upon the insolvency, bankruptcy or reorganization of the Lessee or otherwise. ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other Events. (a) In connection with the Lessee's exercise of its Purchase Option or Expiration Date Purchase Obligation, upon the Expiration Date, or in connection with a purchase of the Improvements under Article XV or Section 16.2(e) hereof or the payment of all amounts due under Section 5.1 of the Construction Agency Agreement and upon tender by the Lessee of the amounts set forth in Article XV, Sections 16.2(e), 18.1, 18.2 or 18.3 hereof or Section 5.1 of the Construction Agency Agreement, as applicable: 29 Lease 33 (i) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a quitclaim deed with respect to the Improvements, an assignment of the Lessor's interest in the Ground Lease (or a termination of the Ground Lease, if applicable, quitclaim bill of sale with respect to the Equipment and an assignment of the Lessor's entire interest in the Improvements (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds not previously received by the Lessor), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Mortgage (and any other Lien arising in connection with the Operative Documents) and any Lessor Liens attributable to the Lessor; (ii) the Improvements shall be conveyed to the Lessee "AS IS" and in its then present physical condition; (iii) the Lessor shall execute and deliver to Lessee and the Lessee's title insurance company an affidavit as to the absence of any Lessor Liens and shall cause the Participants to execute and deliver a release of Mortgage and termination statements for any financing statements which are of record on the Initial Advance Date; (iv) the Lessor shall execute and deliver such other affidavits and certificates reasonably requested by any title insurance company insuring title to the Property with respect to the absence of Lessor Liens, as well as a FIRPTA affidavit; and (v) in the event of a sale of the Property to a Person other than the Lessee, the Lessor and the Lessee shall execute an instrument in recordable form declaring this Lease to be terminated as of the date of closing of the sale of the Property, and releasing any Lien granted pursuant to this Lease encumbering the Property. (b) If the Lessee properly exercises the Remarketing Option, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of the Property to the independent purchaser(s) thereof, in each case by surrendering the same into the possession of the Lessor or such purchaser(s), as the case may be, free and clear of all Liens other than Lessor Liens and the lien of the Mortgage, in good condition (as modified by Modifications permitted by this Lease), ordinary wear and tear excepted, and in compliance with Applicable Law and the provisions of this Lease, and the Lessee shall execute and deliver to the purchaser at the Lessee's cost and expense a special warranty deed with respect to the Property, a bill of sale with respect to the Equipment, in each case in recordable form and otherwise in conformity with local custom and free and clear of all Liens, other than Permitted Liens; the Lessee shall execute and deliver to purchaser and the purchaser's title insurance company an affidavit as to the absence of any Liens (other than Permitted Liens), and such other affidavits and certificates reasonably requested by any title insurance company insuring title to the Property, as well as a FIRPTA affidavit, and an instrument in recordable form declaring this Lease to be terminated on the date of closing of the sale of the Property; the Lessor shall execute and deliver to purchaser an assignment of Lessor's interest in the Ground lease without recourse, representation or warranty. The Lessee shall, on and within a reasonable time before and up to one year after the Expiration Date, cooperate reasonably with the Lessor and the independent purchaser(s) of the Property in order to facilitate the purchase by such purchaser(s) of the Property, which cooperation shall include the following, all of which the Lessee shall do on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing all books and records regarding the maintenance and ownership of the Property and all know-how, data and technical information relating thereto, providing a current copy of the Plans 30 Lease 34 and Specifications for the Improvements, granting or assigning all licenses necessary for the operation and maintenance of the Property and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Lease. ARTICLE XXII ESTOPPEL CERTIFICATES 22.1. Estoppel Certificates. At any time and from time to time upon not less than twenty (20) days' prior request by the Lessor or the Lessee (the "Requesting Party"), the other party (whichever party shall have received such request, the "Certifying Party") shall furnish to the Requesting Party (but in the case of the Lessor, as Certifying Party, not more than four times per year unless required to satisfy the requirements of any sublessees and only to the extent that the required information has been provided to the Lessor by the Lessee or the Lenders) a certificate signed by an individual having the office of vice president or higher in the Certifying Party certifying that this Lease is in full force and effect (or that this Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Basic Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not the Requesting Party is in default under any of its obligations hereunder (and, if so, the nature of such alleged default); and such other matters under this Lease as the Requesting Party may reasonably request. Any such certificate furnished pursuant to this Article XXII may be relied upon by the Requesting Party, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to the Requesting Party (or any Affiliate thereof). ARTICLE XXIII ACCEPTANCE OF SURRENDER 23.1. Acceptance of Surrender. No surrender to the Lessor of this Lease or of all or any portion of the Property or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by the Lessor and, prior to the payment or performance of all obligations under the Loan Agreement and termination of the Commitments, the Lenders, and no act by the Lessor or the Lenders or any representative or agent of the Lessor or the Lenders, other than a written acceptance, shall constitute an acceptance of any such surrender. ARTICLE XXIV NO MERGER OF TITLE 24.1. No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) the fee or ground leasehold estate in the Property, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in the Lessor. ARTICLE XXV INTENT OF THE PARTIES 25.1. Ownership of the Property. (a) It is the intent of the parties hereto that for all purposes other than financial accounting purposes, including, state, real estate, commercial law, bankruptcy and 31 Lease 35 federal, state and local income tax purposes, the transaction contemplated hereby is a financing arrangement and preserves ownership in the Property in the Lessee. (b) It is the intent of the parties hereto that (i) the obligations of the Lessee under the Lease to pay Basic Rent and Supplemental Rent or Lease Balance in connection with any purchase of the Property pursuant to the Lease shall be treated as payments of interest on and principal of, respectively, loans from the Lessor, the Certificate Purchaser and the Lenders to the Lessee, and (ii) the Lease grants a security interest and mortgage, as the case may be, on the Property to the Lessor to secure Lessee's performance under and payment of all amounts under the Lease and the other Operative Documents. (c) Specifically, without limiting the generality of subsection (b) of this Section 25.1, the Lessor and the Lessee intend and agree that with respect to the nature of the transactions evidenced by the Lease in the context of the exercise of remedies under the Operative Documents, including, in the case of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, the Lessor, the Certificate Purchaser or any Participant or any enforcement or collection actions, the transactions evidenced by the Lease are loans made by the Lessor, Certificate Purchaser and the Lenders as unrelated third party lenders to the Lessee secured by the Property (it being understood that Lessee hereby mortgages, grants, bargains, sells, releases, confirms, conveys, assigns, transfers and sets over to the Lessor, for the benefit of the Lenders and the Certificate Purchaser, and grants a security interest in, the Property (consisting of a first fee mortgage with respect to all right, title and interest of the Lessee in and to the fee title to, and reversionary interest in, the Land and Improvements) and a first leasehold mortgage on the Lessee's leasehold estate under this Lease, all to secure such loans, effective on the date hereof, to have and to hold such interests in the Property unto the Lessor, for the benefit of the Lenders and the Certificate Purchaser and their respective successors and assigns, forever, to secure all Obligations and all amounts payable by Lessee, the Construction Agent and the Guarantors under the Operative Documents, provided always that these presents are upon the express condition that, if all amounts due under the Lease and the other Operative Documents shall have been paid and satisfied in full, then this instrument and the estate hereby granted shall cease and become void). (d) Specifically, but without limiting the generality of subsection (b) of this Section 25.1, the Lessor and the Lessee further intend and agree that, with respect to that portion of the Property constituting personal property, for the purpose of securing the Lessee's obligations for the repayment of the above-described loans from the Lessor, the Certificate Purchaser and the Lenders to the Lessee, (i) the Lease shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code; (ii) the conveyance provided for hereby shall be deemed to be a grant by the Lessee to the Lessor, for the benefit of the Lenders and the Certificate Purchaser, of a mortgage lien and security interest in all of the Lessee's present and future right, title and interest in and to such portion of the Property, including but not limited to the Lessee's leasehold estate therein and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property to secure such loans, effective on the date hereof, to have and to hold such interests in the Property unto the Lessor, for the benefit of the Lenders and the Certificate Purchaser and their respective successors and assigns, forever, provided always that 32 Lease 36 these presents are upon the express condition that, if all amounts due under the Lease shall have been paid and satisfied in full, then this instrument and the estate hereby granted shall cease and become void; (iii) the possession by the Lessor of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed to have been given for the purpose of perfecting such security interest under Applicable Law. The Lessor and the Lessee shall, to the extent consistent with the Lease, take such actions and execute, deliver, file and record such other documents, financing statements, mortgages and deeds of trust as may be necessary to ensure that, if the Lease were deemed to create a security interest in the Property in accordance with this Section, such security interest would be deemed to be a perfected security interest with priority over all Liens other than Permitted Liens, under Applicable Law and will be maintained as such throughout the Term. 25.2. Open-End Mortgage. In the event that a court of competent jurisdiction rules that this instrument constitutes a mortgage, deed or trust or other secured financing as is the intent of the parties pursuant to Section 25.1, this instrument shall be deemed to be an Open-End Mortgage as defined in 42 Pa. C.S.A. section 8143(f) and, as such, is entitled to the benefits of Senate Bill 693, 1989 session of the General Assembly of Pennsylvania (the "Act") as codified at 42 Pa. C.S.A. section 8143 et seq. The parties to this instrument intend that, in addition to any other debt or obligations secured hereby, this instrument shall secure unpaid balances of advances made pursuant to the Operative Documents after this instrument is left for record with the Recorder's Office of the County where the Property is located, whether such advances are made pursuant to an obligation of the Lessor or otherwise. The maximum principal amount of unpaid indebtedness secured by this instrument is TWENTY-FIVE MILLION DOLLARS ($25,000,000) plus interest thereon, which indebtedness may consist of present and future loans made under the Operative Documents, fees payable pursuant thereto, advances made with respect to the Property for the payment of, among other things, taxes, assessments, maintenance charges, insurance premiums and the like, and costs and expenses, including but not limited to attorney's fees, incurred for the protection of the Property or the lien and security of this instrument or by reason of a Lease Event of Default. ARTICLE XXVI MISCELLANEOUS 26.1. Survival; Severability; Etc. Anything contained in this Lease to the contrary notwithstanding, all claims against and liabilities of the Lessee or the Lessor arising from events commencing prior to the expiration or earlier termination of this Lease shall survive such expiration or earlier termination for a period of one year except as to indemnification which shall continue to survive. If any term or provision of this Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. If any right or option of the Lessee provided in this Lease, including any right or option described in Articles XIV, XV, XVIII, XIX or XX, would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of Franklin D. Roosevelt, the former President of the United States, Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the founder of 33 Lease 37 the Standard Oil Company, known to be alive on the date of the execution, acknowledgment and delivery of this Lease. 