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Termination Agreement This Agreement (the "Agreement") is entered into as of the 29th day of December, 2000 by and among Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), Alpharma USPD, Inc., a Maryland corporation (the "Lender"), Alpharma Inc., a Delaware corporation (the "Parent"),State Street Bank and Trust Company (the "Depositary") and the Original Lenders signatory hereto. WHEREAS, on the date hereof, the Company has sold to the Lender, and the Lender has purchased from the Company, the Product Assets (as defined in the Product Purchase Agreement dated as of December 29, 2000 by and between the Lender and the Company (the "Product Agreement")) pursuant to the Product Agreement; WHEREAS, as full payment of the purchase price for the Product Assets and the Retained Intellectual Property License as defined in the Product Agreement, the Lender has delivered to the Company for cancellation that certain promissory note (the "Note") in the present principal amount of $12,000,000 executed by the Company in favor of the Lender pursuant to the Loan Agreement dated as of February 16, 1999 by and among the Company, the Lender and the Parent, as amended (the "Loan Agreement"); WHEREAS, in connection with the full payment and cancellation of the Note, the parties have agreed that the Lender shall cease to have the right to exercise the Call Option (as defined in the Depositary Agreement dated as of February 16, 1999 by and among the Company, the Lender and State Street Bank and Trust Company (the "Depositary"), as amended (the "Depositary Agreement")); NOW, THEREFORE, in consideration of the premises, it is agreed by and among the parties hereto as follows: Call Option . a. The Lender irrevocably and unconditionally agrees that i. it shall not exercise the Call Option (as defined in the Depositary Agreement); ii. at any time upon the request of the Company, it shall deliver to the Company a Call Option Rejection Notice (as defined in the Depositary Agreement) indicating that it has elected not to exercise its Call Option; and iii. at any time upon the request of the Company, it shall promptly execute and deliver such instruments, agreements and confirmations and take such other actions as the Company may reasonably request to terminate the Call Option and the Lender's rights under the Depositary Agreement, to confirm the Lender's obligation hereunder not to exercise the Call Option and to carry out the purposes and intent of this Agreement. b. In connection with the Lender's agreements under paragraph a above, the parties agree that, notwithstanding anything in Section 4.01 of the Depositary Agreement to the contrary, i. the Company shall not be required to deliver to the Lender the Option Exercise Deliverables (as defined in the Depositary Agreement); ii. the Company shall not be obligated to afford Lender, and the Lender shall have no right, under Section 4.01(b)(v) to access the Company's books, accounts, records, work papers and the Company's employees and independent public accountants; and iii. in accordance with the terms and conditions of the Depositary Agreement, upon the earlier of (A) delivery by the Lender of the Call Option Rejection Notice and (B) March 31, 2003, the "Option Expiration Date" shall be deemed to have occurred. c. In connection with the Lender's agreements under paragraph a above, the parties agree that the provisions of Section 4.03 of the Depository Agreement shall be of no further force or effect. Alpharma Director and Assistance . Upon the execution hereof, (i) Thomas Anderson shall resign as a director of the Company, and the Lender shall have no further rights under the Loan Agreement, including without limitation under Section 4.5 of the Loan Agreement, or otherwise to designate a nominee to stand for election to the Board of Directors of the Company (ii) the Company shall no longer receive any administrative services or management assistance (including, without limitation, the services of Robert Estey) from the Lender except distribution services in the general scope and upon the payment terms as presently in effect between the Company and the Lender for a term ending on December 31, 2001 subject to earlier cancellation by the Company upon 90 days notice (which the Lender and the Company shall set forth in a definitive Distribution Agreement within 30 days after the date hereof) and (iii) any other commercial arrangements in existence prior to this date shall have no further force and effect. For avoidance of doubt the letter from the Company to Mr. Estey containing an indemnification obligation of the Company shall continue in full force and effect in accordance with its terms (other than Mr. Estey's commitment thereunder to perform services for the Company). Termination of Ascent/Alpharma Agreements . a. The Master Agreement dated as of February 16, 1999 by and among the Company, the Lender and the Parent, as amended, shall terminate in its entirety and be of no further force or effect upon the date hereof except that Sections 4.4, 6.1 (with the Standstill Period (as defined therein) ending on the seventh anniversary of the date hereof), 6.4 and 8.12 of the Master Ageement shall survive termination thereof. b. The Loan Agreement, other than Section 13.8 thereof, shall terminate and be of no further force or effect upon the date hereof. For avoidance of doubt, interest as required under the Loan Agreement and underlying note shall be paid by Company through the date of this Agreement. c. The Guaranty Agreement dated as of February 16, 1999 from the Parent for the benefit of the Company shall terminate and be of no further force or effect upon the date hereof. d. The Registration Rights Agreement dated as February 16, 1999 by and between the Company and the Lender shall terminate and be of no further force or effect upon the date hereof. e. The covenants and obligations of the parties under the Supplemental Agreement dated as of July 1, 1999 by and among the Company, the Lender, the Parent, the Depositary and each of the Original Lenders (as defined therein) and the Second Supplemental Agreement dated as of October 15, 1999 by and among the Company, the Lender, the Parent, the Depositary and each of the Original Lenders shall terminate and be of no further force or effect upon the date hereof. f. The Subordination Agreement dated as of February 16, 1999 between the Company, the Lender and the Original Lenders and the Amended and Restated Subordination Agreement dated as of October 15, 1999 between the Company, the Lender and the Original Lenders shall terminate and be of no further force or effect on the date hereof. Miscellaneous . Certain Payments. The Company hereby agrees that at the closing of any Change in Control or Sale (as defined in the Loan Agreement dated the date hereof by and between the Company and FS Ascent Investments L.L.C.), excluding transactions contemplated by clause (b) of said definition, the Company shall pay to Lender in immediately available funds a cash fee equal to 2% of the aggregrate Consideration for such Change in Control of Sale in excess of $65 million. For purposes of this Section, "Consideration" shall mean the gross value of all cash, securities and other property paid directly or indirectly by an acquirer to a seller or sellers in connection with a sale of the Company, in respect of the assets of the Company or the then outstanding securities of the Company (including without limitation all amounts paid or distributed by the Company to the holders of capital stock of the Company (except that compensation received by the Company and distributed by the Company shall be counted once) and all amounts paid, distributed or issued to the holders of convertible securities, options, warrants, stock appreciation rights or similar rights or securities in the Company in connection with such sale in respect of such securities; provided that if an acquirer pays an amount inclusive of any underlying exercise or strike price in respect of any convertible or other securities, consideration shall include such amount net of such exercise or strike price) or the gross value of all cash, securities and assets contributed by the Company or any other parties in the case of sale of the Company involving a joint venture or strategic partnership. The value of any such securities (whether debt or equity) or other property constituting part of the consideration shall be determined as follows: (i) the value of securities for which there is an established public market will be equal to the closing market price two days prior to the day of closing of such sale and (ii) the value of securities that have no established public market, and the value of consideration that consists of other property, shall be the fair market value thereof. "Consideration" also shall be deemed to include the aggregate principal amount of any indebtedness for money borrowed and any unfunded pension liabilities and guarantees of the Company or its subsidiaries assumed, directly or indirectly, whether contractually or by operation of law, in connection with such sale of the Company. If the consideration to be paid is computed in any foreign currency, the value of such foreign currency for purposes hereof shall be converted into U.S. dollars at the prevailing exchange rate on the date or dates on which such consideration is paid. Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the parties and supersedes any prior understanding, agreements, or representations by or among the parties, written or oral, that may have related in any way to the subject matter hereof. Successsion and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder unless such assignee shall agree in writing to be subject to and bound by the terms of this Agreement. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly delivered two business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service, in each case to the intended recipient as set forth below: If to the Company : Copy to : Ascent Pediatrics, Inc. 187 Ballardvale St., Suite B125 Wilmington, MA 01887 Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: President Attention: Stuart Falber, Esq.     If to the Lender : Copy to : Alpharma USPD Inc 7205 Windsor Boulevard Baltimore, MD 21244 Attention: President Alpharma Inc. One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer     If to the Parent : Copy to : Alpharma Inc. One Executive Drive Fort Lee, NJ 07024 Attention: President Alpharma Inc. One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer     If to the Depositary : State Street Bank and Trust Company c/o Equiserve L.P. 150 Royall Street Canton, MA 02021 Any party may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other party or parties notices in the manner herein set forth. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of Delaware. Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the parties. No waiver by any party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. Expenses. Except as otherwise expressly provided herein, each of the parties hereto will pay its own fees and expenses (including, without limitation, legal and accounting fees and expenses) incurred by it in connection with the transactions contemplated hereby. Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LENDER: Alpharma USPD Inc.   By: /s/ Thomas L. Anderson Title: President COMPANY: Ascent Pediatrics, Inc. By: /s/ Emmett Clemente Title: President   PARENT: Alpharma Inc. By: /s/ Thomas L. Anderson Title: President   DEPOSITARY: (As to Sections 1 and 4 b. through k. only) State Street Bank and Trust Company By: /s/ Stephen Cesso Title:                     ORIGINAL LENDERS: (As to Sections 3 e. and f. and 4 b. through k. only) Furman Selz Investors II L.P. FS Employee Investors L.L.C. FS Parallel Fund L.P. By: FS Private Investments LLC, Manager By: /s/ James L. Luikart Title: Managing Member BancBoston Ventures Inc. By: /s/ Marcia T. Bates Title: Managing Director Flynn Partners By: /s/ James Flynn Title: General Partner

EXHIBIT 10.9 WOLVERINE WORLD WIDE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------------------------------------------------- TABLE OF CONTENTS         Page         ARTICLE 1 - Establishment of Plan 1           1.1 Establishment of Plan 1   1.2 Employer; Company 1   1.3 Rabbi Trust 1   1.4 Effective Date 1     ARTICLE 2 - Definitions 2           2.1 Employee 2   2.2 Pension Plan 2   2.3 Plan Year 2   2.4 Present Value 2   2.5 Spouse/Married 2   2.6 Surviving Spouse 2     ARTICLE 3 - Participant 3           3.1 Designation as Participant 3   3.2 Inactive Participant Status 3     ARTICLE 4 - Contributions/Funding 4           4.1 Amount 4   4.2 No Relationship to Benefits 4   4.3 Unfunded Plan 4   4.4 Unsecured Creditor Status 4     ARTICLE 5 - Amount of Benefits 5           5.1 Retirement Benefits 5     (a) Annual Benefit 5     (b) Before Age 65 6     (c) Annual Pension Benefit 6   5.2 Death 7     (a) Before Commencement of Benefits 7     (b) After Retiring 7   5.3 Disability 7 --------------------------------------------------------------------------------     (a) Disabled Defined 7     (b) Benefit if Participant Becomes Disabled Before Retiring 7   5.4 Minimum Benefit 8     (a) Difference - Additional Benefit 8     (b) Determinations 8     ARTICLE 6 - Forfeiture 10           6.1 Misconduct 10   6.2 Competitive Activity 10   6.3 Insurance Related 10     ARTICLE 7 - Payment of Benefits 11           7.1 Event of Distribution 11   7.2 Form of Payment 11     (a) Presumed Method 11     (b) Optional Methods 11     (c) Lump Sum 11   7.3 Calculation 12   7.4 Time of Payment - Retirement 12     (a) At or After Age 65 12     (b) Age 55 to 65 12     (c) Lump Sum 12     (d) Delayed Payment 12   7.5 Time of Payment - Death 12     (a) Spouse 12     (b) Payment to Beneficiary 13     (c) Beneficiary 13     (d) Payment to Estate 13     (e) Withholding Taxes 13     (f) Generation-Skipping Transfer Tax 13     ARTICLE 8 - Administration 14           8.1 Duties, Powers, and Responsibilities of the Employer 14     (a) Required 14     (b) Discretionary 14   8.2 Employer Action 14   8.3 Plan Administrator 15   8.4 Duties, Powers, and Responsibilities of the Administrator 15 -ii- --------------------------------------------------------------------------------     (a) Plan Interpretation 15     (b) Participant Rights 15     (c) Claims and Elections 15     (d) Benefit Payments 15     (e) Administrative Information 15     (f) Recordkeeping 15     (g) Reporting and Disclosure 15     (h) Advisers 15     (i) Other Powers and Duties 16   8.5 Claims Procedure 16     (a) Initial Determination 16     (b) Method 16     (c) Further Review 16     (d) Redetermination 16   8.6 Participant's Responsibilities 16     ARTICLE 9 - Investment and Administration of Assets 17           9.1 Rabbi Trust 17   9.2 Insurance 17   9.3 Available to Creditors 17   9.4 No Trust or Fiduciary Relationship 17   9.5 Benefit Payments 17     ARTICLE 10 - Special Change in Control Benefit 18           10.1 Benefit 18     (a) Standard Benefit 18     (b) Minimum Benefit 18   10.2 Definitions 18   10.3 Method of Payment 25   10.4 Successor Obligations in Change of Control Situation 25   10.5 Reimbursement of Expenses 25     ARTICLE 11 - General Provisions 26           11.1 Amendment; Termination 26   11.2 Employment Relationship 26   11.3 Confidentiality and Relationship 26   11.4 Rights Not Assignable 27   11.5 Construction 27 -iii- --------------------------------------------------------------------------------   11.6 Governing Law 27 -iv- -------------------------------------------------------------------------------- WOLVERINE WORLD WIDE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN           Wolverine World Wide, Inc. ("Wolverine") hereby adopts the Wolverine World Wide, Inc. Supplemental Executive Retirement Plan, a supplemental nonqualified plan for a select group of management personnel employed by Wolverine and any subsidiary of Wolverine. ARTICLE 1 Establishment of Plan 1.1          Establishment of Plan.           This Plan is a supplemental, nonqualified Plan and is intended to be a Plan for a select group of management and highly compensated employees of Wolverine and affiliates of Wolverine. This Plan is intended to be a Plan described in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As a supplemental nonqualified executive retirement program it is not subject to limitations in the Internal Revenue Code applicable to benefits provided through a qualified, tax-exempt employee benefit plan established under Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"). 1.2          Employer; Company.           "Employer" and "Company" mean Wolverine World Wide, Inc. and any affiliate of Wolverine World Wide, Inc. which has adopted this Plan with the consent of Wolverine World Wide, Inc. 1.3          Rabbi Trust.           This Plan may be funded by contributions to a "Rabbi" trust which does not alter the "unfunded," nonqualified status of the Plan for federal tax purposes. 1.4          Effective Date.           The "Effective Date" of this Plan is March 6, 2001. Each Plan provision applies until the effective date of an amendment of that provision. -------------------------------------------------------------------------------- ARTICLE 2 Definitions 2.1          Employee.           "Employee" means an individual employed by the Employer who receives compensation for personal services performed for the Employer that is subject to withholding for federal income tax purposes. 2.2          Pension Plan.           "Pension Plan" means the Wolverine Employees' Pension Plan, a qualified, tax-exempt defined benefit pension plan established and maintained by Wolverine under Code Sections 401(a) and 501(a). 2.3          Plan Year.           "Plan Year" means the 12-month period beginning each January 1. 2.4          Present Value.           "Present Value" means the present value as computed under the Pension Plan as of the end of the most recently completed Plan Year, but using the GATT 30-year Treasury interest rate. 2.5          Spouse/Married.           "Spouse" means the husband or wife to whom the Participant is married on the date the benefit is scheduled to be paid, or payment is scheduled to begin. The legal existence of the marital relationship shall be governed by the law of the state or other jurisdiction of domicile of the Participant. 2.6          Surviving Spouse.           "Surviving Spouse" means the Spouse of the Participant at the time of the Participant's death who survives the Participant. If the Participant and Spouse die under circumstances which prevent ascertainment of the order of their deaths, it shall be presumed for this Plan that the Participant survived the Spouse. -2- -------------------------------------------------------------------------------- ARTICLE 3 Participant 3.1          Designation as Participant.           Only management and highly compensated Employees shall be eligible to participate in this Plan.           Wolverine shall designate eligible Employees who shall become participants ("Participant"). The designation shall be made in writing, and shall become effective when both the Employer and the Employee have signed a Participation Agreement in the form attached as Exhibit "A." A designated eligible Employee shall become a Participant on the date specified in the Participation Agreement. 