26.2. Amendments and Modifications. Subject to the requirements, restrictions and conditions set forth in the Participation Agreement, neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing in recordable form signed by the Lessor and the Lessee. 26.3. No Waiver. No failure by the Lessor or the Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default. 26.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing (including by facsimile), and directed to the address described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement. 26.5. Successors and Assigns. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 26.6. Headings and Table of Contents. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 26.7. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. 26.8. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. 26.9. Limitations on Recourse. The parties hereto agree that except as specifically set forth in the Lease or in any other Operative Document, Trust Company shall have no personal liability whatsoever to the Lessee or its respective successors and assigns for any claim based on or in respect of this Lease or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby; provided, however, that Trust Company shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds), or (b) for any Tax based on or measured by any fees, commission or compensation received by it for acting as the Lessor as contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding sentence: (i) Trust Company shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of Trust Company to the Lessee are solely nonrecourse obligations except to the extent that it has received payment from others; (iii) all such personal liability of Trust Company is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Trust Company; and (iv) this Lease is executed and delivered by Trust Company solely in the exercise of the powers expressly conferred upon it as the Lessor under the Trust Agreement. It is expressly understood and agreed by the parties hereto that (a) this Lease is executed and delivered by 34 Lease 38 Wilmington Trust Company, not individually or personally, except as expressly stated herein, but solely as Certificate Trustee of Brush Creek Business Trust II, a statutory Delaware business trust created under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it under the Trust Agreement, (b) each of the representations, undertakings and agreements herein made by the Certificate Trustee on the part of the Trust is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company, except as expressly stated herein, but is made and intended for the purpose of binding only the Trust and (c) except as expressly stated herein or in the other Operative Documents, under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Certificate Trustee or the Trust under this Lease or the other Operative Documents. 26.10. Original Lease. The single executed original of this Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on or following the signature page thereof and containing the receipt of the Certificate Trustee therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Lease (the "Original Executed Counterpart"). To the extent that this Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. 26.11. SUBMISSION OF JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY LAW, THE LESSOR AND LESSEE HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND ANY COURT OF THE COMMONWEALTH OF PENNSYLVANIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THE OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THE LESSOR AND LESSEE IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDINGS BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. /s/ BEH - --------- 26.12. POWER TO CONFESS JUDGMENT. THE LESSEE HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER A DEFAULT UNDER THIS LEASE, THE GUARANTY, THE CONSTRUCTION AGENCY AGREEMENT, OR ANY OF THE OPERATIVE DOCUMENTS TO APPEAR FOR THE LESSEE, AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST THE LESSEE IN FAVOR OF THE LESSOR, AS OF ANY TERM, FOR THE UNPAID OBLIGATIONS HEREUNDER, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER AMOUNTS PAYABLE UNDER THIS LEASE, THE GUARANTY, THE CONSTRUCTION AGENCY AGREEMENT, OR UNDER ANY OF THE OPERATIVE DOCUMENTS, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND A REASONABLE ATTORNEY'S COMMISSION AS CERTIFIED BY THE LESSOR WITH RELEASE OF ALL ERRORS, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE LESSEE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS 35 Lease 39 JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LESSOR SHALL ELECT, UNTIL SUCH TIME AS THE LESSOR SHALL HAVE RECEIVED PAYMENT IN FULL OF THE RENT, OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS LEASE. BY SIGNING THIS INSTRUMENT, THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS, AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE CONFESSION OF JUDGMENT PROVISION AND UNDERSTANDS THAT A CONFESSION OF JUDGMENT CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE A JUDGMENT IS ENTERED AGAINST IT AND WHICH MAY RESULT IN A COURT JUDGMENT AGAINST THE LESSEE WITHOUT PRIOR NOTICE OR HEARING AND THAT THE AMOUNTS PAYABLE UNDER THIS LEASE MAY BE COLLECTED FROM THE LESSEE REGARDLESS OF ANY CLAIM THE LESSEE MAY HAVE AGAINST THE LESSOR. /s/ BEH - --------- 26.13. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING. THE LESSEE HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD OR THE SHERIFF WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO TAKE ALL ACTION ALLOWED BY OR PROVIDED FOR IN THE PENNSYLVANIA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE RULES OF CIVIL PROCEDURE TO EXECUTE ON ANY JUDGMENT ENTERED AGAINST THE LESSEE PURSUANT TO THE CONFESSION OF JUDGMENT SET FORTH ABOVE WITHOUT PRIOR NOTICE OR HEARING OF ANY NATURE WHATSOEVER, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE LESSEE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE OF VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LESSOR SHALL ELECT UNTIL SUCH TIME AS THE LESSOR SHALL HAVE RECEIVED PAYMENT IN FULL OF THE RENT, OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS LEASE. BY SIGNING THIS INSTRUMENT THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING, AND UNDERSTANDS THAT THE POWER TO EXECUTE ON A JUDGMENT WITHOUT A HEARING CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE EXECUTION ON A JUDGMENT, AND THAT THE AMOUNTS PAYABLE UNDER THIS LEASE MAY BE COLLECTED FROM THE LESSEE REGARDLESS OF ANY CLAIM THAT THE LESSEE MAY HAVE AGAINST THE LESSOR. 36 Lease 40 26.14. No Merger. If the fee simple interest in the Property and the leasehold interest therein shall be held by the same party, the interest in the Property granted to the Certificate Trustee pursuant to the Ground Lease and the interest of the Lessee in the Lease shall not terminate or be merged and the Ground Lease and the Lease shall remain in full force and effect. 37 Lease 41 IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and delivered as of the date first above written. Attest: FORE SYSTEMS, INC. /s/ E. SAMMARTINO By: /s/ BRUCE E. HANEY - --------------------- ----------------------------------- Name: Bruce E. Haney -------------------------------- Title: SR. VP & CHIEF FINANCIAL OFFICER -------------------------------- Attest: /s/ CHRISTOPHER H. GEBHARDT - --------------------------- Secretary S-1 42 Attest: WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly stated herein, but solely as Certificate Trustee /s/ Illegible By: /s/ PATRICIA A. EVANS - --------------------- ----------------------------------- Name: Patricia A. Evans -------------------------------- Title: FINANCIAL SERVICES OFFICER -------------------------------- Certificate of Residence ------------------------ I hereby certify that the precise and complete post office address of the within named mortgagee is Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration. /s/ DEBRA EBERLY ---------------------------------------------- Attorney for Wilmington Trust Company, as Certificate Trustee S-2 43 THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART. Receipt of this original counterpart of the foregoing Lease is hereby acknowledged as of the date hereof. Attest: MELLON BANK, N.A. /s/ MICHAEL SLOYER By: /s/ MICHAEL T. ANSELMO - ----------------------- ----------------------------- Name: Michael T. Anselmo --------------------------- Title: Vice President -------------------------- S-3 44 STATE OF PENNSYLVANIA ) ------------ ) ss.: COUNTY OF ALLEGHENY ) --------- The foregoing Lease was acknowledged before me, the undersigned Notary Public, in the County of ALLEGHENY, PENNSYLVANIA, this 4TH --------- ------------ --- day of December, 1998, by BRUCE E. HANEY, as SR. V.P. & CFO, of FORE --------------- -------------- SYSTEMS, INC., a Delaware corporation, on behalf of the corporation. /s/ KAREN M. LUTSKO [Notarial Seal] ----------------------------- Notary Public [NOTARIAL SEAL] My commission expires: 7-5-2001 --------------------- 45 STATE OF DELAWARE ) -------- ) ss.: COUNTY OF NEW CASTLE ) ---------- The foregoing Lease was acknowledged before me, the undersigned Notary Public, in the County of NEW CASTLE, DE, this 14TH ---------- --- ---- day of December, 1998, by PATRICIA A. EVANS, as FIN. SVS. OFFICER, of ----------------- ----------------- Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity, but solely as Certificate Trustee, on behalf of the Certificate Trustee. /s/ KATHLEEN A. PEDELINI [Notarial Seal] ----------------------------- Notary Public [NOTARIAL SEAL] My commission expires: October 31, 2002 --------------------- 46 COMMONWEALTH OF PENNSYLVANIA ) ------------ ) ss.: COUNTY OF ALLEGHENY ) --------- The foregoing Lease was acknowledged before me, the undersigned Notary Public, in the County of ALLEGHENY, PENNA., this 14TH --------- ------ ---- day of December, 1998, by MICHAEL ANSELMO, as Vice President, of Mellon --------------- -------------- Bank, N.A., on behalf of the Mellon Bank, N.A. /s/ DOROTHY A. BROWN [Notarial Seal] ----------------------------- Notary Public [NOTARIAL SEAL] My commission expires: November 23, 2000 --------------------- 47 Commonwealth of Pennsylvania ) ) ss. County of Allegheny ) RECORDED on this _______ day of ____________ A.D. 19__, in the Recorder's office of said County, in Mortgage Book Vol. ______, Page ________. Given under my hand and the seal of the said office, the date above written. , Recorder - ------------------ EX-10.3 4 FORE SYSTEMS, INC. 1 Exhibit 10.3 GUARANTY THIS GUARANTY (this "Guaranty") dated as of December 14, 1998 is made by FORE SYSTEMS, INC., a Delaware corporation (the "Guarantor"), in favor of MELLON BANK, N.A., as Construction Lender (together with the various financial institutions which may from time to time become lenders under the Construction Loan Agreement referred to below, and in the event of a Refinancing, the Tranche A Lenders and the Tranche B Lender, collectively, the "Lender") and MELLON FINANCIAL SERVICES CORPORATION #4, as Certificate Purchaser (together with its successors and assigns in such capacity, the "Certificate Purchaser"; the Lender and the Certificate Purchaser are referred to collectively as the "Funding Parties" and individually as a "Funding Party"). W I T N E S S E T H: WHEREAS, pursuant to a Construction Loan Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Loan Agreement"), between Wilmington Trust Company, not in its individual capacity except as expressly stated therein, but solely as Certificate Trustee and the Construction Lender, the Construction Lender has agreed, subject to the terms and conditions thereof, to make Loans to the Certificate Trustee; WHEREAS, pursuant to the terms of a Trust Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Trust Agreement"), between Wilmington Trust Company, not in its individual capacity except as expressly stated therein, but solely as Certificate Trustee and the Certificate Purchaser, the Certificate Purchaser has agreed to purchase the Certificate; WHEREAS, as a condition to the occurrence of the Documentation Date under the Participation Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Participation Agreement"), among the Guarantor, the Certificate Trustee, the Certificate Purchaser, and the Construction Lender, the Guarantor is required to execute and deliver this Guaranty in favor of the Funding Parties; WHEREAS, the Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial benefits from the transactions contemplated by the Loan Agreement, the Trust Agreement and the Participation Agreement; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Construction Lender to enter into the Loan Agreement and the Certificate Purchaser to purchase the Certificate, and intending to be legally bound hereby, the Guarantor agrees, for the benefit of the Funding Parties, as follows: 2 ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Guarantor" is defined in the preamble. "Guaranty" is defined in the preamble. "Holder" shall mean any assignee or transferee of an Interest which is assigned or otherwise transferred (in accordance with Section 12.1 of the Participation Agreement to the extent that Section 12.1 is applicable to such transfer). "Interest" shall mean all or any of the right, title, or interest and obligations of any Funding Party or any Holder in and to the Loan Agreement or the other Operative Documents, and in the event of a Refinancing, the Refinancing Loan Documents, all or any of the benefits, advantages and obligations of any Funding Party or any Holder under the Loan Agreement or the other Operative Documents, and in the event of a Refinancing, the Refinancing Loan Documents, and all or any right, title and interest of any Funding Party or any Holder in and to the Property. "Lender" is defined in the preamble. "Lessee" means the Guarantor, in its capacity as Lessee under the Participation Agreement and the Lease. "Loan Agreement" is defined in the first recital. "Obligations" means all of the following, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due: all principal of the Note, interest accrued thereon, the Certificate Amount, Certificate Yield accrued thereon and all additional amounts and other sums at any time due and owing, and required to be paid, to the Participants by the Certificate Trustee under the terms of the Loan Agreement, the Note or any other Operative Documents and, in the event of a Refinancing, to the Tranche A Lenders and the Tranche B Lender under any Refinancing Loan Document (including, without limitation, Section 2.6 of the Construction Loan Agreement); provided, however, that with respect to an exercise of the Remarketing Option pursuant to Section 20.1 of the Lease the amount guaranteed hereunder shall not exceed the aggregate amounts required to be paid by the Lessee pursuant to the Lease in connection with such exercise; and, provided further, that prior to the commencement of the Base Term, the aggregate amount payable by the Guarantor hereunder and Holding under the Guaranty Agreement with respect to a Construction Agency Event of Default arising solely from an Unrelated Event shall be subject to the limitations on recourse liability applicable to the Lessee set forth in Section 13.1B.(2) of the Participation Agreement. -2- Guaranty 3 "Organic Document" means, relative to the Guarantor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Participation Agreement" is defined in the third recital. "Trust Agreement" is defined in the second recital. "U.C.C." means the Uniform Commercial Code as in effect in the Commonwealth of Pennsylvania. SECTION 1.2. Participation Agreement Definitions. Capitalized terms used but not otherwise defined in this Guaranty have the respective meanings specified in Appendix 1 to the Participation Agreement; and the rules of interpretation set forth in Appendix 1 to the Participation Agreement shall apply to this Guaranty. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Guaranty, including its preamble and recitals, with such meanings. ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty. The Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due (after giving effect to any applicable grace period), whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a)), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)), and (b) indemnifies and holds harmless each Funding Party and each Holder for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by each Funding Party or such Holder, as the case may be, in enforcing any rights under this Guaranty. This Guaranty constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that any Funding Party or any Holder exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Lessee (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. -3- Guaranty 4 SECTION 2.2. Guaranty Absolute, etc. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations have been paid in full, all obligations of the Guarantor hereunder shall have been paid in full and all commitments of the Funding Parties under the Loan Agreement and the other Operative Documents, and in the event of a Refinancing, under the Refinancing Loan Documents, shall have terminated. The Guarantor guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Agreement and each other Operative Document, and in the event of a Refinancing, each of the Refinancing Loan Documents, under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Funding Party or any Holder with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Loan Agreement or any other Operative Document or Refinancing Loan Document; (b) the failure of any Funding Party or any Holder (i) to assert any claim or demand or to enforce any right or remedy against the Certificate Trustee or any other Person (including any other guarantor) under the provisions of the Loan Agreement, any other Operative Document or Refinancing Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other extension, compromise or renewal of any Obligation; (d) any reduction, limitation, impairment or termination of the Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Agreement or any other Operative Document or Refinancing Loan Document; (f) any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Funding Party or any Holder securing any of the Obligations; or -4- Guaranty 5 (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Certificate Trustee, any surety or any guarantor. SECTION 2.3. Reinstatement, etc. The Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Funding Party or any Holder, upon the insolvency, bankruptcy or reorganization of Lessee or otherwise, as though such payment had not been made. SECTION 2.4. Waiver, etc. The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations of the Lessee and this Guaranty and any requirement that any Funding Party or any Holder protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Certificate Trustee or any other Person (including any other guarantor) or entity or any collateral securing the Obligations. SECTION 2.5. Waiver of Subrogation. The Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Certificate Trustee that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty or any other Operative Document or Refinancing Loan Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of any Funding Party or any Holder against the Lessee or any collateral which any Funding Party now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Certificate Trustee, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Obligations shall not have been paid in cash in full and all Commitments of the Funding Parties under the Loan Agreement and the other Operative Documents, and in the event of a Refinancing, under the Refinancing Loan Documents, have not been terminated, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for, the Funding Parties or any Holder or Holders, and shall forthwith be paid to the Funding Parties for the benefit of the Funding Parties and any such Holder or Holders to be credited and applied upon the Obligations, whether matured or unmatured. The Guarantor acknowledges that it will receive benefits from the financing and other arrangements contemplated by the Loan Agreement, the Trust Agreement, the Participation Agreement and, in the event of a Refinancing, under the Refinancing Loan Documents, and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. SECTION 2.6. Successors, Transferees and Assigns; Transfers of Interests, etc. This Guaranty shall: (a) be binding upon the Guarantor and its successors, transferees and assigns; and -5- Guaranty 6 (b) inure to the benefit of and be enforceable by each Funding Party, each Holder and each of their respective successors. Without limiting the generality of clause (b), any Lender and/or any Holder may, in accordance with Article 12 of the Participation Agreement, and the Certificate Purchaser and any Tranche A Lenders and the Tranche B Lender may, assign or otherwise transfer (in whole or in part) any Interest held by it to any Holder, and such Holder shall thereupon become vested with all rights and benefits in respect thereof granted to the respective Funding Parties under any Operative Document (including this Guaranty), Refinancing Document or otherwise. SECTION 2.7. Consent to Jurisdiction; Waiver of Immunities. The Guarantor hereby acknowledges and agrees that: (a) It irrevocably submits to the jurisdiction of any federal court sitting in Pennsylvania in any action or proceeding arising out of or relating to this Guaranty, and the Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such federal court. The Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section shall affect the right of any Funding Party or any Holder to serve legal process in any other manner permitted by law or affect the right of any Funding Party or any Holder to bring any action or proceeding against the Guarantor or its property in the courts of any other jurisdictions. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Guarantor hereby represents and warrants to each Funding Party as set forth in Section 8.3 and 8.4 of the Participation Agreement, which representations and warranties are hereby incorporated by reference. ARTICLE IV COVENANTS SECTION 4.1. Covenants. The Guarantor covenants and agrees that, so long as any portion of the Obligations shall remain unpaid or any Funding Party shall have any outstanding Commitments under the Loan Agreement or the other Operative Documents, or in the event of a Refinancing, under any Refinancing Loan Document, the Guarantor will, unless each Funding Party shall otherwise consent in writing, comply with and perform the obligations set forth in -6- Guaranty 7 Section 10.1 of the Participation Agreement, which covenants are hereby incorporated by reference. ARTICLE V. MISCELLANEOUS PROVISIONS SECTION 5.1. Operative Document. This Guaranty is an Operative Document executed pursuant to the Loan Agreement and the Participation Agreement. SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment of Guaranty. In addition to, and not in limitation of, Section 2.6, this Guaranty shall be binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Funding Party and each Holder and their respective successors and assigns (to the full extent provided pursuant to Section 2.6); provided, however, that the Guarantor may not assign any of its obligations hereunder without the prior written consent of each Funding Party and each Holder. SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by each Funding Party and each Holder, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4. Addresses for Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement. SECTION 5.5. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.2 and Section 2.4, no failure on the part of any Funding Party or any Holder to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.6. Section Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.7. Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. -7- Guaranty 8 SECTION 5.8. Termination of Guaranty. The Guarantor's obligations under this Guaranty shall terminate on the date upon which all Obligations are satisfied in full, subject to reinstatement as provided in Section 2.3 hereof. SECTION 5.9. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE COMMONWEALTH OF PENNSYLVANIA. SECTION 5.10. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE LOAN AGREEMENT AND THE CERTIFICATE PURCHASER PURCHASING THE CERTIFICATE. /s/ BEH - ------- Initial SECTION 5.11. POWER TO CONFESS JUDGMENT. THE GUARANTOR HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER AN EVENT OF DEFAULT UNDER THIS GUARANTY, THE LEASE, THE CONSTRUCTION AGENCY AGREEMENT, OR ANY OF THE OPERATIVE DOCUMENTS AND, IN THE EVENT OF A REFINANCING, ANY REFINANCING LOAN DOCUMENT, TO APPEAR FOR THE GUARANTOR, AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST THE GUARANTOR IN FAVOR OF THE FUNDING PARTIES, AS OF ANY TERM, FOR THE UNPAID OBLIGATIONS HEREUNDER, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER AMOUNTS PAYABLE UNDER THIS GUARANTY, THE LEASE, THE CONSTRUCTION AGENCY AGREEMENT, OR UNDER ANY OF THE OPERATIVE DOCUMENTS, AND, IN THE EVENT OF A REFINANCING, ANY REFINANCING LOAN DOCUMENT, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND A REASONABLE ATTORNEY'S COMMISSION AS CERTIFIED BY THE FUNDING PARTIES WITH RELEASE OF ALL ERRORS, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS -8- Guaranty 9 MAY LAWFULLY BE WAIVED BY THE GUARANTOR. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE FUNDING PARTIES SHALL ELECT, UNTIL SUCH TIME AS THE FUNDING PARTIES SHALL HAVE RECEIVED PAYMENT IN FULL OF THE OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS GUARANTY. BY SIGNING THIS INSTRUMENT, THE GUARANTOR HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS, AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE CONFESSION OF JUDGMENT PROVISION AND UNDERSTANDS THAT A CONFESSION OF JUDGMENT CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE A JUDGMENT IS ENTERED AGAINST IT AND WHICH MAY RESULT IN A COURT JUDGMENT AGAINST THE GUARANTOR WITHOUT PRIOR NOTICE OR HEARING AND THAT THE AMOUNTS PAYABLE UNDER THIS GUARANTY MAY BE COLLECTED FROM THE GUARANTOR REGARDLESS OF ANY CLAIM THE GUARANTOR MAY HAVE AGAINST ANY FUNDING PARTY. /s/ BEH - ------- Initial -9- Guaranty 10 SECTION 5.12. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING. THE GUARANTOR HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD OR THE SHERIFF WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO TAKE ALL ACTION ALLOWED BY OR PROVIDED FOR IN THE PENNSYLVANIA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE RULES OF CIVIL PROCEDURE TO EXECUTE ON ANY JUDGMENT ENTERED AGAINST THE GUARANTOR PURSUANT TO THE CONFESSION OF JUDGMENT SET FORTH ABOVE WITHOUT PRIOR NOTICE OR HEARING OF ANY NATURE WHATSOEVER, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE GUARANTOR. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE OF VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE FUNDING PARTIES SHALL ELECT UNTIL SUCH TIME AS THE FUNDING PARTIES SHALL HAVE RECEIVED PAYMENT IN FULL OF THE OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS GUARANTY. /s/ BEH - ------- BY SIGNING THIS INSTRUMENT THE GUARANTOR HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING, AND UNDERSTANDS THAT THE POWER TO EXECUTE ON A JUDGMENT WITHOUT A HEARING CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE EXECUTION ON A JUDGMENT, AND THAT THE AMOUNTS PAYABLE UNDER THIS GUARANTY MAY BE COLLECTED FROM THE GUARANTOR REGARDLESS OF ANY CLAIM THAT THE GUARANTOR MAY HAVE AGAINST ANY FUNDING PARTY. SECTION 5.13. SUBMISSION OF JURISDICTION. THE FUNDING PARTIES AND ALL HOLDERS HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND ANY COURT OF THE COMMONWEALTH OF PENNSYLVANIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY AND THE TRANSACTIONS CONTEMPLATED HEREBY. THE FUNDING PARTIES AND ALL HOLDERS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDINGS BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -10- Guaranty 11 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. Attest: FORE SYSTEMS, INC. /s/ CHRISTOPHER H. GEBHARDT By: /s/ BRUCE E. HANEY - ---------------------------- --------------------------------------- Name: Bruce E. Haney --------------------------------- Title: SR. VP & Chief Financial Officer -------------------------------- -11- Guaranty EX-10.4 5 FORE SYSTEMS, INC. 1 Exhibit 10.4 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (this "Guaranty Agreement") dated as of December 14, 1998 is made by FORE SYSTEMS HOLDING CORPORATION, a Delaware corporation (the "Guarantor"), in favor of MELLON BANK, N.A., as Construction Lender (together with the various financial institutions which may from time to time become lenders under the Construction Loan Agreement referred to below, and in the event of a Refinancing, the Tranche A Lenders and the Tranche B Lender, collectively, the "Lender") and MELLON FINANCIAL SERVICES CORPORATION #4, as Certificate Purchaser (together with its successors and assigns in such capacity, the "Certificate Purchaser"; the Lender and the Certificate Purchaser are referred to collectively as the "Funding Parties" and individually as a "Funding Party"). W I T N E S S E T H: -------------------- WHEREAS, pursuant to a Construction Loan Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Loan Agreement"), between Wilmington Trust Company, not in its individual capacity except as expressly stated therein, but solely as Certificate Trustee and the Construction Lender, the Construction Lender has agreed, subject to the terms and conditions thereof, to make Loans to the Certificate Trustee; WHEREAS, pursuant to the terms of a Trust Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Trust Agreement"), between Wilmington Trust Company, not in its individual capacity except as expressly stated therein, but solely as Certificate Trustee and the Certificate Purchaser, the Certificate Purchaser has agreed to purchase the Certificate; WHEREAS, as a condition to the occurrence of the Documentation Date under the Participation Agreement, dated as of the date hereof (together with all amendments, restatements and other modifications, if any, from time to time hereafter made thereto, the "Participation Agreement"), among Fore Systems, Inc. ("Fore"), the Certificate Trustee, the Certificate Purchaser, and the Construction Lender, the Guarantor is required to execute and deliver this Guaranty Agreement in favor of the Funding Parties; WHEREAS, the Guarantor has duly authorized the execution, delivery and performance of this Guaranty Agreement; and WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty Agreement inasmuch as the Guarantor will derive substantial benefits from the transactions contemplated by the Loan Agreement, the Trust Agreement and the Participation Agreement; 2 NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Construction Lender to enter into the Loan Agreement and the Certificate Purchaser to purchase the Certificate, and intending to be legally bound hereby, the Guarantor agrees, for the benefit of the Funding Parties, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Guarantor" is defined in the preamble. "Guaranty Agreement" is defined in the preamble. "Holder" shall mean any assignee or transferee of an Interest which is assigned or otherwise transferred (in accordance with Section 12.1 of the Participation Agreement to the extent that Section 12.1 is applicable to such transfer). "Interest" shall mean all or any of the right, title, or interest and obligations of any Funding Party or any Holder in and to the Loan Agreement or the other Operative Documents, and in the event of a Refinancing, the Refinancing Loan Documents, all or any of the benefits, advantages and obligations of any Funding Party or any Holder under the Loan Agreement or the other Operative Documents, and in the event of a Refinancing, the Refinancing Loan Documents, and all or any right, title and interest of any Funding Party or any Holder in and to the Property. "Lender" is defined in the preamble. "Lessee" means Fore, in its capacity as Lessee under the Participation Agreement and the Lease. "Loan Agreement" is defined in the first recital. "Obligations" means all of the following, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due: all principal of the Note, interest accrued thereon, the Certificate Amount, Certificate Yield accrued thereon and all additional amounts and other sums at any time due and owing, and required to be paid, to the Participants by the Certificate Trustee under the terms of the Loan Agreement, the Note or any other Operative Documents and, in the event of a Refinancing, to the Tranche A Lenders and the Tranche B Lender under any Refinancing Loan Document (including, without limitation, Section 2.6 of the Construction Loan Agreement); provided, however, except for the representations and warranties of Guarantor provided herein, the liability of the Guarantor hereunder shall be strictly limited to the amount of -2- Guaranty Agreement 3 the collateral required to be pledged by the Guarantor under the Pledge and Security Agreement from time to time; provided further, that prior to the commencement of the Base Term, the aggregate amount payable by the Guarantor hereunder and the Lessee under the Guaranty with respect to a Construction Agency Event of Default arising solely from an Unrelated Event shall be subject to the limitations on recourse liability applicable to the Lessee set forth in Section 13.1B.(2) of the Participation Agreement; and provided further, that with respect to an exercise of the Remarketing Option pursuant to Section 20.1 of the Lease, the amount guaranteed under this Guaranty shall not exceed the aggregate amounts Lessee is required to pay under the Lease and the other Operative Documents. "Organic Document" means, relative to the Guarantor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Participation Agreement" is defined in the third recital. "Trust Agreement" is defined in the second recital. "U.C.C." means the Uniform Commercial Code as in effect in the Commonwealth of Pennsylvania. SECTION 1.2. Participation Agreement Definitions. Capitalized terms used but not otherwise defined in this Guaranty Agreement have the respective meanings specified in Appendix 1 to the Participation Agreement; and the rules of interpretation set forth in Appendix 1 to the Participation Agreement shall apply to this Guaranty Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Guaranty Agreement, including its preamble and recitals, with such meanings. ARTICLE II GUARANTY AGREEMENT PROVISIONS SECTION 2.1. Guaranty Agreement. The Guarantor hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due (after giving effect to any applicable grace period), whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a)), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)), and -3- Guaranty Agreement 4 (b) indemnifies and holds harmless each Funding Party and each Holder for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by each Funding Party or such Holder, as the case may be, in enforcing any rights under this Guaranty Agreement. This Guaranty Agreement constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that any Funding Party or any Holder exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Lessee (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. SECTION 2.2. Guaranty Agreement Absolute, etc. This Guaranty Agreement shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Obligations have been paid in full, all obligations of the Guarantor hereunder shall have been paid in full and all commitments of the Funding Parties under the Loan Agreement and the other Operative Documents, and in the event of a Refinancing, under the Refinancing Loan Documents, shall have terminated. The Guarantor guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Agreement and each other Operative Document, and in the event of a Refinancing, each of the Refinancing Loan Documents, under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Funding Party or any Holder with respect thereto. The liability of the Guarantor under this Guaranty Agreement shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Loan Agreement or any other Operative Document or Refinancing Loan Document; (b) the failure of any Funding Party or any Holder (i) to assert any claim or demand or to enforce any right or remedy against the Certificate Trustee or any other Person (including any other guarantor) under the provisions of the Loan Agreement, any other Operative Document or Refinancing Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other extension, compromise or renewal of any Obligation; (d) any reduction, limitation, impairment or termination of the Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the -4- Guaranty Agreement 5 invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Agreement or any other Operative Document or Refinancing Loan Document; (f) any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Funding Party or any Holder securing any of the Obligations; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Certificate Trustee, any surety or any guarantor. SECTION 2.3. Reinstatement, etc. The Guarantor agrees that this Guaranty Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Funding Party or any Holder, upon the insolvency, bankruptcy or reorganization of Lessee, or otherwise, as though such payment had not been made. SECTION 2.4. Waiver, etc. The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations of the Lessee and this Guaranty Agreement and any requirement that any Funding Party or any Holder protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Certificate Trustee or any other Person (including any other guarantor) or entity or any collateral securing the Obligations. SECTION 2.5. Waiver of Subrogation. The Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Certificate Trustee that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty Agreement or any other Operative Document or Refinancing Loan Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of any Funding Party or any Holder against the Lessee or any collateral which any Funding Party now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Certificate Trustee, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Obligations shall not have been paid in cash in full and all Commitments of the Funding Parties under the Loan Agreement and the other Operative Documents, and in the event of a Refinancing, under the Refinancing Loan Documents, have not been terminated, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for, the Funding Parties or -5- Guaranty Agreement 6 any Holder or Holders, and shall forthwith be paid to the Funding Parties for the benefit of the Funding Parties and any such Holder or Holders to be credited and applied upon the Obligations, whether matured or unmatured. The Guarantor acknowledges that it will receive benefits from the financing and other arrangements contemplated by the Loan Agreement, the Trust Agreement, the Participation Agreement and, in the event of a Refinancing, under the Refinancing Loan Documents, and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. SECTION 2.6. Successors, Transferees and Assigns; Transfers of Interests, etc. This Guaranty Agreement shall: (a) be binding upon the Guarantor and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by each Funding Party, each Holder and each of their respective successors. Without limiting the generality of clause (b), any Lender and/or any Holder may, in accordance with Section 12.1 of the Participation Agreement, and the Certificate Purchaser and any Tranche A Lenders and the Tranche B Lender may, assign or otherwise transfer (in whole or in part) any Interest held by it to any Holder, and such Holder shall thereupon become vested with all rights and benefits in respect thereof granted to the respective Funding Parties under any Operative Document (including this Guaranty Agreement), Refinancing Document or otherwise. SECTION 2.7. Consent to Jurisdiction; Waiver of Immunities. The Guarantor hereby acknowledges and agrees that: (a) It irrevocably submits to the jurisdiction of any federal court sitting in Pennsylvania in any action or proceeding arising out of or relating to this Guaranty Agreement, and the Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such federal court. The Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section shall affect the right of any Funding Party or any Holder to serve legal process in any other manner permitted by law or affect the right of any Funding Party or any Holder to bring any action or proceeding against the Guarantor or its property in the courts of any other jurisdictions. -6- Guaranty Agreement 7 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Guarantor hereby represents and warrants to each Funding Party as set forth below: (a) Corporate Status. The Guarantor (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a material adverse effect on it or its properties. The Guarantor is and shall at all times remain a 100% wholly-owned subsidiary of the Lessee. (b) Corporate Power and Authority. The Guarantor has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles. (c) No Violation. Neither the execution, delivery and performance by the Guarantor of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Guarantor