3.2          Inactive Participant Status.           The Administrator may notify an Employee Participant in writing at any time that the Participant is being converted to Inactive Participant status. An Employee Participant will not accrue additional Years of Service under this Plan after the date of such notice, unless the Participant is subsequently designated as a Participant under Section 3.1. -3- -------------------------------------------------------------------------------- ARTICLE 4 Contributions/Funding 4.1          Amount.           The Employer is not required to make contributions to fund the benefits under this Plan. The Employer may make contributions sufficient to prevent an unfunded liability from adversely affecting financial disclosures required under generally accepted accounting principles and to provide reasonable anticipated benefits under this Plan. Employees shall not make any contributions under this Agreement. 4.2          No Relationship to Benefits.           The benefits provided by this Agreement shall be separate from and unrelated to any contributions made by Employer (including but not limited to assets held in a trust created under Article IX of this Plan, if any). 4.3          Unfunded Plan.           This shall be an unfunded Plan within the meaning of ERISA and the Code. Benefits payable under this Plan constitute only an unsecured contractual promise to pay in accordance with the terms of this Plan by the Employer. 4.4          Unsecured Creditor Status.           A Participant shall be an unsecured general creditor of the Employer as to the payment of any benefit under this Plan. The right of any Participant or Beneficiary to be paid the amount promised in this Plan shall be no greater than the right of any other general, unsecured creditor of the Employer. -4- -------------------------------------------------------------------------------- ARTICLE 5 Amount of Benefits 5.1          Retirement Benefits.           A Participant who has 5 Years of Service after the earlier of execution of a Participation Agreement under this Plan or a Deferred Compensation Agreement, or who has reached age 65 before Retiring, will be entitled to a benefit computed under this Section, unless the benefit is forfeited under Article 6. For purposes of this Article 5, the terms "Retiring" or "Retire" shall include any termination of the Participant's status as an Employee of the Employer.           (a)          Annual Benefit. The "Annual Benefit" under this Plan will be an amount computed by multiplying that percentage of the Participant's Average Earnings which is designated in the Participation Agreement ("Designated Percentage") by the Participant's Years of Service. The Annual Benefit shall be reduced by the Participant's Annual Pension Benefit (as defined in 5.1(c) below). Further, if the Participant elects pre-age 65 payment, the Annual Benefit shall be reduced as provided in 5.1(b) below. >           (i)          Earnings. "Earnings" means Earnings as computed under > the Pension Plan, excluding: >           (A) Long-Term Incentive Plan. Any amounts paid to the Participant > under the Wolverine Executive Long Term Incentive (Three Year) Plan or any > comparable long-term bonus Plan, and >           (B) Severance Payments. Any payments to the Participant under any > severance agreement or policy. >           (ii)          Average Earnings. "Average Earnings" means the average > of a Participant's Earnings for the Participant's four consecutive highest > earnings calendar years of the most recent ten consecutive Years of Service > immediately prior to the date on which the Participant Retires, except that > Years of Service during which a Participant receives a disability benefit > under Section 5.3 of this Plan will be omitted from the calculation of Average > Earnings if doing so will produce higher Average Earnings. In computing > Average Earnings, a Participant's earnings for the calendar year of retirement > or earlier termination of employment shall be annualized and the Participant > shall be deemed to have received earnings during that entire calendar year. -5- -------------------------------------------------------------------------------- >           (iii)          Years of Service. "Years of Service" means a > Participant's Years of Service under the Pension Plan, except that: (i) > periods during which a Participant is receiving a disability benefit under > Section 5.3 of this Plan will count as Years of Service for computation of any > benefit under this Plan other than a disability benefit, and will not count as > Years of Service for computation of a disability benefit; (ii) periods during > which a Participant is an Inactive Participant (as defined in Section 3.2) > will not count as Years of Service under this Plan; (iii) upon the > recommendation of the Compensation Committee, the Board of Directors of the > Company may grant a Participant deemed Years of Service for purposes of this > Section; and (iv) the maximum number of Years of Service used in computing a > benefit under this Plan shall be 25.           (b)          Before Age 65. The benefit payable to a Participant who Retires before reaching age 65 will be the benefit computed under (a) above, beginning on the first day of the month following the Participants 65th birthday.           (i)          Earlier Payment. A Participant may elect to begin receiving a reduced benefit beginning on the first day of any month after the Participant attains age 55. If the Participant begins receiving a benefit between age 60 and 65, the reduction shall be .1666% (1/6 of 1%) for each month between the date benefits begin and the first day of the month following that in which the Participant would attain age 65. If the Participant begins receiving benefits between age 55 and 60, there shall be an additional reduction of .333% (1/3 of 1%) for each month between the date benefits begin and the first day of the month following that in which the Participant would attain age 60.           (ii)          Deemed Early Retirement Pension Election. A Participant who is eligible and in fact elects payment prior to the Participant's attainment of age 65 shall be deemed (for purposes of the Annual Pension benefit reduction in subsection (c) below) to have elected Early Retirement under the Pension Plan as of the later of the Participant's attainment of age 60 or the date that the Participant begins to receive benefits under this Plan.           (c)          Annual Pension Benefit. A Participant's "Annual Pension Benefit" shall mean the amount of benefit payable to the Participant under the Pension Plan in the form of a life annuity, prior to any offset for workers compensation payments. -6- -------------------------------------------------------------------------------- 5.2          Death.           A death benefit shall be payable only under this section.           (a)          Before Commencement of Benefits. If a Participant dies before beginning to receive benefits under Section 5.1 or 5.4, the Participant's Beneficiary will be paid a lump sum death benefit without regard to the 5-year service or minimum age requirements of Section 5.1. The death benefit shall be equal to the Present Value of the benefit computed under Section 5.1 as if the Participant had Retired on the date of death, had begun receiving benefits at age 65, and had continued to receive benefits for the remainder of the Participant's life expectancy. If the Participant has received a Disability benefit under Section 5.3, the lump sum death benefit under this subsection will be reduced by the actuarial value of benefits received under Section 5.3.           (b)          After Retiring. If a Participant dies after beginning to receive benefit payments under Section 5.1, benefits shall cease unless the Participant was receiving benefits in the form of a 50% Joint and Survivor Annuity, or in any of the forms set forth in subsections 7.2(b). 5.3          Disability.           A Participant (other than an Inactive Participant) who becomes Disabled while employed by the Employer shall receive the benefit provided by this section.           (a)          Disabled Defined. A Participant is Disabled if the Participant has a physical or mental condition that entitles the Participant to a disability benefit under the Pension Plan.           (b)          Benefit if Participant Becomes Disabled Before Retiring. If a Participant becomes Disabled before Retiring, and is not an Inactive Participant at the time of application for a benefit under this Section 5.3, the Participant will receive a disability benefit, without regard to the 5-year service or minimum age requirement of Section 5.1. The benefit will equal 60% of the benefit computed under (a) above, based on Years of Service up to the date the Participant became Disabled. This benefit will continue until the earliest of the date of Participant's death, the date Participant reaches age 65 or the date as of which the Participant is no longer Disabled. Each benefit payment under this subparagraph (b) shall be reduced by any benefit for the same period payable under any employer funded disability plan. A reduction shall not be made for benefits from a disability plan funded by the employee either directly or through a written salary reduction agreement or program. -7- -------------------------------------------------------------------------------- 5.4          Minimum Benefit.           (a)          Difference - Additional Benefit. This Section 5.4 shall apply to Participants who are party to a Deferred Compensation Agreement which is designated in the Participation Agreement as eligible for the minimum benefit calculation in this Section 5.4. As of the first date on which such a Participant begins receiving a benefit under this Plan, or as of the date a Participant's Beneficiary becomes entitled to a lump sum payment under this Plan, the Administrator will compare the projected total benefits to be paid to or on behalf of such Participant under this Plan and the current Pension Plan to the total benefits which would have been paid to or on behalf of such Participant if the Deferred Compensation Agreement had remained in effect, and the Participant had been eligible for an Annual Pension Benefit under the Pension Plan benefit formula in effect on December 31, 1994. If the Administrator determines that the total payments to or on behalf of the Participant under this Plan (before any reduction for the Participant's Annual Pension Benefit) would be less than the sum of: >           (i)          the total payments which would have been made to or on > behalf of the Participant under the Deferred Compensation Agreement; and >           (ii)          the Participant's Annual Pension Benefit computed > using the Pension Plan benefit formula in effect on December 31, 1994; then the difference will be paid to the Participant as an additional monthly amount under the form of payment elected by the Participant, or, if a lump sum payment is being made, the difference will be added to the lump sum payment.           The Administrator will again make the comparison provided for by this subsection as of the date when all benefits cease under this Plan, and if additional amounts would be due under the formula set forth above, the Administrator shall cause a lump sum payment to be made to the Participant's designated beneficiary or estate.           (b)          Determinations. In making this determination, the Administrator shall compute Deferred Compensation Agreement benefits under the terms of the Deferred Compensation Agreement, except that: >           (i)          for purposes of computing a lump-sum benefit for which > the Participant would have been eligible under the Deferred Compensation > Agreement due to termination of his employment after a Change in Control, the > terms "Change in Control," "Cause," "Disability," "total disability/totally > disabled," "Retirement," "Notice of Termination," and -8- -------------------------------------------------------------------------------- > "Date of Termination" as used in any such Deferred Compensation Agreement > shall be defined as provided in Article 10 of this Plan; and >           (ii)          the Designated Period, as defined in Section 10.2 > shall be used in determining whether the Participant would have been entitled > to accelerated vesting under the Deferred Compensation Agreement, rather than > the 5-year period provided for in the Deferred Compensation Agreement; and >           (iii)          the person entitled to receive the benefit will be > determined under this Plan without regard to any former designation of > beneficiary under the Deferred Compensation Agreement.                     In making the benefit comparison under this Section, the Administrator shall use the actual dates on which a Participant Retires, dies, or is determined to have become Disabled, and in making the projection called for the Administrator shall assume that the Participant and the Participant's Spouse will remain living for their respective life expectancies. If the dates on which benefits would have been paid under the Deferred Compensation Agreement differ from the dates on which benefits are actually paid under this Plan, the Administrator will make the determination called for by this Section based on the Present Value of both streams of payments as of the date payments begin under this Plan. -9- -------------------------------------------------------------------------------- ARTICLE 6 Forfeiture 6.1          Misconduct.           Subject to Article 10, a Participant (or Participant's Spouse or Beneficiary) will not be entitled to any benefits under this Agreement if the Participant is discharged for dishonesty, commission of a misdemeanor or felony injurious to the Employer, or any action inimical to the interests of the Employer, or the Participant resigns while an investigation is ongoing to determine whether Participant should be discharged for any such reason and the Administrator determines that Participant would have been so discharged but for the resignation; or 6.2          Competitive Activity.           A Participant (or such Participant's Spouse or Beneficiary) shall not be entitled to any benefit payment if, prior to the date on which such benefit payment is due, the Participant has acquired any ownership interest in a competing business (other than an ownership interest consisting of less than 5% of a class of publicly traded securities), or has been employed as director, officer, employee, consultant, adviser, partner or owner of a competing business. A "competing business" includes any business which is substantially similar to the whole or any part of the business conducted by the Employer. Upon the recommendation of the Compensation Committee, the Board of Directors may partially or completely waive the application of this provision. 6.3          Insurance Related.           A Participant (or such Participant's Spouse or Beneficiary) shall not be entitled to any benefit payment if benefits are not payable under any policy of life or disability insurance obtained by the Employer to fund its obligations under this Plan, due to the Participant's suicide or the Participant's misrepresentation or omission of information required to be furnished to the insurer in connection with the issuance of such policy. -10- -------------------------------------------------------------------------------- ARTICLE 7 Payment of Benefits 7.1          Event of Distribution.           Benefit payments shall begin following termination of Participant's employment at the time and in the manner specified in this Article. Subject to Article 10, a transfer of employment among the Company and its subsidiaries is not a termination of employment, nor (subject to Article 10) shall a Participant's employment be deemed terminated if Participant is offered employment by a successor which purchases all or substantially all of the assets of the Company and who adopts this Plan. 7.2          Form of Payment.           (a)          Presumed Method. A Disability Benefit shall be paid in the form of a life annuity. Unless a Participant elects otherwise, a Retirement Benefit shall be paid in the form of a Joint and 50% Survivor Annuity to a married Participant, or in the form of a Life Annuity to any other Participant in lieu of the normal form of payment.           (b)          Optional Methods. A Participant may elect any of the following actuarially equivalent optional forms for a Retirement Benefit with the consent of the Company by notifying the Administrator in writing before the end of the calendar year preceding that in which the Participant begins receiving a benefit.           (i)          5 or 10-Year Certain and Life. A monthly amount for life to the Participant, and if the Participant dies before payment of 60 or 120 monthly benefit payments, the same monthly amount shall be paid to the Participant's Beneficiary until a total of 60/120 monthly payments have been made.           (ii)          Joint and 100% Spouse Annuity. A monthly amount to the Participant for the Participant's lifetime and in an equal monthly amount to the Participant's Surviving Spouse, if any, for life.           (c)          Lump Sum. A lump-sum benefit shall not be available except as provided in this subsection (c).           (i)          Eligible Participant/Beneficiary. A Participant (or Beneficiary) who has a benefit under subsection (a) with an actuarially equivalent Present Value which does not exceed $3,500; a Participant who is entitled to a Change in Control -11- -------------------------------------------------------------------------------- Benefit; or a Beneficiary who is entitled to a death benefit under Section 5.2(a) (death before commencement of benefits) may elect a lump-sum payment.           (ii)          Amount. Except as modified by the provisions of Section 10.1 for a Change of Control Benefit, the amount of the lump sum shall be the actuarially equivalent present value of the Participant's benefit payable under the Plan at the Participant's Normal Retirement Date (as defined in the Pension Plan). 7.3          Calculation.           All benefit calculations shall be made as of the date the Participant's employment terminates or, if later, upon occurrence of the event which triggers payment of the benefit. Each form of benefit payment shall be actuarially equivalent to a life annuity and shall be based upon the actuarial assumptions and factors applicable in the Pension Plan in effect on the date the Participant's employment terminates. 7.4          Time of Payment - Retirement.           (a)          At or After Age 65. Retirement benefits under this Plan shall begin on the first day of the later of the month following that in which the Participant attains age 65, or that in which the Participant Retires.           (b)          Age 55 to 65. A Participant who wishes to receive a benefit provided by Section 5.1(b) may elect to do so, with the consent of the Company, by notifying the Administrator in writing. Such notice must be given, if at all, prior to the beginning of the calendar year in which Participant begins receiving a benefit. The benefit will begin on the first day of the month designated in such election.           (c)          Lump Sum. Any lump-sum benefit payable under Section 7.2(c) shall be paid on March 1 following the end of the calendar year in which the Participant's employment terminates or the Participant dies.           (d)          Delayed Payment. If the payment of benefits begins after the time specified for payment above, the benefit shall be adjusted for late payment in the same manner as under the Pension Plan (as in effect on the date the Participant's employment terminates). 7.5          Time of Payment - Death.           Benefits shall cease upon a Participant's death unless continued under this section. -12- --------------------------------------------------------------------------------           (a)          Spouse. If a benefit is payable as a Joint and 50/100% Spouse Annuity and the married Participant dies, payment shall continue to the Participant's Surviving Spouse until the Spouse's death.           (b)          Payment to Beneficiary. If a benefit is payable as a 5 or 10-Year Certain and Life annuity and the Participant dies prior to payment of all amounts due under this Plan, payment of all remaining benefits shall be made to the Participant's Beneficiary.           (c)          Beneficiary. "Beneficiary" means the individual, trust or other entity designated by the Participant to receive any benefits payable under this Plan after the Participant's death. A Participant may designate or change a Beneficiary by filing a signed designation with the Administrator in the form approved by the Administrator. The Participant's Will is not effective for this purpose. If a designation has not been properly completed and filed with the Administrator or is ineffective for any other reason, the Beneficiary shall be the Participant's Surviving Spouse. Designation of a Beneficiary shall not in itself serve to revoke an actual election of a Joint and Survivor Annuity method of payment (or a deemed election under Section 7.2(a)).           (d)          Payment to Estate. If there is not an effective designation and the Beneficiary/Participant does not have a Surviving Spouse, the remaining benefits, if any, shall be paid to the Participant's estate. If payment is to be made to the estate of a Participant, payment shall be made in a lump sum.           (e)          Withholding Taxes. The Employer may withhold from all payments due to Participant (or his/her beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Employer is required to withhold therefrom.           (f)          Generation-Skipping Transfer Tax. The Employer may withhold any benefits payable to a Beneficiary as a result of the death of a Participant or any other Beneficiary until it can be determined whether a generation-skipping transfer tax, as defined in Chapter 13 of the Code, or any substitute provision therefor, is payable and the amount of generation-skipping transfer tax, including interest, that is due. If a tax is payable, the benefits otherwise payable shall be reduced in an actuarially equivalent amount to reflect the payment of the generation-skipping transfer tax and interest. Any benefits withheld shall begin or resume as soon as there is a final determination of the applicable generation-skipping transfer tax and interest. -13- -------------------------------------------------------------------------------- ARTICLE 8 Administration 8.1          Duties, Powers, and Responsibilities of the Employer.           (a)          Required. The Employer shall be responsible for:           (i)          Employer Contributions.           (A)          Amount. Determining the amount of Employer Contributions if any.           (B)          Payment. Paying, ceasing, or suspending Employer Contributions if any.           (ii)          Agent of Service of Process. Serving as the agent for service of process;           (iii)          Amendment. Amending this Plan and trust; and           (iv)          Plan Termination.          Revoking this instrument and terminating this Plan (and any related trust).           (b)          Discretionary. The Employer may exercise the following responsibilities:           (i)          Alternate Administrator. Designating a Person other than the Employer as the Administrator; and           (ii)          Payment of Administrative Expenses. Paying administrative expenses incurred in the operation, administration, management, and control of the Plan.           (iii)          Reserved Powers. Designating Participants, crediting a Participant with deemed Years of Service, or waiving the competitive activity forfeiture provisions. 8.2          Employer Action. -14- --------------------------------------------------------------------------------           An action required to be taken by the Employer shall be taken by its Board of Directors unless the board has delegated the power or responsibility to one or more Persons identified by its resolution. 8.3          Plan Administrator.           "Administrator" means the Employer or a Person designated by the Employer. The Administrator is a named fiduciary for operation and management of the Plan and, if this Plan is subject to ERISA, shall have the responsibilities conferred by ERISA upon the "Administrator" as defined in ERISA Section 3(16). 8.4          Duties, Powers, and Responsibilities of the Administrator.           Except to the extent properly delegated, the Administrator shall have the following duties, powers, and responsibilities and shall:           (a)          Plan Interpretation. Interpret this instrument (including resolving an inconsistency or ambiguity or to correcting an error or an omission). All questions of interpretation, construction, or application arising under this Agreement shall be decided by the Administrator whose decision shall be final and conclusive upon all persons, except that the Administrator's decision shall not be final and conclusive with regard to a Participant's entitlement to a benefit under Section 10.1;           (b)          Participant Rights. Determine the rights of Participants and Beneficiaries under the terms of this Plan;           (c)          Claims and Elections. Establish or approve the manner of making an election, designation, application, claim for benefits, and review of claims;           (d)          Benefit Payments. Direct the time that payments are to be made or to begin, and the elected form of distribution;           (e)          Administrative Information. Obtain to the extent reasonably possible all information necessary for the proper administration of this Plan;           (f)          Recordkeeping. Establish procedures for and supervise the establishment and maintenance of all records necessary and appropriate for the proper administration of this Plan;           (g)          Reporting and Disclosure. Prepare and file annual and periodic reports or disclosure documents required under ERISA and Regulations; -15- --------------------------------------------------------------------------------           (h)          Advisers. Employ attorneys, actuaries, accountants, clerical employees, agents, or other Persons who are necessary for operation, administration, and management of this Plan ;           (i)          Other Powers and Duties. Exercise all other powers and duties necessary or appropriate under this Plan, except those powers and duties allocated to another named fiduciary. 8.5          Claims Procedure.           The Administrator shall determine all issues arising from the administration of this Plan.           (a)          Initial Determination. Upon application by a Participant or Beneficiary, the Administrator shall make an initial determination and communicate the determination to the participant or Beneficiary within 90 days after the application. If the initial determination requires a longer period, the Administrator shall notify the Participant or Beneficiary that the 90-day period is extended to 180 days.           (b)          Method. The decision of the Administrator shall be in writing. The decision shall set forth (i) the decision and the specific reason for the decision; (ii) specific reference to the Plan provisions on which the decision is based; (iii) a description of additional material, information, or acts that may change or modify the decision; and (iv) an explanation of the procedure for further review of the decision.           (c)          Further Review. Within 60 days of receipt of the initial written decision, the Participant or Beneficiary filing the original application, or the applicant's authorized representative, may make a request for redetermination by the Administrator. The applicant (or the authorized representative) may review all pertinent documents and submit issues, comments, and arguments.           (d)          Redetermination. Within 60 days of receipt of an application for redetermination, unless special circumstances require a longer period of time (but not longer than 120 days after receipt of the application), the Administrator shall provide the applicant with its final decision, setting forth specific reasons for the decision with specific reference to plan provisions on which the decision is based. 8.6          Participant's Responsibilities.           All requests for action of any kind by a Participant or Beneficiary under this Plan shall be in writing and executed by the Participant or Beneficiary. -16- -------------------------------------------------------------------------------- ARTICLE 9 Investment and Administration of Assets 9.1          Rabbi Trust.           Contributions to this Plan or assets purchased by Employer with the intent of defraying the cost of providing benefits under this Agreement may be held in a Rabbi Trust. The Trust will conform to the terms of the model Trust set forth in Revenue Procedure 92-65 (or a successor pronouncement by the Internal Revenue Service). 9.2          Insurance.           The Employer may purchase a policy of life insurance on the life of a Participant (in whom the Employer has an insurable interest) to assist it in providing the Benefits. The Employer shall be the sole applicant, owner, premium payer and beneficiary of the policy, and shall exercise all incidents of ownership. The Employer intends that the value of the policy while in force and that the death proceeds of the policy shall be excluded from taxation under Code Sections 7702 and 101(a) respectively. 9.3          Available to Creditors.           Any contribution made by Employer or asset held by Trustee related to this Agreement shall be available to the general creditors of the Employer as specified in the Trust. 9.4          No Trust or Fiduciary Relationship.           Except as required by governing law, this Plan shall not create a trust or fiduciary relationship of any kind between the Participant (or the Participant's Spouse or Beneficiary) and the Employer or any third party. 9.5          Benefit Payments.           Benefit payments shall be paid directly by the Employer or indirectly through a grantor trust (owned or maintained by the Employer) to the Participant or the Participant's Beneficiary. If a trust is established, the Employer shall not be relieved of its obligation and liability to pay the benefits of this Plan except to the extent payments are actually made from the trust. -17- -------------------------------------------------------------------------------- ARTICLE 10 Special Change in Control Benefit 10.1          Benefit.           If a Participant's employment with the Company is terminated during the Designated Period after a Change in Control other than by reason of a Nonqualifying Termination, then notwithstanding any other provision of this Plan, the Participant shall be paid, within 30 days following such termination and in lieu of any other benefit to which Participant, Participant's Spouse, or Participant's Beneficiary might have been entitled at any time under this Plan or under any Deferred Compensation Agreement, the Change in Control Benefit. The Change in Control Benefit shall be the greater of:           (a)          Standard Benefit. A lump sum equal to 125% of the Present Value of the payments for which Participant would have been eligible beginning at age 55 (or at Participant's age on the date the employment terminates, if greater than 55), without reduction for the early retirement factor set forth in Section 5.1(b), based on Participant's Years of Service as of the date Participant's employment terminates; or           (b)          Minimum Benefit. The Minimum Benefit provided in Section 5.4. 10.2          Definitions.           As used in this Article 10, the following terms shall have the respective meanings set forth below:           (a)          "Cause" means (1) the willful and continued failure by Participant to substantially perform his or her duties with Company and/or its subsidiaries (other than any such failure resulting from Participant's incapacity due to physical or mental illness, or any such actual or anticipated failure resulting from Participant's termination for Good Reason) after a demand for substantial performance is delivered to Participant by the Board and/or its Chairman (which demand shall specifically identify the manner in which the Board and/or its Chairman believes that Participant has not substantially performed his or her duties); or (2) the willful engaging by Participant in gross misconduct materially and demonstrably injurious to the Company and/or its subsidiaries. For purposes of this Section, no act or failure to act on the part of Participant shall be considered "willful" unless done or omitted to be done by Participant not in good faith and without reasonable belief that his or her action(s) or omission(s) was in the best interests of the Company and/or its subsidiaries. Notwithstanding the foregoing, Participant shall not be deemed to -18- -------------------------------------------------------------------------------- have been terminated for Cause unless and until the Company provides Participant with a copy of a resolution adopted by an affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Participant and an opportunity for Participant, with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participant has been guilty of conduct set forth in (1) or (2) above, setting forth the particulars in detail. A determination of Cause by the Board shall not be binding upon or entitled to deference by any finder of fact in the event of a dispute, it being the intent of the parties that such finder of fact shall make an independent determination of whether the termination was for "Cause" as defined in (1) and (2) above.           (b)          "Change in Control" means:           (1)          the acquisition by any individual, entity, or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (a) any acquisition by the Company, (b) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (c) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation involving the Company, if, immediately after such reorganization, merger, or consolidation, each of the conditions described in clauses (i), (ii), and (iii) of subsection (3) of this Section 10.2(b) shall be satisfied, or (d) any acquisition by the Participant or any group of persons including the Participant; and provided further that, for purposes of clause (a), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control; -19- --------------------------------------------------------------------------------           (2)          individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least three-quarters of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board, shall be deemed to have been a member of the Incumbent Board;           (3)          approval by the stockholders of the Company of a reorganization, merger, or consolidation unless, in any such case, immediately after such reorganization, merger, or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior or such reorganization, merger, or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger, or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger, or consolidation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation or 20% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial -20- -------------------------------------------------------------------------------- agreement or action of the Board providing for such reorganization, merger, or consolidation; or           (4)          approval by the stockholders of the Company of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (a) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (b) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of Common stock thereof or 20% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition.           Notwithstanding anything contained in this Agreement to the contrary, if Participant's employment is terminated prior to a Change in Control and Participant reasonably demonstrates that such termination was at the request of or in response to a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") who effectuates a Change in Control, then for all purposes of this Agreement, the date of a Change of Control shall mean the date immediately prior to the date of such termination of Participant's employment.           (c)          "Common Stock" means the common stock of the Company, $1 par value per share. -21- --------------------------------------------------------------------------------           (d)          "Date of Termination" means (1) the effective date on which Participant's employment by the Company and/or its subsidiaries terminates as specified in a Notice of Termination by the Company or Participant, as the case may be, or (2) if Participant's employment by the Company and/or its subsidiaries terminates by reason of death, the date of death of Participant. Notwithstanding the previous sentence, (i) if the Participant's employment is terminated for Disability (as defined in (f)), then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Participant's employment is terminated by the Company and/or its subsidiaries other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.           (e)          "Designated Period" means the designated period set forth in the Participant's Participation Agreement.           (f)          "Disability" means Participant's failure to substantially perform his/her duties with the Company and/or its subsidiaries on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Participant's incapacity due to mental or physical illness.           (g)          "Good Reason" means, without Participant's express written consent, the occurrence of any of the following events after a Change in Control:           (1)          (a) the assignment to Participant of any duties inconsistent in any material adverse respect with Participant's position(s), duties, responsibilities, or status with the Company and/or its subsidiaries immediately prior to such Change in Control; (b) a material adverse change in Participant's reporting responsibilities, titles or offices with the Company and/or its subsidiaries as in effect immediately prior to such Change in Control; or (c) any removal or involuntary termination of Participant by the Company and/or its subsidiaries otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination); or (d) any failure to re-elect Participant to any position with the Company and/or its subsidiaries held by Participant immediately prior to such Change in Control;           (2)          a reduction by the Company and/or its subsidiaries in Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;           (3)          any requirement of the Company and/or its subsidiaries that Participant (i) be based anywhere other than the facility where Participant is located -22- -------------------------------------------------------------------------------- at the time of the Change in Control or reasonably equivalent facilities within twenty five (25) miles of such facility or (ii) travel for the business of the Company and/or its subsidiaries to an extent substantially more burdensome than the travel obligations of Participant immediately prior to such Change in Control;           (4)          the failure of the Company and/or its subsidiaries to continue the Company's executive incentive plans or bonus plans in which Participant is participating immediately prior to such Change in Control or a reduction of the Participant's target incentive award opportunity under the Company's Executive Long-Term Incentive (Three Year) Plan (three-year bonus plan), Executive Short Term Incentive Plan (annual bonus plan) or other bonus plan adopted by the Company;           (5)          the failure of the Company and/or its subsidiaries to (a) provide any employee benefit plan or compensation plan (including but not limited to stock option, restricted stock, incentive stock option or other similar programs) in which Participant is participating immediately prior to such Change in Control, in accordance with the most favorable plans, practices, programs and policies of the Company and/or its subsidiaries in effect for Participant immediately prior to the Change in Control, unless Participant is permitted to participate in other plans providing Participant with substantially comparable benefits; (b) provide Participant and Participant's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and policies of the Company and/or its subsidiaries in effect for Participant immediately prior to such Change in Control; (c) provide fringe benefits in accordance with the most favorable plans, practices, programs, and policies of the Company and/or its subsidiaries as in effect for Participant immediately prior to such Change in Control; or (d) provide Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and/or its subsidiaries as in effect for Participant immediately prior to such Change in Control; or the taking of any action by the Company and/or its subsidiaries which would adversely affect Participant's participation in or materially reduce Participant's benefits under any such plan;           (6)          the failure of the Company and/or its subsidiaries to pay any amounts owed Participant as salary, bonus, deferred compensation or other compensation;           (7)          the failure of the Company to obtain an assumption agreement from any successor as contemplated in Section 10.4; -23- --------------------------------------------------------------------------------           (8)          the refusal by the Company and/or its subsidiaries to continue to allow Participant to attend to matters or engage in activities which did not involve a substantial portion of a Participant's time and which are not directly related to the business of the Company and/or its subsidiaries which were permitted by the Company and/or its subsidiaries immediately prior to such Change in Control, including without limitation serving on the Boards of Directors of other companies or entities;           (9)          Any amendment or termination of this Plan which unfavorably affects a Participant or reduces any protection afforded to a Participant (including a failure to continue to credit service with any successor after a change in control for purposes of this Plan).           (10)          Any purported termination of Participant's Employment which is not effected pursuant to a Notice of Termination; and           (11)          Any other material breach by Company of its obligations under any executive severance agreement between the Participant and the Company.           For purposes of this Agreement, any good faith determination of Good Reason made by Participant shall be conclusive; provided, however, that an isolated and insubstantial action taken in good faith and which is remedied by the Company and/or its subsidiaries within ten (10) days after receipt of notice thereof given by Participant shall not constitute Good Reason. Any event or condition described in this subsection (g)(1) through (10) which occurs prior to a Change in Control, but which Participant reasonably demonstrates was at the request of or in response to a Third Party who effectuates a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control.           (h)          "Nonqualifying Termination" means a termination of Participant's employment (1) by the Company and/or its subsidiaries for Cause, (2) by Participant for any reason other than for Good Reason with Notice of Termination, (3) as a result of Participant's death, and (4) by the Company and/or its subsidiaries due to Participant's Disability, unless within thirty (30) days after Notice of Termination is provided to Participant following such Disability Participant shall have returned to substantial performance of Participant's duties on a full-time basis.           (i)          "Notice of Termination" means written notice of Participant's Date of Termination by the Company or Participant, as the case may be, to the other, which (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to -24- -------------------------------------------------------------------------------- provide a basis for termination of Participant's employment under the provision so indicated, and (3) specifies the termination date. The failure by Participant or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Participant or the Company hereunder or preclude Participant or the Company from asserting such fact or circumstance in enforcing Participant's or the Company's rights hereunder. 10.3          Method of Payment.           Payment shall be made, to the extent possible, by distribution of any insurance policy or policies purchased by the Company in connection with this Agreement and in effect on the date of a Change in Control, valued for distribution purposes at their cash surrender value. Any remaining balance of the distribution sum shall be paid in cash. 10.4          Successor Obligations in Change of Control Situation.           (a)          Neither this Plan nor any Participation Agreement shall be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation, or transfer of assets, the provisions of this Plan and of such Participation Agreements shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.           (b)          The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 10.4, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to each Participant (or his/her beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall constitute Good Reason hereunder. For purposes of implementing the foregoing, the date on which any such merger, consolidation, or transfer becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive. 10.5          Reimbursement of Expenses.           If any contest or dispute shall arise under this Plan or any Participation Agreement involving a Participant's entitlement to a benefit under Section 10.1, the Company shall reimburse Participant, on a current basis, for all legal fees and expenses, if any, incurred by Participant in connection with such contest or dispute regardless of the result thereof. -25- -------------------------------------------------------------------------------- ARTICLE 11 General Provisions 11.1          Amendment; Termination.           Wolverine World Wide, Inc. may amend this Plan prospectively or retroactively, or to terminate this Plan, provided that an amendment or termination may not reduce or revoke the accrued benefits of any Participant who is already entitled as of the date of such amendment or termination to a benefit under Section 5.1 of this Plan, regardless of whether payment of such benefit has commenced. Upon termination of or a discontinuation of further accrual of benefits under this Plan, the accrued benefits of affected Participants shall become nonforfeitable and shall be distributed in accordance with the provisions of this Plan. 11.2          Employment Relationship.           This Plan shall not be construed to create a contract of employment between the Employer and any Participant or to otherwise confer upon a Participant or other person a legal right to continuation of employment or any rights other than those specified herein. This Plan shall not limit or affect the right of the Employer to discharge or retire a Participant.           This Plan does not constitute a contract on the part of the Employer to employ Employee until age 65 or to continue his employment for any given period of time, either fixed or contingent. Moreover, Employee does not by this writing agree to continue in the employment of the Employer for any specified interval of time. The employment relationship, therefore, shall continue for so long as, but only for so long as, such employment is mutually satisfactory to both parties. The Employer does not promise that Employee's employment will be continued for such interval as to enable Employee to obtain all or any part of the benefits under this Agreement. 11.3          Confidentiality and Relationship.           Each Participant shall agree to refrain from divulging any information of a confidential nature including, but not restricted to, trade secrets, operating methods, the names of the Employer's customers and suppliers and the relations of the Employer with such customers and suppliers, or other confidential information; and to refrain from using or permitting the use of such information or confidences by any interests competitive with the Employer; irrespective of whether or not Participant is then employed by the Employer, and to refrain from including, and from causing inducements to be made to, the -26- -------------------------------------------------------------------------------- Employer's employees to terminate employment with the Employer or undertake employment with its competitors. The obligations herein assumed by Participant shall endure whether or not the remaining promises by either party remain to be performed or shall be only partially performed. 11.4          Rights Not Assignable.           Except for designation of a Beneficiary, benefits payable under this Plan shall not be subject to assignment, conveyance, transfer, anticipation, pledge, alienation, sale, encumbrance, or charge, whether voluntary or involuntary, by the Participant (or any Spouse or Beneficiary of the Participant), even if directed under a qualified domestic relations order or other divorce order. A benefit payable under this Plan shall not be used as collateral or security for a debt or be subject to garnishment, execution, assignment, levy, or to another form of judicial or administrative process or to the claim of a creditor through legal process or otherwise. An attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or to otherwise dispose of benefits payable, before actual receipt of the benefits, or a right to receive benefits, shall be void and shall not be recognized. 11.5          Construction.           The singular includes the plural, and the plural includes the singular, unless the context clearly indicates the contrary. Capitalized terms (except those at the beginning of a sentence or part of a heading) have the meaning specified in this Plan. If a capitalized term is not defined in this Plan, the term shall have, for purposes of this Plan, the stated definitions of those terms in the Wolverine Retirement Income Plan as amended from time to time. 11.6          Governing Law.           To the extent not preempted by applicable federal law, this Plan shall be governed by and interpreted under the laws of the State of Michigan. -27- -------------------------------------------------------------------------------- EXHIBIT A - 1 WOLVERINE WORLD WIDE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PARTICIPATION AGREEMENT                                                             ("Employee") has been notified by Wolverine World Wide, Inc. ("Employer") of the Employer's intent to designate the Employee as a Participant in the Wolverine World Wide, Inc. Supplemental Executive Retirement Plan ("Plan"). Employer and Employee have signed this Agreement to effectuate Employee's Participant status and to agree on certain terms relating to Employee's Participant status. Therefore, Employer and Employee agree as follows:                     1.           Participation Date. Employee will become a Participant in the Plan effective                     , 19__. Employee agrees to be bound by the provisions of the Plan.                     2.          Years of Service. Employee's commencement date for purposes of computing Years of Service under the Plan is                                         . Employee currently has           Years of Service.                     3.          Average Earnings. Employee's current Average Earnings is $________.                     4.          Designated Percentage. The Designated Percentage under Plan Section 5.1(a) is 2.4%.                     5.          Designated Period. The Designated Period under Plan Section 10.1 is 3 years.                     6.          Deferred Compensation Agreement. Employer and Employee agree that: [Check one of the following]   [  ] There is no deferred compensation agreement in effect as described in Plan Section 5.4(a).             [  ] There is a Deferred Compensation Agreement dated in effect as described in Section 5.4(a) of the Plan and attached. Employee hereby   --------------------------------------------------------------------------------     relinquishes all rights under such Deferred Compensation Agreement, and agrees to look solely to the terms of the Plan with regard to any computation of a Minimum Benefit as provided in the Plan.                       7.          Employment Relationship. Employee agrees that the Plan shall not be construed to create a contract of employment between the Employer and the Employee or to otherwise confer upon the Employee or other person a legal right to continuation of employment or any rights other than those specified herein. This plan shall not limit or affect the right of the Employer to discharge or retire the Employee.           This Plan does not constitute a contract on the part of the Employer to employ Employee until age 65 or to continue his employment for any given period of time, either fixed or contingent. Moreover, Employee does not by this writing agree to continue in the employment of the Employer for any specified interval of time. The employment relationship, therefore, shall continue for so long as, but only for so long as, such employment is mutually satisfactory to both parties. The Employer does not promise that Employee's employment will be continued for such interval as to enable Employee to obtain all or any part of the benefits under this Agreement.                     8.          Confidentiality and Relationship. Employee agrees to refrain from divulging any information of a confidential nature including, but not restricted to, trade secrets, operating methods, the names of the Employer's customers and suppliers and the relations of the Employer with such customers and suppliers, or other confidential information; and to refrain from using or permitting the use of such information or confidences by any interests competitive with the Employer; irrespective of whether or not Employee is then employed by the Employer, and to refrain from including, and from causing inducements to be made to, the Employer's employees to terminate employment with the Employer or undertake employment with its competitors. The obligations herein assumed by Participant shall endure whether or not the remaining promises by either party remain to be performed or shall be only partially performed.                     9.          Acknowledgments. Employee acknowledges the Employer's rights to: >           (a)          Amend or terminate the Plan at any time, subject to > Section 11.1 of the Plan; and >           (b)          To designate the Employee as an Inactive Participant at > any time, as provided in Section 3.2 of the Plan; and >           (c)          To make final decisions on any claim or dispute related > to the Plan, as provided in Section 8.5 of the Plan; and -2- -------------------------------------------------------------------------------- >           (d)          To exercise any and all other rights of the Employer > under the Plan, in the Employer's sole discretion, without any limitation > other than as expressly set forth in the Plan.                     Employee agrees that any amendment or termination of the Plan shall automatically amend or terminate this Agreement, to the extent permitted by the Plan.                     10.          Amendments. Employee agrees that this Agreement may not be amended orally, but only in a written amendment authorized by the Company's Board of Directors and signed by the Plan Administrator.                     IN WITNESS WHEREOF, the parties have signed this Agreement. Date: ____________________   WOLVERINE WORLD WIDE, INC. By: --------------------------------------------------------------------------------             Its:   -------------------------------------------------------------------------------- "Employer"         Date: ____________________     -------------------------------------------------------------------------------- "Employee" -3- -------------------------------------------------------------------------------- EXHIBIT A - 2 WOLVERINE WORLD WIDE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PARTICIPATION AGREEMENT                                                             ("Employee") has been notified by Wolverine World Wide, Inc. ("Employer") of the Employer's intent to designate the Employee as a Participant in the Wolverine World Wide, Inc. Supplemental Executive Retirement Plan ("Plan"). Employer and Employee have signed this Agreement to effectuate Employee's Participant status and to agree on certain terms relating to Employee's Participant status. Therefore, Employer and Employee agree as follows:                     1.          Participation Date. Employee will become a Participant in the Plan effective                     , 19__. Employee agrees to be bound by the provisions of the Plan.                     2.          Years of Service. Employee's commencement date for purposes of computing Years of Service under the Plan is                                         . Employee currently has           Years of Service.                     3.          Average Earnings. Employee's current Average Earnings is $_________.                     4.          Designated Percentage. The Designated Percentage under Plan Section 5.1(a) is 2.0%.                     5.          Designated Period. The Designated Period under Plan Section 10.1 is 2 years.                     6.          Deferred Compensation Agreement. Employer and Employee agree that: [Check one of the following]   [  ] There is no deferred compensation agreement in effect as described in Plan Section 5.4(a).             [  ] There is a Deferred Compensation Agreement dated in effect as described in Section 5.4(a) of the Plan and attached. Employee hereby relinquishes all rights under such Deferred Compensation Agreement, and agrees to look solely to   --------------------------------------------------------------------------------     the terms of the Plan with regard to any computation of a Minimum Benefit as provided in the Plan.                       7.          Employment Relationship. Employee agrees that the Plan shall not be construed to create a contract of employment between the Employer and the Employee or to otherwise confer upon the Employee or other person a legal right to continuation of employment or any rights other than those specified herein. This plan shall not limit or affect the right of the Employer to discharge or retire the Employee.           This Plan does not constitute a contract on the part of the Employer to employ Employee until age 65 or to continue his employment for any given period of time, either fixed or contingent. Moreover, Employee does not by this writing agree to continue in the employment of the Employer for any specified interval of time. The employment relationship, therefore, shall continue for so long as, but only for so long as, such employment is mutually satisfactory to both parties. The Employer does not promise that Employee's employment will be continued for such interval as to enable Employee to obtain all or any part of the benefits under this Agreement.                     8.          Confidentiality and Relationship. Employee agrees to refrain from divulging any information of a confidential nature including, but not restricted to, trade secrets, operating methods, the names of the Employer's customers and suppliers and the relations of the Employer with such customers and suppliers, or other confidential information; and to refrain from using or permitting the use of such information or confidences by any interests competitive with the Employer; irrespective of whether or not Employee is then employed by the Employer, and to refrain from including, and from causing inducements to be made to, the Employer's employees to terminate employment with the Employer or undertake employment with its competitors. The obligations herein assumed by Participant shall endure whether or not the remaining promises by either party remain to be performed or shall be only partially performed.                     9.          Acknowledgments. Employee acknowledges the Employer's rights to: >           (a)          Amend or terminate the Plan at any time, subject to > Section 11.1 of the Plan; and >           (b)          To designate the Employee as an Inactive Participant at > any time, as provided in Section 3.2 of the Plan; and >           (c)          To make final decisions on any claim or dispute related > to the Plan, as provided in Section 8.5 of the Plan; and -2- -------------------------------------------------------------------------------- >           (d)          To exercise any and all other rights of the Employer > under the Plan, in the Employer's sole discretion, without any limitation > other than as expressly set forth in the Plan.                     Employee agrees that any amendment or termination of the Plan shall automatically amend or terminate this Agreement, to the extent permitted by the Plan.                     10.          Amendments. Employee agrees that this Agreement may not be amended orally, but only in a written amendment authorized by the Company's Board of Directors and signed by the Plan Administrator.                     IN WITNESS WHEREOF, the parties have signed this Agreement. Date: ____________________   WOLVERINE WORLD WIDE, INC. By: --------------------------------------------------------------------------------             Its:   -------------------------------------------------------------------------------- "Employer"         Date: ____________________     -------------------------------------------------------------------------------- "Employee" -3- --------------------------------------------------------------------------------           The following persons have a percentage benefit multiplier under the Supplemental Executive Retirement Plan (the "Plan") of 2.4% or 2.0%, as indicated below, in lieu of the 1.6% of final average monthly remuneration benefit multiplier described in the Plan:   2.4%   2.0%               Geoffrey B. Bloom   Owen S. Baxter     William J.B. Brown   Arthur G. Croci     Louis A. Dubrow   Richard C. DeBlasio     Steven M. Duffy   John Deem     V. Dean Estes   Gary G. Fountain     Stephen L. Gulis, Jr.   Ted Gedra     Blake W. Krueger   Blaine C. Jungers     Timothy J. O'Donovan   Jacques Lavertue     Robert J. Sedrowski   Thomas P. Mundt         Dan L. West         Nicholas P. Ottenwess  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10ii-1 BELLSOUTH CORPORATION STOCK PLAN RESTRICTED SHARES AWARD AGREEMENT     BellSouth Corporation ("BellSouth") and Gary D. Forsee ("Executive"), in consideration of the mutual covenants set forth and for other good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, hereby agree to the terms of this Restricted Shares Award Agreement ("Agreement") effective as of October 18, 2000:     1. Award Grant. BellSouth, acting pursuant to action of its Board of Directors and in accordance with the BellSouth Corporation Stock Plan (the "Plan"), hereby grants to Executive, and Executive hereby accepts, one hundred thousand (100,000) Restricted Shares of BellSouth Corporation $1.00 par value common stock (the "Shares"), effective as of the date above. This Award is subject to the terms and conditions of this Agreement, to the further terms and conditions applicable to Restricted Shares as set forth in the Plan and to applicable terms and conditions regarding change in control in the Executive Severance Agreement dated September 1, 1999 between BellSouth and Executive (the "CIC Agreement").     2. Restriction Period.     (a) Vesting Schedule. Executive's interest in the Shares shall vest in accordance with the following schedule: Vesting Date --------------------------------------------------------------------------------   Number of Shares -------------------------------------------------------------------------------- October 1, 2003   thirty-three thousand three hundred thirty-three (33,333) shares October 1, 2004   an additional thirty-three thousand three hundred thirty-three (33,333) shares October 1, 2005   the remaining thirty-three thousand three hundred thirty-four (33,334) shares     (b) Death or Disability. Executive's interest in the Shares also will vest upon any earlier termination of employment by Executive with the Company or any Subsidiary, or any employer described in paragraph 9 (also referred to herein as a "Subsidiary"), by reason of (i) death or (ii) disability, provided as a result of such disability Executive is eligible for disability benefits under the BellSouth Corporation Long Term Disability Plan or disability benefits under an alternative plan maintained by Executive's employer which BellSouth determines to be comparable to such disability benefits.     (c) Change in Control. Executive's interest in the Shares also will vest at any earlier time upon which Executive's general executive benefits vest under paragraph (d) of Article III of the CIC Agreement in the same manner as if Executive's interest in the Shares was specifically listed in such paragraph (d).     (d) Forfeiture. In the event Executive terminates employment with BellSouth and its Subsidiaries before his interest in the Shares is fully vested under this Paragraph (2) above, Executive shall forfeit all of his interest in the Shares to the extent not then vested.     3. Share Certificates. The certificates for the Shares (the "Certificates") shall be registered in the name of Executive. Executive, immediately upon receipt of the Certificates, shall execute with BellSouth an escrow agreement provided by BellSouth for this purpose substantially in the form attached hereto (the "Escrow Agreement") and deposit the Certificates with the escrow agent under such agreement (the "Escrow Agent") together with stock powers appropriately endorsed in blank. After Executive becomes vested in Shares as provided in Paragraph 2 above, the Escrow Agent shall release the applicable Certificate representing the number of vested Shares to Executive (or to his Beneficiary or his legal representative, if appropriate). In the event of Executive's forfeiture of Shares under Paragraph 2 above, the Escrow Agent shall release the applicable Certificate representing the number of forfeited Shares to BellSouth.     4. Stockholder Status. Executive shall have all of the rights of a stockholder with respect to the Shares prior to any forfeiture, including the right to vote the Shares and to receive all regular cash dividends paid with respect to the Shares, subject to terms of this Agreement, the Escrow Agreement and the Plan. Notwithstanding the above, Executive shall have no right to sell, assign, transfer, exchange or encumber or make subject to any creditor's process, whether voluntary or involuntary or by operation of law, any of his interest in Shares to the extent not then vested under Paragraph 2 above, and any attempt to do so shall be of no effect. In addition, all shares of capital stock or other securities issued with respect to or in substitution of any Shares not then vested under Paragraph 2 -------------------------------------------------------------------------------- above, whether by BellSouth or by another issuer, any cash or other property received on account of a redemption of such Shares or with respect to such Shares upon the liquidation, sale or merger of BellSouth, and any other distributions with respect to such Shares with the exception of regular cash dividends, shall remain subject to the terms and conditions of this Agreement.     5. Employment and Termination. Neither the Plan, this Agreement nor the Escrow Agreement shall give Executive the right to continued employment by BellSouth or by any Subsidiary or shall adversely affect the right of any such company to terminate Executive's employment with or without cause at any time.     6. Securities Law Restrictions. Executive certifies that he is acquiring the Shares for his own account and that he has no present intention to sell or otherwise dispose of any of the Shares. Executive acknowledges that the Shares shall be subject to such restrictions and conditions on any resale and on any other disposition as BellSouth shall deem necessary or desirable under any applicable laws or regulations or in light of any stock exchange requirements and that the Certificates shall bear legends as determined to be appropriate by BellSouth.     7. Tax Withholding. BellSouth or any Subsidiary shall have the right to withhold from any payment to Executive, require payment from the Executive, or take such other action which such company deems necessary to satisfy any income or other tax withholding or reporting requirements arising from this Award of Restricted Shares, and Executive shall provide to any such company such information, and pay to it upon request such amounts, as it determines are required to comply with such requirements.     8. Jurisdiction and Venue. Executive consents to the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and the United States District Court for the Northern District of Georgia for all purposes in connection with any suit, action, or other proceeding relating to this Agreement or the Escrow Agreement, including the enforcement of any rights under this Agreement or the Escrow Agreement and any process or notice of motion in connection with such situation or other proceeding may be serviced by certified or registered mail or personal service within or without the State of Georgia, provided a reasonable time for appearance is allowed.     9. Certain Employment Transfers. In the event Executive is transferred to any company or business in which BellSouth directly or indirectly owns an interest but which is not a "subsidiary" as defined in the Plan, then Executive shall not be deemed to have terminated his employment under this Agreement until such time, if any, as Executive terminates employment with such organization and, if applicable, fails to return to BellSouth or a Subsidiary in accordance with the terms of Executive's assignment, or Executive otherwise fails to meet the terms of Executive's assignment, at which time Executive's deemed termination of employment shall be treated in the same manner as a termination of employment from BellSouth or a Subsidiary under this Agreement.     10. Miscellaneous     (a) Executive's rights under this Agreement can be modified, suspended or canceled only in accordance with the terms of the Plan.     (b) This Agreement shall be subject to the applicable provisions, definitions, terms and conditions set forth in the Plan, all of which are incorporated by this reference in this Agreement and, unless defined in this Agreement, any capitalized terms in this Agreement shall have the same meaning assigned to those terms under the Plan.     (c) The Plan and this Agreement shall be governed by the laws of the State of Georgia. 2 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.     BELLSOUTH CORPORATION:     By: /s/ RICHARD D. SIBBERNSEN    --------------------------------------------------------------------------------     EXECUTIVE:       /s/ GARY D. FORSEE    -------------------------------------------------------------------------------- GARY D. FORSEE 3 -------------------------------------------------------------------------------- QuickLinks BELLSOUTH CORPORATION STOCK PLAN RESTRICTED SHARES AWARD AGREEMENT

Exhibit 10.3   AMENDMENT NO. 2 TO ACQUISITION AGREEMENT   This AMENDMENT NO. 2 TO ACQUISITION AGREEMENT (this “Amendment No. 2”) dated as of October 11, 2001, is among Zebra Technologies Corporation, a Delaware corporation (“Parent”), Rushmore Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and Fargo Electronics, Inc., a Delaware corporation (the “Company”).   INTRODUCTION Parent, Merger Sub and the Company are parties to an Acquisition Agreement, dated as of July 31, 2001 (the “Acquisition Agreement”), pursuant to which and subject to the conditions set forth therein, (i) Merger Sub has commenced a tender offer to purchase all outstanding shares of Company Common Stock (as defined in the Acquisition Agreement) and (ii) following the consummation of the cash tender offer, Merger Sub will merge with and into the Company.   Parent, Merger Sub and the Company entered into an Amendment No. 1 to the Acquisition Agreement on August 30, 2001 in connection with the settlement of a lawsuit filed by James Stewart in District Court, Fourth Judicial District, County of Hennepin, State of Minnesota on August 13, 2001 against the Company, members of the Company’s board of directors and Parent.   In connection with the transaction, Parent received a request for additional information received from the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). Parent and the Company have responded to this request and the parties continue to work with the Federal Trade Commission to seek termination or expiration of the waiting period under the HSR Act.   Parent, Merger Sub and the Company desire to enter into this Amendment No. 2 to (1) revise the termination provisions to move back the date on which will begin the time period within which the Company will have the right to terminate the Acquisition Agreement as a result of a failure to receive clearance under the HSR Act and (2) revise the conditions of the Offer in light of the tragic events of September 11, 2001.   AGREEMENT In consideration of the foregoing and of the mutual covenants, representations, warranties and agreements of the parties set forth in the Acquisition Agreement, and intending to be legally bound hereby, Parent, Merger Sub and the Company agree as follows:   Section 9.1(c)(2) of the Acquisition Agreement is hereby amended in its entirety to state as follows: “if the applicable waiting period under the HSR Act with respect to the Merger has not terminated or expired by 5:00 p.m., New York City time, on February 14, 2002, or if such waiting period has terminated or expired prior to such time but there is then outstanding any administrative or judicial action or proceeding by any governmental or regulatory authority challenging any transaction contemplated by this Agreement as violative of any Law designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade, unless the failure of such waiting period to terminate or expire or the institution of any such administrative or judicial action is the result of a breach of this Agreement by the Company; provided, however, that the Company’s right to terminate this Agreement under this subsection shall expire at 12:00 midnight, New York City time, on February 22, 2002;”   Section (a) of Annex I of the Acquisition Agreement is hereby amended in its entirety to state as follows: “there shall have occurred and be continuing any (1) general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange, Inc. in excess of one day; or (2) declaration of a banking moratorium or suspension of payments in respect of banks in the United States or any general limitation by United States Federal or state authorities (whether or not mandatory) on the extension of credit by lending institutions, which limitation materially affects Merger Sub’s ability to pay for the shares; or there shall have occurred any commencement of a war, armed hostilities or other national calamity involving the United States; provided, however, that the terrorist attacks on the United States on September 11, 2001 and any subsequent military actions and other armed hostilities, including additional terrorist attacks on the United States or any military response by the United States, resulting therefrom (other than any such subsequent actions or hostilities that will, because of their significant and lasting effect on the United States and/or its economy, make Consummation of the Offer impracticable) may not be asserted as a failure of this condition;”   IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed as of the day and year first written above.   ZEBRA TECHNOLOGIES CORPORATION       By:   /s/ EDWARD L. KAPLAN Name:   Edward L. Kaplan Title:   Chairman and Chief Executive Officer       RUSHMORE ACQUISITION CORP.       By:   /s/ JOHN H. KINDSVATER Name:   John H. Kindsvater Title:   President       FARGO ELECTRONICS, INC.       By:   /s/ GARY R.HOLLAND Name:   Gary R. Holland Title:   President and CEO      