of the transactions contemplated therein (i) result or will result in a violation by the Guarantor of any Applicable Law applicable to it or the Property, (ii) violate or result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Guarantor pursuant to the terms of any indenture, loan agreement or other agreement for borrowed money to which the Guarantor is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Guarantor. (d) Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Guarantor, threatened that question the validity of the Operative Documents or the rights or remedies of the Lessor, the Certificate Purchaser or the Construction Lender with respect to the Guarantor or the Property under the Operative Documents. (e) Governmental Approvals. No Governmental Action by any Governmental -7- Guaranty Agreement 8 Authority having jurisdiction over the Guarantor or the Property is required to authorize or is required in connection with (i) the execution, delivery and performance by the Guarantor of any Operative Document to which it is a party and (ii) the legality, validity, binding effect or enforceability against the Guarantor of any Operative Document to which it is a party. (f) Investment Company Act. The Guarantor is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act. (g) Public Utility Holding Company Act. The Guarantor is not a "holding company" or a "subsidiary company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (h) All United States Federal income tax returns and all other tax returns which are required to have been filed have been or will be filed by or on behalf of the Guarantor by the respective due dates, including extensions, and all taxes due with respect to the Guarantor pursuant to such returns or pursuant to any assessment received by the Guarantor have been or will be paid. The charges, accruals and reserves on the books of the Guarantor in respect of taxes or other governmental charges are, in the opinion of the Guarantor, adequate. (i) Solvency. The Guarantor is Solvent. ARTICLE IV COVENANTS SECTION 4.1. Covenants. The Guarantor, so long as any portion of the Obligations shall remain unpaid or any Funding Party shall have any outstanding Commitments under the Loan Agreement or the other Operative Documents, or in the event of a Refinancing, under any Refinancing Loan Document, covenants and agrees as set forth below: (a) Compliance with Laws. The Guarantor shall comply in all material respects with all Applicable Laws. (b) Required Transfers. The Guarantor will maintain, or cause to be maintained, at all times throughout the Interim Term, the Base Term and any Renewal Term, Qualified Assets in the amounts, and transfer Qualified Assets in the amounts at the times and to the accounts, all as provided in the Pledge and Security Agreement. (c) Payment of Taxes, Etc. The Guarantor shall pay and discharge before the -8- Guaranty Agreement 9 same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property, and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property, other than those arising from Permitted Liens; ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Operative Document. This Guaranty Agreement is an Operative Document executed pursuant to the Loan Agreement and the Participation Agreement. SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment of Guaranty Agreement. In addition to, and not in limitation of, Section 2.6, this Guaranty Agreement shall be binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Funding Party and each Holder and their respective successors and assigns (to the full extent provided pursuant to Section 2.6); provided, however, that the Guarantor may not assign any of its obligations hereunder without the prior written consent of each Funding Party and each Holder. SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty Agreement, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by each Funding Party and each Holder, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4. Addresses for Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement. SECTION 5.5. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.2 and Section 2.4, no failure on the part of any Funding Party or any Holder to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 5.6. Section Captions. Section captions used in this Guaranty Agreement are for convenience of reference only, and shall not affect the construction of this Guaranty Agreement. SECTION 5.7. Severability. Wherever possible each provision of this Guaranty Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without -9- Guaranty Agreement 10 invalidating the remainder of such provision or the remaining provisions of this Guaranty Agreement. SECTION 5.8. Termination of Guaranty Agreement. The Guarantor's obligations under this Guaranty Agreement shall terminate on the date upon which all Obligations are satisfied in full, subject to reinstatement as provided in Section 2.3 hereof. SECTION 5.9. GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY AGREEMENT, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE COMMONWEALTH OF PENNSYLVANIA. SECTION 5.10. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY AGREEMENT. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE LOAN AGREEMENT AND THE CERTIFICATE PURCHASER PURCHASING THE CERTIFICATE. -10- Guaranty Agreement 11 /s/ GJB - ------- Initial SECTION 5.11. POWER TO CONFESS JUDGMENT. THE GUARANTOR HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE AFTER AN EVENT OF DEFAULT UNDER THIS GUARANTY AGREEMENT, THE LEASE, THE CONSTRUCTION AGENCY AGREEMENT, OR ANY OF THE OPERATIVE DOCUMENTS AND, IN THE EVENT OF A REFINANCING, ANY REFINANCING LOAN DOCUMENT, TO APPEAR FOR THE GUARANTOR, AND, WITH OR WITHOUT DECLARATION FILED, CONFESS JUDGMENT AGAINST THE GUARANTOR IN FAVOR OF THE FUNDING PARTIES, AS OF ANY TERM, FOR THE UNPAID OBLIGATIONS HEREUNDER, AND INCLUDING, WITHOUT LIMITATION, ALL ACCRUED AND UNPAID INTEREST, CHARGES, EXPENSES OR OTHER AMOUNTS PAYABLE UNDER THIS GUARANTY AGREEMENT, THE LEASE, THE CONSTRUCTION AGENCY AGREEMENT, OR UNDER ANY OF THE OPERATIVE DOCUMENTS, AND, IN THE EVENT OF A REFINANCING, ANY REFINANCING LOAN DOCUMENT, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND A REASONABLE ATTORNEY'S COMMISSION AS CERTIFIED BY THE FUNDING PARTIES WITH RELEASE OF ALL ERRORS, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE GUARANTOR. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE FUNDING PARTIES SHALL ELECT, UNTIL SUCH TIME AS THE FUNDING PARTIES SHALL HAVE RECEIVED PAYMENT IN FULL OF THE OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS GUARANTY AGREEMENT. BY SIGNING THIS INSTRUMENT, THE GUARANTOR HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS, AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE CONFESSION OF JUDGMENT PROVISION AND UNDERSTANDS THAT A CONFESSION OF JUDGMENT CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE A JUDGMENT IS ENTERED AGAINST IT AND WHICH MAY RESULT IN A COURT JUDGMENT AGAINST THE GUARANTOR WITHOUT PRIOR NOTICE OR HEARING AND THAT THE AMOUNTS PAYABLE UNDER THIS GUARANTY AGREEMENT MAY BE COLLECTED FROM THE GUARANTOR REGARDLESS OF ANY CLAIM THE GUARANTOR MAY HAVE AGAINST ANY FUNDING PARTY. -11- Guaranty Agreement 12 /s/ GJB - ------- Initial SECTION 5.12. POWER TO EXECUTE ON A JUDGMENT WITHOUT HEARING. THE GUARANTOR HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD OR THE SHERIFF WITHIN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO TAKE ALL ACTION ALLOWED BY OR PROVIDED FOR IN THE PENNSYLVANIA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE RULES OF CIVIL PROCEDURE TO EXECUTE ON ANY JUDGMENT ENTERED AGAINST THE GUARANTOR PURSUANT TO THE CONFESSION OF JUDGMENT SET FORTH ABOVE WITHOUT PRIOR NOTICE OR HEARING OF ANY NATURE WHATSOEVER, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED BY THE GUARANTOR. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE OF VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE FUNDING PARTIES SHALL ELECT UNTIL SUCH TIME AS THE FUNDING PARTIES SHALL HAVE RECEIVED PAYMENT IN FULL OF THE OBLIGATIONS, INTEREST AND COSTS AND ALL AMOUNTS PAYABLE UNDER THIS GUARANTY AGREEMENT. BY SIGNING THIS INSTRUMENT THE GUARANTOR HEREBY ACKNOWLEDGES THAT IT HAS READ, HAS HAD THE OPPORTUNITY TO HAVE IT REVIEWED BY LEGAL COUNSEL, UNDERSTANDS AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING THE POWER TO EXECUTE ON JUDGMENT WITHOUT A HEARING, AND UNDERSTANDS THAT THE POWER TO EXECUTE ON A JUDGMENT WITHOUT A HEARING CONSTITUTES A WAIVER OF RIGHTS IT OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE EXECUTION ON A JUDGMENT, AND THAT THE AMOUNTS PAYABLE UNDER THIS GUARANTY AGREEMENT MAY BE COLLECTED FROM THE GUARANTOR REGARDLESS OF ANY CLAIM THAT THE GUARANTOR MAY HAVE AGAINST ANY FUNDING PARTY. SECTION 5.13. SUBMISSION OF JURISDICTION. THE FUNDING PARTIES AND ALL HOLDERS HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND ANY COURT OF THE COMMONWEALTH OF PENNSYLVANIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. THE FUNDING PARTIES AND ALL HOLDERS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE -12- Guaranty Agreement 13 TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDINGS BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -13- Guaranty Agreement 14 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. Attest: FORE SYSTEMS HOLDING CORPORATION /s/ CHRISTOPHER H. GEBHARDT By: /s/ GARY J. BRUNNER - --------------------------- ----------------------------------- Name: Gary J. Brunner --------------------------------- Title: Treasurer -------------------------------- -14- Guaranty Agreement EX-10.5 6 FORE SYSTEMS, INC. 1 Exhibit 10.5 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT, dated as of December 14, 1998 (this "Agreement"), is made by FORE SYSTEMS HOLDING CORPORATION, a Delaware corporation (the "Pledgor"), MELLON BANK, N.A., as Construction Lender and Collateral Agent, and MELLON FINANCIAL SERVICE CORPORATION #4, as Certificate Purchaser (each a "Pledgee" and collectively, the "Pledgees"), and MELLON BANK, N.A., as securities intermediary for the Collateral Account (in such capacity, the "Securities Intermediary"). W I T N E S S E T H: -------------------- WHEREAS, pursuant to the Participation Agreement dated as of the date hereof, among the Pledgor, the Construction Lender, the Certificate Purchaser and Wilmington Trust Company, not in its individual capacity, but solely as Certificate Trustee of Brush Creek Business Trust II, the Participants have agreed to finance the development of certain Improvements on the Land to be used by the Pledgor; WHEREAS, the Construction Lender and the Certificate Trustee have entered into the Construction Loan Agreement dated as of the date hereof, pursuant to which the Construction Lender has agreed to make Construction Loans to the Certificate Trustee, to be evidenced by the Note, to provide a portion of the funds to pay the Property Improvements Costs, Transactions Costs, accrued interest and Certificate Yield during construction; WHEREAS, the Certificate Purchaser has purchased the Certificate, pursuant to the Trust Agreement dated as of the date hereof, the proceeds of which will provide a portion of the funds to pay the Property Improvements Costs, Transaction Costs, accrued interest and Certificate Yield during construction; WHEREAS, the principal amount of the loans outstanding as evidenced by the Note is expected to be refinanced by the Tranche A Loans and the Tranche B Loans; WHEREAS, pursuant to the terms of the Participation Agreement, the Pledgor has agreed to satisfy the Collateral Requirement; and WHEREAS, the Pledgor acknowledges and agrees that it will derive substantial benefits from the execution and delivery of the Participation Agreement, the Operative Documents, the Refinancing Loan Documents, and the transactions contemplated thereunder, and has executed and delivered to the Pledgees the Guaranty Agreement dated as of the date hereof, pursuant to which Pledgor has guaranteed the full and punctual payment of the Obligations; NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the Pledgor, the Pledgees, and the Securities Intermediary, intending to be legally bound, hereby agree as follows: 2 ARTICLE 1 DEFINITIONS SECTION 1.1 Certain Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Additional Pledged Property" is defined in clause (a) of Section 6.1. "Agreement" is defined in the preamble. "Authorized Signatory" means, relative to any Person, each of its officers or any attorney-in-fact of any such officer authorized to deliver certificates, requests or communications or otherwise act on behalf of such Person pursuant to an appropriate power of attorney (in form and substance satisfactory to the Pledgees and the Collateral Agent and certified copies of which shall have been delivered to the Pledgees, the Securities Intermediary and the Lenders) granted to such Person. "Collateral Agent" means Mellon Bank, N.A. in its capacity as collateral agent for Pledgees pursuant to Section 3.3. "Collateral Account" is defined in Section 3.1. "Collateral Value" shall mean 90% of the Fair Market Value of the Marketable Collateral. "Collateral Value Notice" is defined in Section 3.2(b). "Control Agreement" means any agreement establishing or providing control (as defined in the UCC) in or to any Person with respect to the Pledged Property. "Distributions" is defined in clause (b) of Section 5.4. "Fair Market Value" shall mean in the case of cash, the amount of such cash, and otherwise, the market value of the applicable Marketable Collateral as determined by reference to market quotes at the opening of business provided on the date of valuation by Bloomberg Financial Market Service, or if such rate is unavailable, by Interactive Data Services Inc., Telerate, Reuters and/or any major daily financial publication such as The Wall Street Journal or The New York Times. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Margin Loans" means all borrowings used to fund the purchase of Margin Stock, including, without limitation, money borrowed pursuant to the Operative Documents. "Margin Stock" shall have the meaning specified for such term in Regulation U of the F.R.S. Board as from time to time in effect. 2 Pledge and Security Agreement 3 "Pledge" means the pledge of the Pledged Property to Pledgees as security for the Obligations. "Pledged Property" is defined in Section 2.1. "Pledgee" and "Pledgees" are defined in the preamble. "Pledgor" is defined in the preamble. "Substituted Pledged Property" is defined in clause (a) of Section 6.1. "UCC" means the Uniform Commercial Code as in effect from time to time in the Commonwealth of Pennsylvania. SECTION 1.2 Participation Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the meanings provided in the Participation Agreement, and the rules of interpretation set forth therein shall apply to this Agreement. SECTION 1.3 UCC Definitions. Unless otherwise defined herein, in the Participation Agreement or the context otherwise requires, terms for which meanings are provided in the UCC are used in this Agreement, including its preamble and recitals, with such meanings. ARTICLE 2 PLEDGE SECTION 2.1 Initial Grant of Security Interest. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or mandatory prepayment or otherwise) of the Obligations and all other obligations of the Lessee, the Construction Agent or any Guarantor under the Operative Documents, the Pledgor hereby pledges, hypothecates, assigns, charges, mortgages, delivers, grants and transfers to each Pledgee, for its benefit, a continuing security interest in and to all of the Pledgor's right, title and interest in and to the following property whether now owned by the Pledgor or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located (all being collectively referred to herein as "Pledged Property"): (a) the Collateral Account, together with all cash, Marketable Collateral and other property from time to time credited to or on deposit in the Collateral Account; (b) any and all property received in exchange or substitution for any such cash, Marketable Collateral or other property; (c) all moneys or property representing principal of or interest on any of the foregoing, or representing a dividend on or other distribution in respect of any of the foregoing, or resulting from reclassification or other like change of any of the foregoing or otherwise received in exchange 3 Pledge and Security Agreement 4 therefor, and any subscription, warrants, rights or options issued to the holders of, or otherwise in respect of, any of the foregoing; (d) such other property of Pledgor as may be delivered to Collateral Agent as collateral hereunder and is described in a Specification of Additional Collateral in the form of Annex I hereto that has been executed by Pledgor; (e) any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the foregoing, or any instrument relating thereto, and all accounts, contracts, contract rights, general intangibles and nominee agreements, covering, relating to, or arising from or in connection with, any of the foregoing, and all other things incident thereto (including, without limitation, any and all liens, lien rights, security interests and other rights and interests) which the Pledgor might at any time have or be entitled to with respect to the foregoing; and (f) all proceeds of any of the property of the Pledgor described in clauses (a) through (e) above (including any proceeds of insurance thereon). SECTION 2.2 Security for Obligations. This Agreement secures the payment in full of all the Obligations and all other obligations of the Lessee, the Construction Agent or any Guarantor under the Operative Documents and all obligations of each Guarantor now or hereafter existing under the Guaranty, the Guaranty Agreement, the Participation Agreement, the Notes and each other Operative Document to which such Guarantor is or may become a party, whether for principal, interest, Rent, costs, fees, expenses, penalties or otherwise. SECTION 2.3 Continuing Security Interest. This Agreement shall create a continuing security interest in the Pledged Property and shall (a) remain in full force and effect until the termination of the Pledge contemplated by Section 7.14 hereof, (b) be binding upon the Pledgor and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Pledgees, to the benefit of each Pledgee and their respective successors, transferees and assigns. Upon the termination of the Pledge, the security interest and security entitlement granted herein shall terminate and all rights to the Pledged Property shall revert to the Pledgor in accordance with the terms of Section 7.14. SECTION 2.4 Transfers to Collateral Account. Pledgor shall: (a) transfer all property that is to constitute a part of the Pledged Property to the Securities Intermediary for credit to the Collateral Account or, in the case of any such property that is already maintained in another account of Pledgor with the Securities Intermediary, instruct the Securities Intermediary to transfer such property into the Collateral Account; 4 Pledge and Security Agreement 5 (b) give, execute, deliver, file and record any notice, instrument, document, agreement, Control Agreement or other papers that may be necessary or desirable in the reasonable judgment of the Collateral Agent to create, perfect, preserve and validate the security interest in the Pledged Property created hereunder, and to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such security interest. (c) keep full and accurate books and records relating to the Pledged Property, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; (d) permit representatives of the Collateral Agent, upon reasonable notice and at any time during normal business hours, to inspect and make abstracts from the Pledgor's books and records pertaining to the Pledged Property, and forward copies of any notices or communications received by the Pledgor with respect to the Pledged Property all in such manner as the Collateral Agent may reasonably require; and (e) upon the reasonable request of the Collateral Agent, deliver to Collateral Agent, at the expense of the Pledgor, opinions of local counsel, in form and substance satisfactory to the Collateral Agent and its respective counsel, as to the perfection of the Collateral Agent's security interest in any of the Pledged Property contemplated by this Agreement and as to the protection of the Collateral Agent with respect to adverse claims relating to the Pledged Property. ARTICLE 3 COLLATERAL REQUIREMENT SECTION 3.1 Establishment of Collateral Account; Control. (a) Concurrently herewith the Pledgor has established at the branch of the Securities Intermediary located at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, a collateral account designated on the records of the Securities Intermediary as "Fore Systems Holding Corporation Collateral Account, Mellon Bank, N.A., as Agent for the Pledgees", account number S-038218-W (herein, together with any substitution therefor, the "Collateral Account"). The Collateral Account shall be segregated from any and all other accounts or other property of the Pledgor. The Securities Intermediary acknowledges and agrees that it has established the Collateral Account and that the Collateral Account constitutes a securities account for purposes of Article 8 of the UCC. The Securities Intermediary further agrees to treat all assets credited to the Collateral Account, including without limitation, any and all cash (whether in the form of money or credit balances) and Marketable Collateral, as financial assets for purposes of Article 8 of the UCC. For the avoidance of doubt, the parties agree that the Collateral Account shall be governed by the laws of the Commonwealth of Pennsylvania, which shall be the Securities Intermediary's jurisdiction for purposes of the UCC. (b) For the purpose of providing control over the Collateral Account to the Pledgees, the Securities Intermediary hereby agrees as follows: 5 Pledge and Security Agreement 6 (i) the Securities Intermediary will comply with entitlement orders originated by either of the Pledgees (including Mellon Bank, N.A. acting either as Construction Lender or as Collateral Agent) with respect to the Collateral Account without further consent from the Pledgor. (ii) Without limitation of the obligation of the Securities Intermediary to accept entitlement orders originated by a Pledgee pursuant to Section 3.1(b)(i), each Pledgee agrees with and for the sole benefit of the Pledgor that the Collateral Agent will not originate any entitlement orders with respect to the Collateral Account except as permitted under Sections 5.6 and 6.1. (iii) Notwithstanding the foregoing, the Pledgor shall be entitled to originate entitlement orders with respect to the Collateral Account to the extent permitted under Sections 3.2(d), 3.5 and 6.1. (iv) The Securities Intermediary will not enter into a Control Agreement with any party other than the Pledgees without the prior written consent of the Pledgor and the Pledgees. (c) The Pledgor shall deliver with any certificated or uncertificated securities delivered to the Securities Intermediary for credit to the Collateral Account, all appropriate undated bond powers, duly executed or indorsed to the Securities Intermediary or in blank and any and all other forms related to transfer requested by the Collateral Agent, completed or executed so as to make such transfer valid under applicable law and the rules of any securities exchange or otherwise. (d) The Pledgor and each Pledgee agree to do or take all actions (or omit from taking actions) in order to make all transfers contemplated hereby valid under applicable law and the rules of any securities exchange or otherwise. (e) To the extent that any financial assets relating to the Pledged Property constitute certificated securities, the Securities Intermediary shall retain physical possession of the certificates or instruments representing or evidencing such Marketable Collateral or shall have such financial assets credited to the Securities Intermediary's account at The Depository Trust Company ("DTC"). To the extent that any such financial assets constitute uncertificated securities, the Securities Intermediary shall cause such financial assets to be (i) credited to the account of Securities Intermediary or its nominee at DTC or, if appropriate, the Federal Reserve Bank of New York; or (ii) registered on the books of the issuer thereof in the name of the Securities Intermediary. In addition, subject to Section 3.5 hereof, the Securities Intermediary shall at all times have the right to exchange certificates or instruments representing or evidencing financial assets relating to Marketable Collateral for certificates or instruments in smaller or larger denominations for any purpose consistent with its performance of this Agreement; provided that the aggregate principal amount of the certificates or instruments received upon such an exchange shall not be less than the aggregate principal amount of the certificates or instruments tendered for exchange. 6 Pledge and Security Agreement 7 SECTION 3.2 Maintenance of Marketable Collateral. (a) The Pledgor at all times shall maintain during the Term Marketable Collateral in the Collateral Account in an amount (the "Collateral Requirement") having a Collateral Value equal to or greater than (i) beginning on the Initial Advance Date and until the Refinancing has occurred, 100 percent of the principal amount plus all accrued interest with respect to the Construction Loans and (ii) following the Refinancing, the sum of (A) 100 percent of the aggregate principal amount of all Tranche A Loans plus any interest accrued thereon and (B) (x) 50 percent of the aggregate principal amount of all Tranche B Loans plus any accrued interest thereon, or (y) at all times when Lessee has elected to refinance the Tranche A Loans pursuant to Section 3.7(c) of the Participation Agreement, 100 percent of the aggregate principal balance of all Tranche B Loans and Certificate Amounts plus any yield and interest accrued thereon. (b) On the first Business Day of each calendar month during the Term, the Securities Intermediary shall determine the aggregate Collateral Value of the Marketable Collateral in the Collateral Account, and such determination shall be promptly furnished, in writing, to the Pledgor and each Pledgee ("Collateral Value Notice"). (c) At any time when the Collateral Value Notice reveals there is insufficient Marketable Collateral in the Collateral Account to satisfy the Collateral Requirement, the Pledgor shall deposit, no later than five (5) Business Days after receipt of the Collateral Value Notice, additional Marketable Collateral in the Collateral Account to the extent necessary to satisfy the Collateral Requirement. (d) At any time when (i) the Collateral Value Notice reveals there is excess Marketable Collateral in the Collateral Account to satisfy the Collateral Requirement and (ii) no Default or Event of Default has occurred or is continuing, the Pledgor may request by written notice to the Pledgees, with a copy to the Securities Intermediary, to release such excess Marketable Collateral to the Pledgor or upon its order or the order of its designee, and the Pledgees shall release and direct the Securities Intermediary to release such excess Marketable Collateral to the Pledgor or upon its order, provided, however, that no release of Marketable Collateral pursuant to this Section 3.2(d) shall occur if such release will violate the Collateral Requirement. SECTION 3.3 Appointment of the Collateral Agent. (a) The Pledgees hereby appoint the Collateral Agent as the Pledgees' agent for the purpose of (i) obtaining and maintaining control with respect to such Pledged Property; and (ii) taking any and all actions necessary for the protection of the Pledgees' interests in the Pledged Property, all in accordance with the provisions of this Agreement. All Pledged Property shall be in the Collateral Account and segregated from all other property, including, without limitation, that of the Pledgor and the Pledgees. The Collateral Agent hereby accepts such appointment. (b) The Collateral Agent acknowledges receipt of this Agreement, certifies that no notice of any other security agreement or claim affecting the Pledged Property has been received by it, states that the Pledged Property will be held in the Collateral Account for the benefit of the Pledgees and agrees to hold the Pledged Property solely for the benefit of the Pledgees and subject to the control of the Pledgees, as provided in this Agreement. The Collateral Agent agrees to exercise the same degree of care as exercised by banks generally for similar property in exercising 7 Pledge and Security Agreement 8 its duties under this Agreement. The duties of the Collateral Agent under this Agreement shall only be those set forth in this Agreement. SECTION 3.4 Consent of Pledgor. The Pledgor hereby consents to allow the appointment by the Pledgees of the Collateral Agent, as contemplated by this Article III, waives any defenses or objections to such transfer given to the Pledgor in any agreement, including without limitation any of the terms in the Operative Documents, and shall not challenge, or permit any of its Subsidiaries to challenge the transfer of the security interests in the Pledged Property contemplated by the Pledge. The Pledgor further agrees to take all actions and give other aid reasonably required by the Collateral Agent in meeting the Pledgor's obligations under this Agreement. SECTION 3.5 Investment of Pledged Property. So long as no Event of Default or Default shall have occurred and be continuing, the Securities Intermediary shall honor entitlement orders or other instructions of Pledgor to invest all moneys credited or on deposit from time to time (including moneys on deposit upon the sale or maturity of securities) to or in the Collateral Account in Marketable Collateral having an equal or greater Collateral Value than the sold or matured security. Such investments, together with any interest or other earnings resulting from such investments, shall be maintained in the Collateral Account and shall be reinvested as provided in this paragraph. Neither the Securities Intermediary, in the absence of gross negligence or willful misconduct, nor the Pledgees, shall be liable or responsible for any loss resulting from any such investments. 8 Pledge and Security Agreement 9 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.1 Pledgor Warranties, etc. The Pledgor hereby represents and warrants to each Pledgee and the Collateral Agent, as at the date of each pledge and delivery hereunder by the Pledgor of any Pledged Property, as follows: (a) Ownership, No Liens, etc. The Pledgor is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign), such Pledged Property, free and clear of all liens, security interests, options, security entitlements, Control Agreements or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Pledgees. (b) Valid Security Interest. The transfer of the Pledged Property to the Collateral Account, as contemplated by this Agreement, will be effective to create a valid, perfected, first- priority security interest in such Pledged Property and all proceeds thereof in favor of Collateral Agent on behalf of the Pledgees, subject to no other liens, security interests, options, security entitlements, Control Agreements or other charges or encumbrances, and such security interest shall be maintained as such at all times during the Term. No filing or other action will be necessary to perfect or protect such security interests. (c) Authorization, Approval, etc. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other Person is required either: (i) for the pledge by the Pledgor of any Pledged Property pursuant to this Agreement or for the execution, delivery, and performance of this Agreement by the Pledgor, or (ii) for the exercise by the Pledgees, or by the Collateral Agent following its appointment as contemplated by Article III of this Agreement, of the voting or other rights provided for in this Agreement, or the remedies in respect of the Pledged Property pursuant to this Agreement. (d) Compliance with Laws. The Pledgor is in compliance with the requirements of all applicable laws (including, without limitation, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, the non-compliance with which might materially adversely affect the business, properties, assets, operations, condition (financial or otherwise) or prospects of the Pledgor or the value of the Pledged Property or the worth of the Pledged Property as Pledged Property security, or otherwise affect the Pledge. (e) Office of Pledgor. The Pledgor represents and warrants that its place of business and chief executive office and the office where it keeps its records concerning the Pledged Property is located at 1000 FORE Drive, Warrendale, Pennsylvania 15086. 9 Pledge and Security Agreement 10 ARTICLE 5 COVENANTS; REMEDIES SECTION 5.1 Covenants. In furtherance of the pledge and grant of the security interest pursuant to the terms hereof, the Pledgor hereby covenants and agrees to perform its obligations under this Article V. SECTION 5.2 Other Financing Statements and Liens. The Pledgor shall not, without the prior written consent of the Collateral Agent, file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement, or file or authorize any like instrument, with respect to the Pledged Property in which the Pledgees or the Collateral Agent are not named as the sole secured parties. Without the prior written consent of the Collateral Agent, the Pledgor shall not authorize, permit, or enter into any Control Agreement granting any Person control of the Pledged Property other than the Pledgees or the Collateral Agent. SECTION 5.3 Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against other parties to any of the Pledged Property. SECTION 5.4 Voting Rights and Distributions. (a) So long as no Event of Default shall have occurred and be continuing, the Pledgor shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Pledged Property; provided, that the Pledgor agrees that it will not vote any of the Pledged Property in any manner that is inconsistent with the terms of this Agreement, the Participation Agreement, the Note or any other Operative Document; and the Securities Intermediary shall execute and deliver to the Pledgor or cause to be executed and delivered to the Pledgor all such proxies, powers of attorney and other orders, and all such instruments, without recourse, as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the rights and powers which it is entitled to exercise pursuant to this Section 5.4. (b) Any principal of and interest on, and any dividends or distributions with respect to, any Pledged Property (such principal, interest, dividends and distributions which the Pledgor is entitled to receive and retain under this clause being herein called "Distributions"), shall be paid directly to the Securities Intermediary, retained by it and deposited into the Collateral Account as additional Pledged Property, subject to the terms of this Agreement, and, if the Collateral Agent shall so request in writing, the Pledgor agrees to execute and deliver to the Securities Intermediary appropriate orders and documents to effectuate the provisions of this clause (b). SECTION 5.5 Events of Default. Each of the following events shall constitute an event of default under this Agreement (each, an "Event of Default"): 10 Pledge and Security Agreement 11 (a) The failure of the Pledgor to pay, after three days prior notice by means of invoice, the reasonable fees and expenses of the Collateral Agent; or (b) The failure of the Pledgor to comply with any of the terms or provisions of this Agreement, which (except as provided in (a) above) failure shall have continued for a period of five (5) days; or (c) A Lease Event of Default, Loan Agreement Event of Default or Construction Agency Agreement Event of Default shall occur and be continuing. SECTION 5.6 Remedies, etc. During the period in which an Event of Default shall have occurred and be continuing: (a) The Collateral Agent may originate entitlement orders in respect of the Pledged Property or otherwise exercise in respect of the Pledged Property, in addition to other rights and remedies provided for herein or otherwise available to it under the Operative Documents or at law or in equity, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Pledged Property). (b) The Collateral Agent may: (i) deliver and pay over all or any portion of the Pledged Property in the Collateral Account to the Pledgees, to be applied to satisfy accrued and unpaid Obligations, (ii) sell the Pledged Property, or any part thereof, at any public or private sale or on any securities exchange, for cash, upon credit or for future delivery, as the Pledgees shall deem appropriate. The Pledgees shall be authorized at any such sale to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Pledged Property for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale, the Pledgees shall have the right to assign and transfer and have the Collateral Agent transfer and deliver to the purchaser or purchasers thereof the Pledged Property so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of the Pledgor and its Affiliates, and each of the Pledgor and its Affiliates hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule or law or statute now existing or hereafter enacted. The Pledgees shall give the Pledgor at least ten (10) days' written notice of the Pledgees' intention to make any such public or private sale or sales at any broker's board or on any such securities exchange. Such notice, in case of public sale, shall state the time and place fixed for such sale. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places, as the Pledgees may fix in the notice of such sale. At any such sale, the Pledged Property, or portion thereof, to be sold may be sold in one sale as an entirety or in separate sales, as the Pledgees may (in their sole and absolute discretion) determine and the Pledgees may bid (which bid may be in whole or in part, in the form of cancellation of indebtedness) for and purchase for the account of the Pledgees the whole or any part of the Pledged Property. 11 Pledge and Security Agreement 12 The Pledgees shall not be obligated to make any sale of Pledged Property if it shall determine not to do so, regardless of the fact that notice of sale of Pledged Property may have been given. The Pledgees may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case a sale of all or any part of the Pledged Property is made on credit or for future delivery, the Pledged Property so sold may be retained by the Pledgees until the sale price is paid by the purchaser or purchasers thereof, but the Pledgees shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Property so sold and, in case of any such failure, such Pledged Property may be sold again upon like notice, (iii) proceed by a suit or suits at law or in equity to foreclose the security interest granted under this Agreement and to sell the Pledged Property, or any portion thereof, pursuant to a judgment or decree of a court or courts of competent jurisdiction, (iv) transfer all or any part of the Pledged Property into the name of the Collateral Agent or its nominee, with or without disclosing that such Pledged Property is subject to the lien and security interest hereunder, (v) notify the parties obligated on any of the Pledged Property to make payment to the Collateral Agent of any amount due or to become due thereunder, (vi) enforce collection of any of the Pledged Property by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (vii) endorse any checks, drafts, or other writings in the Pledgor's name to allow collection of the Pledged Property, (viii) take control of any proceeds of the Pledged Property, and (ix) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Property. The Pledgees agree, solely for the benefit of the Participants, and not for the benefit of the Lessee, the Guarantor or any other Person, to seek to be repaid any amounts owing to the Pledgees from the proceeds of the Pledged Property prior to the proceeds of the Property. In addition, the Pledgees shall have all of the rights granted to the Pledgees under this Agreement upon the occurrence of an Event of Default. The Pledgor and the Lessee shall be liable for the deficiency if the proceeds of any sale or other disposition of the Pledged Property are insufficient to pay all amounts to which the Pledgees are entitled, and the fees and disbursements of any attorneys employed by the Pledgees to collect such deficiency. 