Exclusive Licensing Agreement       between The University of Washington and Lumera Corporation           Effectively Dated October 16, 2000     TABLE OF CONTENTS 1.0     Recitals        2.0     Definitions    3.0     Grant  4.0     Sublicensing  5.0     Disclosure of Patents and Technical Information        6.0     Diligence      7.0     Patent Prosecution and Cost Recovery  8.0     Consideration; Licensing Fees, Common Stock and Royalty          9.0     Payment and Reports        10.0   Recordkeeping       11.0   Term and Termination of Agreement; Dispute Resolution     12.0   Notices        13.0   Proprietary Rights   14.0   Patent Marking       15.0   Patent Infringement 16.0   Patent Validity Claims       17.0   Use of Names; Relationship of Parties   18.0   Representations, Warranties, Disclaimer; Assumption of Risk and Release         19.0   Indemnification       20.0   Applicable Laws; Jurisdiction; Venue    21.0   Attorney’s Fees      22.0   Insurance      23.0   Confidential Information    24.0   General        List of Exhibits Exhibit A      Field of Use Exhibit B      Description of Invention Exhibit C      Invention Disclosures, Patent Applications and/or Patents Exhibit D      University Inventors Exhibit E       Notices Exhibit F       Restricted Stock Purchase Agreement Exhibit G      Voting Agreement Exhibit H      Electro-Optic Modulator Product Development Schedule   EXCLUSIVE LICENSING AGREEMENT           This Exclusive Licensing Agreement is entered into by and between the University of Washington (the “University”) and Lumera, Inc., a Washington corporation (the “Licensee”) as of the Effective Date, subject to the following terms and conditions. 1.0     Recitals           WHEREAS, the University has developed, owns and/or has the right to license certain technology relating to electro-optic polymers and related organic materials and processes;           WHEREAS, the University desires that the technology be used as soon as possible in the public interest and to this end desires to license the technology to a company capable of commercially exploiting the technology;           WHEREAS, Licensee desires, for the purpose of commercial exploitation, to acquire a license to certain patent rights in and to the technology and to certain related information;           WHEREAS, Licensee desires to advance the development of a new class of nonlinear optical (NLO) materials currently under development at the University that appear to offer the potential to enable a range of light modulation components and systems for a variety of optical processing and communications applications;           WHEREAS, Licensee intends to complement such development with component and device fabrication capabilities and facilities to achieve rapid commercialization of the underlying materials technology; and           WHEREAS, University and Lumera believe that University research facilities and capabilities can play a role in the further development of this technology, including related systems and applications, and to that end have also entered into a Sponsored Research Agreement in connection with this Agreement.           NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, the University and Licensee do hereby agree as follows: 2.0     Definitions           Unless the context clearly requires otherwise, the following capitalized terms, used in either the singular or plural, shall be defined as follows: 2.1     “Agreement” means this Exclusive Licensing Agreement, including the exhibits attached hereto, which are incorporated by reference herein. 2.2     “Affiliate” means any corporation, company, or other business entity (including any joint venture, partnership, form of association or otherwise) directly or indirectly controlling, controlled by, or under common control with Licensee.  For purposes of this definition, control of an entity means having the right to direct or to appoint or remove a majority of the members of the entity’s board of directors (or its equivalent) or the entity’s management (including the entity’s president, chairman of the board, or general or managing partner, as applicable), irrespective of whether such right exists by reason of one or more of the following:  (i) contract, agreement, arrangement or understanding; (ii) provisions in the applicable articles, bylaws or other similar governing document; (iii) ownership of or holding rights to vote sufficient numbers of voting shares, securities or other rights entitled to vote for, appoint, or remove; (iv) any applicable law; or (v) otherwise. 2.3     “Confidential Information” has the meaning set forth in Section 23.1 of this Agreement. 2.4     “Effective Date” means October 16, 2000. 2.5     “Electro-Optic Modulator” means an integral device capable of using an electrical signal to modulate a laser light source at high speed commonly employing, but not limited to, a Mach-Zehnder design, examples of which are generally represented (and referenced herein for illustrative purposes only) by the following commercially available products:  Lucent Technologies Part Numbers 2623N, 2623CSA, JDS Uniphase Part Numbers 25150-002280, 25150-002281, DZ150-002282, DZ150-002283, PM-150-080-50-1-1-C2 and SDL Integrated Optics Ltd. Part Numbers IOAP-MOD 9140, 9189, 9201, 9203 2.6     “Field of Use” means the field of use described in Exhibit A attached hereto. 2.7     “First Commercial Use” means the date upon which Net Sales Revenue or Sublicense Fees first occurs. 2.8     “Invention” means the inventions (i) described in Exhibit B attached hereto and (ii) that Licensee may hereafter elect to add to this Agreement by exercise of an option to license pursuant to Section 8 of the Sponsored Research Agreement. 2.9     “Licensed Patents” means the invention disclosures, patent applications, and/or patents (i) described in Exhibit C attached hereto and (ii) that Licensee may hereafter elect to add to this Agreement by exercise of an option to license pursuant to Section 8 of the Sponsored Research Agreement.  Licensed Patents shall also include all patents, reissues, divisionals, continuations, reexaminations and extensions thereof, and subject matter in any continuations-in-part on which claims issuing obtain the benefit of a priority date of any of the foregoing, together with all corresponding foreign patents, extensions, supplemental protection certificates, applications, and related intellectual property rights corresponding thereto now issued or issued during the term of this Agreement and which directly relate to the Invention. 2.10   “License” means the license granted to Licensee under the terms of this Agreement. 2.11   “Licensed Subject Matter” means any subject matter, including but not limited to products and processes, (i) that is covered in whole or in part by any issued, unexpired patent claim or a claim in a pending patent application contained in the Licensed Patents in the country in which said subject matter is made, used, or sold, or (ii) that incorporates any Technical Information. 2.12   “Licensee” means Lumera, Inc., a Washington corporation. 2.13   “Net Sales Revenue” means the gross revenues billed or invoiced by Licensee for sales of Electro-Optic Modulators using or incorporating Licensed Subject Matter and for sales of other Licensed Subject Matter, whether billed or invoiced by Licensee or its Sublicensees, less discounts and allowances given and actually taken and which are customary in Licensee’s trade, other than those which permit a reduction in payment by the customer in exchange for early payment, and less sales and similar taxes actually paid by Licensee on said sales transactions (but not including any taxes assessed on Licensee’s business generally), import and export duties actually paid, and amounts allowed or credited due to returns (not to exceed the original billing or invoice).  Licensed Subject Matter shall be deemed “sold” upon the earlier of billing out, invoicing, or shipping. 2.14   “Party” or “Parties” mean the University and/or Licensee as the context requires. 2.15   “Restricted Stock Purchase Agreement” means the agreement entered into by and between the Parties attached as Exhibit F hereto. 2.16   “Sponsored Research Agreement” means a research agreement entered into by and between the Parties as of the Effective Date of this Agreement. 2.17   “Sublicense” means the present, future or contingent transfer of any license, right, option, first right to negotiate or other right granted to a Sublicensee under the Licensed Subject Matter, in whole or in part.  Sublicense shall also include, without limitation, strategic partnerships, affiliations, and marketing collaborations. 2.18   “Sublicensee” means a third party not an Affiliate of Licensee granted a Sublicense pursuant to a bona fide arms length transaction. 2.19   “Sublicense Fees” means all forms of consideration received by Licensee for a Sublicense, including, but not limited to royalties, cash, stock and other valuable non-cash consideration. 2.20   “Technical Information” means Confidential Information – i.        that is owned by the University or whose use or disclosure is legally controlled by the University, and ii.        that is in any manner related to any Invention or the Licensed Subject Matter or to the Project as defined in the Sponsored Research Agreement, and iii.       that is included within one or more of the following: (a)      a Licensed Patent, as defined herein, (b)      a disclosure of Technical Information by the University to the Company pursuant to Section 5.3 of this Agreement, (c)      Research Results, as defined in the Sponsored Research Agreement, including any description of Research Results contained in any report to the Company, (d)      a report by the University to the Company pursuant to Sections 2.7 or 2.8 of the Sponsored Research Agreement, (e)      a Disclosure, as defined in the Sponsored Research Agreement, made pursuant to Section 8.1 thereof; (f)       a disclosure by the University to the Company and identified in writing as Technical Information by the University pursuant to any material transfer, nondisclosure or other similar agreement, document or arrangement between the University and the Company, or (g)      a disclosure by the University to the Company pursuant to that certain Nondisclosure Agreement among the Parties hereto executed on July 19, 2000 and effectively dated January 1, 2000. Notwithstanding anything in the foregoing to the contrary, Technical Information shall not in any event include any information to the extent and as of the date:  (x) excluded as Confidential Information under Sections 23.2 or 23.6 of this Agreement, (y) publicly disclosed by the University as a Scholarly Disclosure pursuant to Article 5.0 of the Sponsored Research Agreement, or (z) included within a Licensed Patent upon public disclosure thereof by the University or by any applicable governmental patenting authority. 2.21   “Territory” means the entire world. 2.22   “University of Washington,” “University,” and “UW” all mean the University of Washington, a public institution of higher education and an agency of the State of Washington, having its principal campus located in Seattle, Washington. 2.23   “University Inventors” means (i) the persons described in Exhibit D attached hereto and (ii) any other University Personnel who may participate in the development of Inventions arising from the Sponsored Research Agreement. 2.24   “University Personnel” shall have the same meaning as defined in the Sponsored Research Agreement. 2.25   “Voting Agreement” means the agreement entered into by and between the Parties and others attached as Exhibit G. hereto. 3.0     Grant 3.1     Subject to Licensee’s performance of the terms and conditions of Articles 8.0 and 9.0 of this Agreement and Article 3.0 of the Sponsored Research Agreement, University hereby grants to Licensee for the term of this Agreement, and Licensee accepts, an exclusive, royalty-bearing license, with the right to sublicense, to import, make, have made, use, sell, offer for sale, have sold, and otherwise commercially exploit Licensed Subject Matter within the Field of Use in the Territory. 3.2     The License granted herein is subject to a reserved non-exclusive, non-transferable license in the Field of Use retained by the University to:  (i) publish the general scientific findings from research related to Licensed Subject Matter, subject to the terms regarding publication described in Article 5.0 of the Sponsored Research Agreement; and (ii) use the Licensed Subject Matter only for its own bona fide research, teaching and other educationally-related purposes. 3.3     In the event the University has received or will receive any funding from a funding agency of the U. S. government for research contributing in whole or part to the development of the Licensed Subject Matter, Invention, Licensed Patents, and Technical Information, Licensee understands and agrees that such intellectual property may be subject to the rights and limitations of U.S. Public Laws  96-517 and 98-620, 35 USC §§200-211, and various implementing regulations, including those codified at 37 CFR Part 401, known generally and collectively as the “Bayh-Dole Requirements.”  In such case, the Parties agree to include, where applicable, in any application for a U.S. Patent a statement fully identifying the rights of the U.S. government under the Bayh-Dole Requirements; and Company acknowledges that the University shall be required to grant the U.S. government a worldwide, non-exclusive, royalty-free license for such intellectual property, including the Licensed Patents, notwithstanding anything in this Agreement to the contrary. 4.0     Sublicensing 4.1     During the term of exclusivity of the license granted in this Agreement, Licensee shall have the right to grant Sublicenses to Licensed Patents in the Field of Use, or any part thereof, and for the Territory, or any portion thereof, at royalty rates and with other terms and conditions not less favorable to University than those required of Licensee by this Agreement. 4.2     Licensee agrees to forward to University a copy of any and all fully executed Sublicense agreements pertaining to Licensed Patents within thirty (30) days of the date of execution. 5.0     Disclosure of Patents and Technical Information 5.1     University, within sixty (60) days of the Effective Date, shall provide to Licensee copies of all issued patents and pending patent applications comprising the Licensed Patents as of that date. 5.2     University agrees to provide Licensee with a copy of any future patent application or applications filed by University relating to the Invention.  University acknowledges that such patents and applications may become Licensed Subject Matter as otherwise provided under the terms of this Agreement and the Sponsored Research Agreement. 5.3     University agrees to disclose to Licensee any other Technical Information, not obtained by University under conditions of confidentiality, in University’s possession as of the Effective Date or during the term of this Agreement that University reasonably considers to be necessary or valuable to the commercial exploitation of Licensed Patents. 5.4     Where Technical Information is intended or reasonably expected to be included in a patent application, Licensee agrees to keep such Technical Information received from University and identified by University as confidential under conditions of strict secrecy until the filing and public disclosure of such application and to use the same degree of care Licensee would for its own confidential information, but not less than reasonable care, to protect University’s confidential Technical Information from disclosure to unauthorized third parties. 6.0     Diligence 6.1     Licensee, during the term of this Agreement, shall utilize its best efforts in proceeding with the development, manufacture and sale of commercial products and/or processes incorporating and/or utilizing the Licensed Subject Matter and with other commercial exploitation of the Licensed Subject Matter, and in creating a supply and demand for the Licensed Subject Matter. 6.2     Without limiting the foregoing, Licensee shall:  (i) develop an Electro-Optic Modulator incorporating and/or utilizing Licensed Subject Matter substantially in accord with the schedule attached as Exhibit H hereto, including the milestones specified therein; and (ii) offer for general commercial sale an Electro-Optic Modulator incorporating and/or utilizing Licensed Subject Matter no later than eighteen (18) months after University discloses to and fully enables Company to obtain a sample of a nonlinear electro-optic material suitable for use in a commercially-saleable Electro-Optic Modulator, except that with respect to any such disclosure and enablement in existence on or after June 1, 2001, no later than twelve (12) months after the occurrence of any such disclosure and enablement. 6.3     If Licensee fails to adhere to the diligence obligations set forth in this Agreement, University may terminate this Agreement in accordance with Article 11.0 of this Agreement. 7.0     Patent Prosecution and Cost Recovery 7.1     University or its designee shall have sole control over the filing, prosecution and maintenance of any and all patent applications, whether pending or not yet filed as of the Effective Date of this Agreement, in Licensed Patents, and of the maintenance and other management of any and all issued patents in Licensed Patents.  The Parties agree to use the Seattle, Washington law firm of Christensen, O’Connor, Johnson and Kindness as legal counsel for all patent matters and to change such counsel by mutual agreement. 7.2     University shall keep Licensee informed of the status of any and all patents and patent applications comprising Licensed Patents and shall provide to Licensee timely copies of all correspondence with the United States Patent and Trademark Office (as well as any foreign equivalent bodies), and shall provide Licensee with the opportunity from time to time to advise University on courses of action respecting the filing of new patent applications relating to the Invention, prosecution of patent applications, and management of patents in Licensed Patents, provided University shall have sole authority to prosecute Licensed Patents. If University determines that it will not maintain any of the Licensed Patents, University will provide timely notice to Licensee and shall provide to Licensee reasonable opportunity to maintain such Licensed Patents. 7.3     Licensee agrees to reimburse University for all fees and costs relating to the preparation (including any investigation and analysis directly relating to such preparation), filing, prosecution and maintenance of patent applications, including, without limitation, interferences, oppositions, and reexaminations, and maintenance and defense of patents, in Licensed Patents, whether incurred prior to the execution of this Agreement or during the term of this Agreement.  Such fees and costs shall not include costs incurred by the University in the use of its own resources, such as employee time, and shall not extend to patenting fees and costs incurred by University after termination of this Agreement.  Licensee agrees to pay invoices for such fees and costs submitted by University with thirty (30) days after receipt of any such invoice.  Alternatively, University may instruct its legal counsel to send copies of all invoices related to the Licensed Patents directly to Licensee, and Licensee shall reimburse the invoicer directly as if that invoicer were University.  University shall further instruct its legal counsel to notify University should any such invoice remain unreimbursed for a period of more than thirty days from the date of invoice.  In any country where Licensee fails to pay fees and costs invoiced to Licensee by University within sixty (60) days of the date of such invoice, University may file, prosecute and/or maintain a patent application or patent at its own expense and for its own exclusive benefit, and Licensee thereafter shall not be licensed under such patent or patent application within such country. 8.0     Consideration; Licensing Fees, Common Stock and Royalty 8.1     Licensee agrees to pay to University a one-time, non-refundable, non-creditable license issue fee of Two Hundred Thousand Dollars ($200,000.00) due and payable upon execution of the Research Plan of the Sponsored Research Agreement. 8.2     Licensee will deliver to the University shares of its common stock and perform such other obligations in accordance with the Stock Subscription and Rights Agreement attached hereto as Exhibit F. 8.3     Commencing upon First Commercial Use but in no event later than January 1, 2002, Licensee agrees to pay to University a non-refundable annual license maintenance fee of seventy-five thousand dollars ($75,000) due and payable in four quarterly installments on the schedule specified in Section 9.1 of this Agreement and fully creditable against any royalties payable by Licensee under Section 8.4 of this Agreement. 8.4     Licensee agrees to pay to University an earned royalty calculated as a percentage of Net Sales Revenue during the term of this Agreement in accordance with the following: 8.4.1  With respect to Net Sales Revenue arising from sales of software constituting Licensed Subject Matter, the royalty rate shall be determined in accordance with Section 8.5 of this Agreement. 8.4.2  With respect to Net Sales Revenue arising from sales of Electro-Optic Modulators, the royalty rate shall be determined in accordance with Section 8.5.  [CONFIDENTIAL TREATMENT REQUESTED] 8.4.3  With respect to Net Sales Revenue arising from sales of any Licensed Subject Matter other than as described in subsections 8.4.1 and 8.4.2, the royalty rate shall be determined in accordance with Section 8.5.  [CONFIDENTIAL TREATMENT REQUESTED] 8.4.4  No multiple royalties on Net Sales Revenue shall be payable by Licensee to University more than once on a particular product or process licensed under this Agreement as a result of any Licensed Subject Matter, its manufacture, use, or sale, are or being included within any of the following:  (i) one or more patents (including any invention disclosures and patent applications) constituting Licensed Patents; or (ii) any item of Technical Information (irrespective of whether any such Technical Information is also included as part of a Licensed Patent).  Royalties shall be determined at the component level for sales or similar transfers of items, i.e., if the component or process is used as a component that is part of a larger system, the royalty shall be payable on the component, not the system, unless the Licensed Subject Matter covers the system as a whole. 8.5     Royalties and royalty rates under this Agreement shall be determined in accordance with the following: 8.5.1  Within any applicable ranges set forth in Section 8.4 of this Agreement, the Parties agree to negotiate and determine royalty rates and other factors material to the application of a royalty on a product-by-product basis no later than the first sale or other commercial use of each product incorporating Licensed Subject Matter, except that, with respect to Electro-Optic Modulators, the royalty rate shall be determined no later than September 1, 2001.  [CONFIDENTIAL TREATMENT REQUESTED]  The Parties agree to promptly execute appropriate amendments to this Agreement reflecting all such determinations. 8.5.2  Royalty rates under this Agreement shall be commercially reasonable, taking into account usual and customary commercial factors, including, without limitation, the nature and character of the particular product, the industry within which it will be marketed and sold, Licensee’s anticipated profitability from the particular product sales, and the value added of Licensed Subject Matter to the product, and with respect to Licensed Subject Matter arising from Joint Intellectual Property as defined in the Sponsored Research Agreement, the relative contributions of the Parties to the development of such Joint Intellectual Property.  Determination of the relative contributions of the Parties to the development of such Joint Intellectual Property shall be based on the relative value added by each Party to the commercial value of such Joint Intellectual Property and shall not necessarily be limited to matters disclosed in any Licensed Patent.  Notwithstanding the foregoing, in no event shall royalty rates be inconsistent with any applicable ranges set forth in Section 8.4 of this Agreement. 8.5.3  Licensee agrees to provide timely notice of the planned offering for sale of any product incorporating any Licensed Subject Matter, which notice shall in no event be less than one-hundred twenty (120) days prior to the first sale.  Either Party may at any time request the other Party to meet for the purpose of negotiating a royalty rate with respect to a particular product, including the definition of the product for purposes of calculating the royalty; providing, however, a Party shall not be required to enter into negotiations more than one-hundred twenty (120) days prior to the planned offering for sale of the particular product that is the subject of the requested negotiation. 8.5.4  In the event the Parties are unable to agree on the royalty rate for a particular product after three (3) meetings, either Party may submit the particular matter to binding interest arbitration to be decided by a single arbitrator in Seattle, Washington and administered by the American Arbitration Association.  The arbitrator shall be experienced in conducting interest arbitration proceedings and knowledgeable in matters relating to the marketing and sale of electronic devices in the telecommunications industry, including usual and customary licensing arrangements.  The arbitrator’s authority shall be limited to determining (without issuing either a reasoned opinion or findings of fact):  (i) a commercially reasonable royalty rate in accordance with the requirements set forth in Section 8.4 and subsection 8.5.2 of this Agreement, and (ii) the definition of the particular product to which such royalty shall apply.  The arbitrator shall have no authority to award any damages, costs or attorney fees or to decide any other matter or dispute arising under this Agreement, including without limitation any disputes regarding the validity of the Licensed Patents.  All arbitration proceedings shall be conducted on an informal basis and no rules of evidence shall be applicable to such proceedings, except those as the arbitrator deems appropriate to a speedy and efficient determination.  Prior to commencement of arbitration, each Party shall submit to the arbitrator and exchange with each other in advance of the hearing their last, best offers.  The arbitrator shall be limited to awarding only one or the other of the two figures submitted, providing such figure is within any range applicable to the particular product as specified in Section 8.4 of this Agreement.  Each Party shall bear its own costs and expenses and an equal share of the arbitrator’s and administrative fees of arbitration.  The written decision of the arbitrator shall be binding and final on the Parties and shall not be subject to any judicial or other appeal.  Upon issuance, the arbitrator’s written decision shall be deemed to be incorporated herein and shall, without further action of the Parties, be deemed to be an amendment to this Agreement. 8.6     Licensee agrees to pay to University a percentage of Sublicense Fees, due and payable at the end of each calendar quarter in which such Sublicense Fees are received by Licensee on the schedule specified in Section 9.1 of this Agreement, according to the following: 8.6.1  With respect to Sublicense Fees received by Licensee from the sale of Electro-Optic Modulators by a Sublicensee, Licensee will pay to the University.  [CONFIDENTIAL TREATMENT REQUESTED] 8.6.2  With respect to Sublicense Fees received by Licensee from the sale of software by a Sublicensee, Licensee will pay to the University a commercially reasonable percentage of all such Sublicense Fees determined in accordance with Section 8.5.4 of this Agreement. 8.6.3  With respect to Sublicense Fees received by Licensee other than as described in either subsection 8.6.1 or 8.6.2, Licensee will pay to the University a commercially reasonable percentage of all such Sublicense Fees determined in accordance with Section 8.5.4 of this Agreement, providing, however, that the percentage payable to the University as set forth in subsection 8.6.1 will be presumed to be commercially reasonable for purposes of this subsection 8.6.3 unless the objecting Party can produce clear and convincing evidence to the contrary. 8.6.4  Licensee shall be entitled to a credit for amounts payable to University under Section 8.5 of this Agreement for any amounts of Sublicense Fees allowed or credited by Licensee to a Sublicensee due to returns or similar circumstances (not to exceed the original billing or invoice). 8.7     If Licensee receives consideration in any form other than cash in connection with the use or sale of Licensed Subject Matter, or in connection with the grant of any Sublicense, Licensee shall, in the applicable report pursuant to Article 9 (Payment and Reports) of this Agreement, state the cash value to Licensee of such non-cash consideration.  University may either (a) accept Licensee’s statement of cash value, in which case such stated cash value will be shared with University in accordance with the provisions in Article 8 (Licensing Fees and Royalty) of this Agreement; or (b) elect to have such non-cash consideration appraised by a qualified third party appraiser selected by University and reasonably acceptable to Licensee, in which case the appraised cash value will be shared with University in accordance with the provisions in Section 8.4 of this Agreement.  If the appraised cash value is either more than one-hundred ten percent (110%) of Licensee’s stated value or more than $100,000 over Licensee’s stated value, the Licensee shall pay for the appraisal.  In all other cases, the University shall pay for the appraisal. 8.8     If Licensee receives Sublicense Fees in the form of equity, all provisions of Section 8.6 of this Agreement shall apply, except that University may, at its sole discretion, elect to receive University’s share of such equity as either equity or the cash equivalent of such equity.  If University elects to receive the equity, such equity shall be issued in the name “University of Washington.” 9.0     Payment and Reports 9.1     Licensee shall pay earned royalties to University quarterly within sixty (60) days of March 31, June 30, September 30, and December 31 of each year during the term of this Agreement.  Each such payment shall reflect royalties due with respect to Net Sales Revenue occurring during the preceding calendar quarter. 9.2     With each payment, Licensee shall include a report setting forth such particulars of the business conducted by Licensee and each Sublicensee during the preceding calendar quarter as shall be pertinent to accounting as specified in this Agreement.  The report, for Licensee and each Sublicensee, shall include at least (a) the number of units of Licensed Subject Matter manufactured, used, or sold; (b) gross amounts billed or invoiced for Licensed Subject Matter; (c) names and addresses of any and all Sublicensees; (d) the amount of Sublicense income received; (e) discounts and allowances; and (f) calculation of total amounts due University. 9.3     Until Licensee or any Sublicensees engage in First Commercial Use or other commercial use of Licensed Subject Matter, Licensee shall prepare and submit to University within sixty (60) days of June 30 and December 31 of each year a report regarding the progress of Licensee and any Sublicensee in developing Licensed Subject Matter for commercial exploitation.  Said report shall include such particulars as are necessary to demonstrate compliance with diligence obligations set forth in the Article 6.0 of this Agreement. 9.4     On or before the ninetieth (90th) day following the close of Licensee’s fiscal year, Licensee shall provide University with Licensee’s certified financial statements (or, if available, audited financial statements) for the preceding fiscal year, including, at a minimum, a balance sheet and an operating statement. 9.5     All payments required under this Agreement shall be made in U.S. dollars by check or money order payable to the “University of Washington”, and delivered to the Attention of Fiscal Specialist at the University’s Office of Technology Transfer delivered to the address as specified in this Agreement; or, if so directed in writing by University, in such currency, form, and to such account as University may designate.  If applicable, the rate of exchange to be used in computing the amount of currency equivalent to the United States dollars shall be the rate of exchange as published in the Wall Street Journal on the last business day of the calendar quarter in which the Net Sales Revenue occurred. 9.6     Licensee agrees to pay a late fee for any payment more than ten (10) days overdue University under the terms of this Agreement, which shall be computed as simple interest at the rate of twelve percent (12%) per annum on any such overdue amounts.  The payment of such a late fee shall not foreclose or limit University from exercising any other rights it may have as a consequence of the lateness of any payment. 10.0   Recordkeeping 10.1   Licensee shall keep complete and accurate records and books of account containing all information necessary for the computation and verification of the amounts to be paid hereunder.  Licensee shall keep these records and books for a period of five (5) years following the end of the accounting period to which the information pertains. 10.2   Licensee agrees, at the request of University, to permit one or more accountants selected by University (“Accountant”) and reasonably acceptable to Licensee to have access to Licensee’s records and books of account during ordinary working hours with reasonable notice to audit with respect to any payment period ending prior to such request, the correctness of any report or payment made under this Agreement, or to obtain information as to the payments due for any such period in the case of failure of the Licensee to report or make payment pursuant to the terms of this Agreement. 10.3   The Accountant shall not disclose to University any information relating to the business of Licensee except that which is necessary to inform University of:  (a) the accuracy or inaccuracy of Licensee’s reports and payments; (b) compliance or noncompliance by Licensee with the terms and conditions of this Agreement; and (c) the extent of any inaccuracy or noncompliance. 10.4   Should the Accountant believe there is an inaccuracy in any of the Licensee’s payments or noncompliance by the Licensee with any of such terms and conditions, the Accountant shall have the right to make and retain copies (including photocopies) of any pertinent portions of the records and books of account. 10.5   In the event that Licensee’s royalties calculated for any quarterly period are underreported by more than ten per cent (10%) or by more than $25,000, the costs of any audit and review initiated by University will be borne by Licensee; but, otherwise, University shall bear the costs of any audit initiated by University. 11.0   Term and Termination of Agreement; Dispute Resolution 11.1   The term of this Agreement shall commence on the Effective Date and shall continue until the last of Licensed Patents expires, unless sooner terminated in accordance with the provisions set forth in this Article 11.0 of this Agreement. 11.2   If Licensee breaches any material obligation imposed by this Agreement or fails to cure, within the appropriate cure period, a material obligation of the Sponsored Research Agreement, including without limitation any payment obligation under Section 3.1 of the Sponsored Research Agreement, then University may, at its option, send a written notice that it intends to terminate the license granted by this Agreement.  If Licensee does not cure the breach within sixty (60) days from the notice date, then University shall have the right, without further notice, to immediately terminate this Agreement. 11.3   In no event shall an early termination of the Sponsored Research Agreement by the University pursuant to Section 11.1 of the Sponsored Research Agreement be deemed to be or give rise to a breach of this Agreement. 11.4   This Agreement, and the license granted to Licensee herein, shall terminate immediately in the event that (1) Licensee seeks liquidation, reorganization, dissolution or winding-up of itself, Licensee makes any general assignment for the benefit of its creditors, or Licensee ceases doing business; (2) a petition is filed by or against Licensee, or any proceeding is initiated by or against Licensee, or any proceeding is initiated against Licensee as a debtor, under any bankruptcy or insolvency law, unless the laws then in effect void the effectiveness of this provision, and such filing remains unopposed for a period exceeding thirty (30) business days; or (3) a receiver, trustee, or any similar officer is appointed to take possession, custody, or control of all or any part of Licensee’s assets or property. 11.5   Beginning five (5) years after the Effective Date, Licensee shall have the right to terminate this Agreement with or without cause, upon ninety (90) days prior written notice to University.  Notwithstanding the foregoing, Licensee may terminate this Agreement upon ninety (90) days written notice to University upon payment to the University, to the extent not previously paid, of five (5) years of annual maintenance fees as described in Section 8.3 of this Agreement. 11.6   Termination of this Agreement pursuant to Articles 11.2, 11.3, or 11.4 shall terminate all rights and licenses granted to Licensee hereunder. 11.7   Upon termination of this Agreement, any and all existing Sublicense agreements shall be immediately assigned to University and University agrees to keep them in force to the extent that University is capable of performing as a licensor in place of Licensee. 11.8   Termination by University or Licensee under the options set forth in this Agreement shall not relieve Licensee from any obligation to University arising under Article 8 of this Agreement and accruing prior to termination and shall not relieve either party from performing according to any and all other provisions of this Agreement that survive termination. 11.9   In the event that there remain no valid, enforceable, and infringed Licensed Patents covering Licensed Subject Matter, then following termination Licensee and any Sublicensees shall have no further obligation to pay royalties thereon or to account to University therefor. 11.10 The provisions under which this Agreement may be terminated shall be in addition to any and all other legal remedies which either Party may have for the enforcement of any and all terms hereof and shall not in any way be interpreted to limit any other legal remedy such Party may have. 11.11 In the event of termination of this Agreement for whatever reason, Articles 18.0 and 19.0 shall survive such termination. 11.12 Prior to commencing any legal action, the Parties will attempt in good faith to resolve through negotiation any dispute, claim or controversy arising out of or relating to this Agreement.  