12 Pledge and Security Agreement 13 SECTION 5.7 Change of Address or Name. Without at least 30 days' prior written notice to the Collateral Agent, the Pledgor shall not maintain any of its books or records with respect to the Pledged Property at any office or maintain its chief executive office or its principal place of business at any place other than at the address specified in Section 4.1(e), or change its name, or name under which it does business, from the name shown on the signature page hereto. SECTION 5.8 Indemnity and Expenses. The Pledgor hereby indemnifies and holds harmless each Pledgee and the Collateral Agent from and against any and all claims, losses, and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses, or liabilities resulting from the Collateral Agent's gross negligence or willful misconduct. Upon demand, the Pledgor will pay to the Pledgees and the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which such payee may incur in connection with: (a) the exercise or enforcement of any of the rights of such party hereunder; or (b) the failure by the Pledgor to perform or observe any of the provisions hereof. The Pledgor also hereby indemnifies, exonerates and holds free and harmless the Collateral Agent, each Pledgee and their respective counsel from any suits, actions, causes of action or proceedings brought by any Person relating to or arising out of this Agreement or any Operative Document. SECTION 5.9 Further Assurances. The Pledgor covenants and agrees that, from time to time upon the written request of any Pledgee or the Collateral Agent, the Pledgor will execute and deliver such further documents and do such other acts and things as any Pledgee or the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement and to protect and preserve the priority and validity of the security interest granted hereunder. SECTION 5.10 Amendments to Other Documents. The Pledgor covenants and agrees that it shall not consent to any amendment or other modification or supplement to any of the documentation or instruments relating to any Pledged Property if, in the reasonable judgment of the Collateral Agent, such modification would limit the right of the Collateral Agent to exercise foreclosure remedies with respect thereto or adversely affect the rights of the Collateral Agent hereunder. The Pledgor shall furnish to the Collateral Agent promptly after receipt thereof copies of all amendments, modifications and supplements to documentation relating to the Pledged Property. SECTION 5.11 Pledgees Appointed Attorney-in-Fact. The Pledgor hereby appoints the Pledgees and the Collateral Agent, acting either individually or jointly, as the Pledgor's attorney-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which they may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, both the Pledgees and the Collateral Agent, acting either individually or jointly, shall have the right and power to receive, endorse and correct all checks, drafts and other orders for the payment of money made payable to the Pledgor representing any interest payment or other distribution payable or distributable in respect of the Pledged Property or any part thereof and to give full discharge for the same. 13 Pledge and Security Agreement 14 SECTION 5.12 Change of Collateral Agent. No change in Collateral Agent may occur without the express written consent of the Pledgees and the Pledgor. The Collateral Agent may resign by giving thirty (30) days' notice to the parties to this Agreement. The Pledgees may then appoint a successor Collateral Agent with the prior written consent of the Pledgor, which shall not be unreasonably withheld or delayed, whereupon the successor Collateral Agent shall succeed to the rights, powers and duties of the Collateral Agent. ARTICLE 6 SALES AND SUBSTITUTIONS OF CASH COLLATERAL; ADDITIONAL PLEDGED PROPERTY SECTION 6.1 Sales and Substitutions of Pledged Property; Additional Pledged Property. (a) Subject to clauses (b) and (c) below and in addition to its rights under Section 3.5, upon notice to and with the consent of the Collateral Agent, the Pledgor (or any Authorized Signatory thereof) shall have the right to sell Pledged Property, to substitute other Pledged Property (the "Substituted Pledged Property") or pledge additional Pledged Property (the "Additional Pledged Property") so long as no Event of Default exists or, in the sole opinion of the Collateral Agent, would result therefrom, upon giving effect to such sale, substitution, or additional pledge of Pledged Property. A substitution of Pledged Property shall be effected by the Collateral Agent originating an entitlement order, or authorizing the Securities Intermediary to honor an entitlement order from the Pledgor, to deliver or transfer to the Pledgor or its designee the Pledged Property being replaced against the receipt by the Securities Intermediary for credit to the Collateral Account of the Substituted Pledged Property. The Collateral Agent will execute any documents of release reasonably requested by the Pledgor. The Collateral Agent shall not be required to release any Pledged Property to the Pledgor unless (i) the Collateral Agent shall have determined, in accordance with clause (c) below, that no violation of any rule or regulation of the Federal Reserve Board would result therefrom and (ii) the Pledgor shall first reimburse the Collateral Agent and the Pledgees for any reasonable expenses incurred or taxes imposed in connection with such release. The Pledgor shall comply with all its obligations under this Agreement as to Substituted Pledged Property or Additional Pledged Property, including, but not limited to, its obligations with respect to delivery of the Substituted Pledged Property or Additional Pledged Property and perfection of the Collateral Agent's first-priority security interest in the Substituted Pledged Property or Additional Pledged Property. The Pledgor shall deliver such certificates, if necessary, and take such other action as may be necessary to transfer such a first-priority perfected security interest in any Substituted Pledged Property or Additional Pledged Property to the Collateral Agent. (b) The delivery of a written notice pursuant to clause (a) above by the Pledgor to the Collateral Agent, prior to effecting any substitution or additional pledge of Pledged Property as contemplated by this Section 6.1 shall constitute a representation and warranty by the Pledgor that no violation of the rules and regulations of the Federal Reserve Board exists with respect to the Loans and such sale, substitution or pledge of Pledged Property will not result in a violation of any rule or regulation of the Federal Reserve Board. 14 Pledge and Security Agreement 15 (c) In order to effect a release of Pledged Property and as contemplated by clause (a) above, the Collateral Agent will confirm the release in a certificate, if necessary, and take such other action as may be necessary to release its security interest therein. ARTICLE 7 MISCELLANEOUS PROVISIONS SECTION 7.1 Operative Document. This Agreement is an Operative Document executed pursuant to the Participation Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. As such, the Collateral Agent has, on behalf of itself and each Pledgee, all powers incidental to the execution of each of the terms of this Agreement, as contemplated by the parties hereto. SECTION 7.2 Waivers, Amendments, etc. The provisions of this Agreement may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Pledgor and the Collateral Agent in accordance with the terms of the Participation Agreement. No failure or delay on the part of the Collateral Agent or the holder of any Note in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Pledgor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Collateral Agent or the holder of any Note under this Agreement shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 7.3 Protection of Pledged Property. The Collateral Agent may from time to time, at its option, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Collateral Agent may from time to time take any other action which the Collateral Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Property or of its security interest therein. SECTION 7.4 Notices. All notices and other communications provided for hereunder shall be in writing and addressed and delivered or transmitted to the respective address or facsimile number specified in the Participation Agreement, or as to any Person, at such other address or facsimile number as may be designated by such Person in a notice to each other such Person complying as to delivery with the terms of this Section 7.4. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted (upon electronic confirmation of transmission). 15 Pledge and Security Agreement 16 SECTION 7.5 Headings. The various headings of this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof. SECTION 7.6 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.7 Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Pledgor and the Collateral Agent (or notice thereof satisfactory to the Collateral Agent) shall have been received by the Collateral Agent. SECTION 7.8 Governing Law, Entire Agreement, etc. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR CASH COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE COMMONWEALTH OF PENNSYLVANIA. THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.9 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY CASH COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH CASH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE COMMONWEALTH OF PENNSYLVANIA. PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THE PLEDGOR MAY HAVE OR HEREAFTER MAY 16 Pledge and Security Agreement 17 HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. SECTION 7.10 Waiver of Jury Trial. THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS THE PLEDGOR MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE OTHER PARTIES HERETO OR THE PLEDGOR. THE PLEDGOR 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 OTHER PARTIES HERETO ENTERING INTO THE PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE DOCUMENT. SECTION 7.11 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Pledgor may not assign or transfer its rights or obligations hereunder. SECTION 7.12 The Agents. The Collateral Agent may employ agents and attorneys-in-fact, which may include branches, Affiliates and Subsidiaries of the Collateral Agent, in connection herewith and, so long as such agents or attorneys-in-fact are not branches, Affiliates or Subsidiaries of the Collateral Agent, the Collateral Agent shall not be responsible for the negligence of any such agents or attorneys-in-fact selected by it in good faith. SECTION 7.13 Expenses. The Pledgor agrees to pay to each Pledgee and the Collateral Agent on demand all out-of-pocket expenses of such payee (including all reasonable fees and out-of-pocket expenses of counsel to such payee and of local counsel, if any, who may be retained by counsel to that payee) relating to the enforcement of any of the provisions of this Agreement, or performance by the Collateral Agent of any obligations of the Pledgor in respect of the Pledged Property which the Pledgor has failed or refused to perform, or any actual or attempted exchange, enforcement, collection, compromise or settlement in respect of any of the Pledged Property, and for the care of the Pledged Property and defending or asserting rights and claims of the Pledgees or the Collateral Agent in respect thereof, by litigation or otherwise, and all such expenses shall constitute obligations secured under this Agreement. SECTION 7.14 Termination. When all obligations secured by this Agreement shall have been paid in full and the Commitment of the Lenders under the Construction Loan Agreement or any Refinancing Loan Document shall have expired or been terminated, this Agreement shall terminate, and the 17 Pledge and Security Agreement 18 Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever (other than as to there being no Liens resulting from any act of or claim against the Collateral Agent), any remaining Pledged Property and money received in respect thereof to or on the order of the Pledgor. [SIGNATURE PAGES FOLLOW] 18 Pledge and Security Agreement 19 IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed as of the day and year first above written. FORE SYSTEMS HOLDING CORPORATION, as Pledgor By: /s/ GARY J. BRUNNER ------------------------------------- Name: Gary J. Brunner ----------------------------------- Title: Treasurer ---------------------------------- MELLON FINANCIAL SERVICES CORPORATION #4, as Pledgee By: /s/ STEPHEN R. VIEHE ------------------------------------ Name: Stephen R. Viehe ---------------------------------- Title: Vice President --------------------------------- MELLON BANK, N.A., as Pledgee By: /s/ MICHAEL T. ANSELMO ------------------------------------- Name: Michael T. Anselmo ----------------------------------- Title: Vice President ----------------------------------- MELLON BANK, N.A., as Securities Intermediary By: /s/ MICHAEL T. ANSELMO ------------------------------------- Name: Michael T. Anselmo ----------------------------------- Title: Vice President ----------------------------------- S-1 Pledge and Security Agreement 20 ANNEX I TO PLEDGE AND SECURITY AGREEMENT SPECIFICATION OF ADDITIONAL COLLATERAL Pursuant to Section 2.1(d) of that certain Pledge and Security Agreement, dated as of December __, 1998 (the "Agreement"), is made by Fore Systems Holding Corporation, a Delaware corporation (the "Pledgor"), Mellon Bank, N.A., as Construction Lender and Collateral Agent and Mellon Financial Service Corporation #4, as Certificate Purchaser (each a "Pledgee" and collectively, the "Pledgees"), and Mellon Bank, N.A., as securities intermediary for the Collateral Account (in such capacity, the "Securities Intermediary"), Pledgor hereby delivers to Collateral Agent the following property as additional collateral and as a part of the "Pledged Property" thereunder: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- This Specification of Additional Collateral is made as of this ____ day of _________, ____. FORE SYSTEMS HOLDING CORPORATION, as Pledgor By:______________________________ Name: Title: 2 Pledge and Security Agreement EX-27.1 7 FORE SYSTEMS, INC.
5 1000 9-MOS MAR-31-1999 APR-01-1998 DEC-31-1998 189,432 172,048 130,684 6,521 87,053 627,330 150,329 79,481 704,820 148,049 0 0 0 640,871 (84,100) 704,820 444,208 444,208 201,185 201,185 410,014 0 0 (155,828) 12,177 (168,005) 0 0 0 (168,005) (1.61) (1.61)
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