Either Party may initiate such negotiations by providing written notice to the other Party specifying that this provision of this Agreement is being utilized and setting forth the subject of the dispute and the relief requested.  The Party receiving such notice will respond in writing within five (5) business days with a statement of its position on and recommended solution to the dispute.  If the dispute is not resolved by this exchange of correspondence, then representatives of each Party with full settlement authority shall meet at a mutually agreeable time and place in Seattle, Washington within ten (10) business days of the date of the initial notice in order to exchange relevant information and perspectives, and to attempt in good faith to resolve the dispute.  If the dispute is not resolved by these negotiations, the matter will be submitted to a mutually agreeable and recognized mediation service prior to initiating legal action.  Any such mediation shall be conducted in Seattle, Washington and the costs of the mediation service shall be shared equally by the Parties. 12.0   Notices 12.1   Any notice to a Party provided pursuant to the terms of this Agreement shall be delivered either in person, mailed by registered mail (return receipt requested and postage prepaid), or transmitted by facsimile or electronic mail with operator confirmation, and addressed as indicated in Exhibit 5 attached hereto. 12.2   Notice shall be deemed effective upon the earlier of:  (i) actual delivery to the Party; (ii) five (5) days after the date on which such notice was postmarked within the United States; or (iii) receipt by facsimile or other electronic means with operator confirmation.  All notices given by facsimile or other electronic means shall be immediately followed by delivery in person or delivery by first class mail. 13.0   Proprietary Rights Licensee will not, by performance under this Agreement, obtain any ownership interest in Licensed Patents or any other proprietary rights or information of University, its officers, inventors, employees, students, or agents. 14.0   Patent Marking Licensee shall mark, and shall require any sublicensee to mark, any and all material forms of Licensed Subject Matter or packaging pertaining thereto made and sold by Licensee (and/or by its Sublicensees) in the United States with an appropriate patent marking identifying the pendency of any U.S. patent application and/or any issued U.S. or foreign patent forming any part of Licensed Patents.  All Licensed Subject Matter shipped to or sold in other countries shall be marked in such a manner as to provide notice to potential infringers pursuant to the patent laws and practice of the country of manufacture or sale. 15.0   Patent Infringement 15.1   Each Party shall promptly inform the other Party of any alleged infringement of Licensed Patents by a third party of which that Party is aware and provide any available evidence thereof. 15.2   During the term of exclusivity of the license granted hereunder, Licensee shall have the first right to settle any alleged infringement of Licensed Patents by securing cessation of the infringement, instituting suit against the infringer, or entering into a sublicensing agreement in and to relevant patents in Licensed Patents.  To enjoy said first right, Licensee must notify University of such infringement within ninety (90) days of learning of said infringement and if University notifies Licensee in writing of its intent to initiate litigation on its own behalf, Licensee must initiate bona fide action to settle any alleged infringement within ninety (90) days of such notice.  After Licensee has recovered its reasonable attorney’s fees and other out-of-pocket expenses directly related to any action, suit, or settlement for infringement of Licensed Patents, University and Licensee shall divide any remaining damages, awards, or settlement proceeds in the following manner: University   [CONFIDENTIAL TREATMENT REQUESTED] Licensee     [CONFIDENTIAL TREATMENT REQUESTED] provided, however, that any payment by an alleged infringer as consideration for the grant of a Sublicense shall be handled according to the payment provisions for Sublicenses set forth in this Agreement. 15.3   In the event Licensee institutes suit against an alleged infringer during the term of exclusivity as provided in this Agreement, then the University may agree to voluntarily participate as a named party at its sole discretion.  Otherwise, the University shall participate as an involuntary plaintiff only if the University is determined by a court to be a necessary or indispensable party, in which case the University agrees to be bound by any final judgment rendered by the court.  Providing, however, the foregoing shall not be interpreted to limit any right of the University to intervene in any such suit within three (3) months of initiation of such lawsuit, and at any time thereafter for good cause, which right is hereby fully reserved.  Unless the University intervenes, the University’s participation in any such suit shall be at Licensee’s sole expense, and University shall at Licensee’s expense for University’s direct associated expenses, fully and promptly cooperate and assist Licensee in connection with any such suit. 15.4   If Licensee fails, within ninety (90) days of the University’s written notice as described in Section 15.2 above, to secure cessation of the infringement, institute suit against the infringer, or provide to University reasonably satisfactory evidence that Licensee is engaged in bona fide negotiation for the acceptance by infringer of a sublicense in and to relevant patents in Licensed Patents, University may then, upon written notice to Licensee, assume full right and responsibility to secure cessation of the infringement, institute suit against the infringer, or secure acceptance of a sublicense from Licensee in and to relevant patents in Licensed Patents, approval for which sublicense Licensee shall not unreasonably withhold. 15.5   If University in accordance with the terms and conditions of this Agreement chooses to institute suit against an alleged infringer, University may bring such suit in its own name (or, if required by law, in its and Licensee’s name) and at its own expense, and Licensee shall, but at University’s expense for Licensee’s direct associated expenses, fully and promptly cooperate and assist University in connection with any such suit.  Any and all damages, awards, or settlement proceeds arising from such a University-initiated action shall be the sole property of the University. 15.6   Neither Licensee nor University shall be obligated under this Agreement to institute a suit against an alleged infringer of the Licensed Patents. 16.0   Patent Validity Claims 16.1   If any claim challenging the validity or enforceability of any Licensed Patents shall be brought against Licensee, Licensee shall promptly notify University.  University, at its option, shall have the right, within thirty (30) days after notification by Licensee of such action, to intervene and take over the sole defense of the claim at University’s expense. 16.2   If Licensee challenges the validity or enforceability of any Licensed Patents, Licensee agrees not to suspend any payments due University until such time as that patent in Licensed Patents is determined to be invalid or unenforceable by final judgment of a court of competent jurisdiction.  During the pendency of any appeal there from, Licensee agrees to deposit any such payments due University into an escrow mutually agreeable to the Parties.  Upon expiration of any period from which no further appeals can be taken in such proceedings, the proceeds of such escrow shall be paid to Licensee if the Licensed Patent at issue is determined to be invalid or unenforceable and shall be paid to University if the Licensed Patent at issue is determined to be valid and enforceable. 17.0   Use of Names; Relationship of Parties 17.1   Each Party agrees that it will not use the name, trademark or other identifier of the other Party for any advertising, promotion, or other commercially related purpose without the express prior written consent of the other Party.  Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark or other designation of a Party hereto including any contraction, abbreviation or simulation of any of the foregoing, unless the express written permission of the other Party has been obtained, provided that Licensee may state the existence of this Agreement and the fact that both Parties entered into it.  For any use other than the foregoing, Licensee hereby expressly agrees not to use any name, tradename or trademark of the University, including without limitation “University of Washington” or its substantial equivalent, without the prior written approval from University. 17.2   The Parties each agree and understand that they are each acting as independent contractors and nothing contained herein shall be construed to be inconsistent with such relationship or status.  Under no circumstances, shall either Party be considered an agent, representative or employee of the other Party.  This Agreement shall not constitute, create, nor in any way be interpreted as giving rise to any joint venture, partnership, profit-sharing, or other similar business relationship of any kind between the Parties. 18.0   Representations, Warranties, Disclaimer; Assumption of Risk and Release 18.1   University represents and warrants that it has the right to grant the License in and to Licensed Patents and to disclose the Technical Information set forth in this Agreement. 18.2   FOR PURPOSES OF ARTICLE 18.0 OF THIS AGREEMENT, “SUBJECT MATTER” MEANS ALL LICENSED SUBJECT MATTER, LICENSED PATENTS, INVENTIONS, AND TECHNICAL INFORMATION AND ANY OTHER MATTER RELATING TO THE FOREGOING.  THE SUBJECT MATTER IS PRELIMINARY AND EXPERIMENTAL IN NATURE.  LICENSEE HAS BEEN PROVIDED A FULL OPPORTUNITY TO REVIEW AND INQUIRE ABOUT THE SUBJECT MATTER PRIOR TO USE AND ENTERING INTO THIS AGREEMENT.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE UNIVERSITY MAKES NO REPRESENTATIONS AND DISCLAIMS:  ALL WARRANTIES, BOTH EXPRESS AND IMPLIED, WITH RESPECT TO THE UTILITY, PATENTABILITY, SAFETY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE SUBJECT MATTER; AND THAT LICENSEE USE OF THE SUBJECT MATTER WILL NOT INFRINGE ANY THIRD PARTY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS.  ALL OBLIGATIONS OR LIABILITIES ON THE PART OF THE UNIVERSITY FOR DAMAGES, INCLUDING BUT NOT LIMITED TO, INCIDENTAL, DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF THE SUBJECT MATTER ARE DISCLAIMED.  IF LICENSEE UTILIZES ANY OF THE SUBJECT MATTER, LICENSEE DOES SO AT ITS OWN RISK AND RELEASES AND DISCHARGES THE UNIVERSITY, ITS REGENTS, OFFICERS, AGENTS, EMPLOYEES, AND STUDENTS, FROM ALL LOSSES, CLAIMS, DAMAGES, AND EXPENSES (INCLUDING ATTORNEY’S FEES AND LEGAL COSTS) ARISING FROM LICENSEE’S USE OF THE SUBJECT MATTER.  IN NO EVENT SHALL THE UNIVERSITY’S TOTAL LIABILITY UNDER THIS AGREEMENT EXCEED THE COSTS AND FEES PAID TO UNIVERSITY UNDER THIS AGREEMENT. 19.0   Indemnification 19.1   Except for those matters referred to Article 18.0 and section 19.2 of this Agreement, the Parties agree to defend, indemnify, and hold each other harmless from losses, claims, damages, and expenses (including reasonable attorneys’ fees and legal costs) arising from the negligent acts or omissions of their respective officers, employees, and agents acting in the course and scope of their duties under this Agreement.  However, neither Party assumes responsibility for indirect or consequential damages suffered by the other Party or by any person, firm, or corporation not a Party to this Agreement. 19.2   Licensee agrees to defend, indemnify, and hold University harmless from losses, claims, damages, and expenses (including reasonable attorneys’ fees and legal costs) resulting from any theory of product liability (including, but not limited to, actions in the form of tort, warranty or strict liability) concerning any product, process or service made, used, or sold pursuant to any right or license granted under this Agreement, except to the extent attributable to the gross negligence or willful misconduct of the University, its officers, employees, and agents. 19.3   When invoking its rights under sections 19.1 or 19.2 of this Agreement, a Party shall promptly notify the other Party of the action, claim or other matter which gives rise to the defense and indemnity obligation and shall cooperate fully with the defense or settlement of the action, claim or other matter.  The indemnifying Party shall have full control of the defense or settlement of the action, claim or other matter and shall ensure that all indemnified liabilities of the indemnified Party are fully discharged. 20.0   Applicable Laws; Jurisdiction; Venue 20.1   Licensee agrees to abide by all applicable federal, state, and local laws and regulations pertaining to the management and commercial deployment of any intellectual property or other rights transferred to Licensee under this Agreement or under any other agreement entered into pursuant to this Agreement. 20.2   Licensee understands that the University is subject to the laws and regulations of the United States, including the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended, and the Export Administration Act of 1979), and that the University’s obligations hereunder are contingent upon compliance with all applicable laws and regulations, including those for export control.  Licensee understands that any transfer of any intellectual property or other rights to Licensee under this Agreement or under any other agreement entered into pursuant to this Agreement, including transfers to Licensee’s Affiliates and permitted uses by certain third parties, may require a license from a cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not transfer data or commodities to certain foreign countries without the prior approval of an appropriate agency of the United States government.  The University neither represents that any such export license shall not be required, nor that, if required, it shall be issued. 20.3   This Agreement shall be governed by and enforced according to the laws of the State of Washington, without giving effect to its or any other jurisdiction’s choice of law provisions, and the Superior Court of Washington for King County shall have exclusive jurisdiction and venue of all disputes arising under this Agreement, except that in any case where the courts of the United States shall have exclusive jurisdiction over the subject matter of the dispute, the United States District Court for the Western District of Washington, Seattle division, shall have exclusive jurisdiction and venue. 21.0   Attorney’s Fees The prevailing Party in any action sought to enforce or interpret this Agreement or any provision of this Agreement shall be entitled to its reasonable attorney’s fees and costs, including any appeals thereon, as determined by a court in conjunction with any such legal proceeding. 22.0   Insurance 22.1   Licensee shall maintain general liability insurance including product liability and contractual liability coverage in such commercially reasonable amounts and with such qualified commercial insurers as are reasonably acceptable to University, but in no event less than one (1) million dollars.  Licensee must declare whether the insurance is provided on a “claims-made” form and must notify University if coverage is canceled. 22.2   Licensee shall issue irrevocable instructions to its insurance agent and to the issuing company to notify University of any discontinuance or lapse of such insurance not less than thirty (30) days prior to the time that any such discontinuance or lapse is due to become effective.  Licensee shall provide University a copy of such instructions upon their transmittal to the insurance agent and issuing company.  Licensee shall further provide University, at least annually, proof of continued coverage. 23.0   Confidential Information 23.1   For purposes of this Agreement, “Confidential Information” shall mean:  (i) all non-public information pertaining to any Invention or to the Licensed Subject Matter in written, graphic, oral or other tangible form, including without limitation all data, algorithms, formulae, techniques, improvements, technical drawings, computer software and materials; or (ii) Confidential Information as defined in the Sponsored Research Agreement. 23.2   Notwithstanding any other provisions of this Article 23.0 of this Agreement, a Party shall be free from any obligations of confidentiality hereunder regarding any information which is or becomes: 23.2.1          already known to such Party, other than under an obligation of confidentiality, at the time of disclosure; 23.2.2          generally available to the public or otherwise part of the public domain at the time of disclosure to such Party; 23.2.3          generally available to the public or otherwise part of the public domain after its disclosure other than through any act or omission of such Party in breach of this Agreement or other agreement or legal obligation; 23.2.4          subsequently lawfully disclosed to such Party by a third party under no obligation of confidentiality to the other Party; 23.2.5          independently developed by such Party as documented by written evidence; 23.2.6          approved for release by written authorization of the other Party; 23.2.7          furnished to a third party by the other Party without a similar restriction on the third party’s rights; or 23.2.8          disclosed pursuant to the requirement of a governmental agency or was legally required to be disclosed, including with respect to the University, disclosures of public records pursuant to RCW 42.17.250 et seq., and any administrative rules adopted pursuant thereto. 23.3   Subject to the University’s publications rights set forth in Article 5.0 of the Sponsored Research Agreement and the limitations of Sections 4.2 and 4.7 of the Sponsored Research Agreement, the University and Licensee agree not to engage in unauthorized disclosure or use of Confidential Information and to take reasonable measures to prevent unauthorized disclosure and use of Confidential Information, including without limitation taking reasonable measures to prevent creating a premature bar to a United States or foreign patent application.  Each Party shall limit access to Confidential Information received from the other Party to those persons having a need to know in connection with the Licensed Subject Matter or in the operation of the business of the Company and shall use reasonable efforts to ensure that any such person receiving Confidential Information understands its confidential nature and agrees not to make unauthorized disclosure or use thereof.  Each Party further agrees to employ no less than the same measures to protect Confidential Information that it uses to protect its own valuable information. 23.4   The Parties will take reasonable measures to mark and identify all Confidential Information as confidential.  Confidential Information disclosed in oral form shall be identified as such by the disclosing Party to the other Party in writing within thirty (30) days of any such disclosure.  Information that is not marked or not identified in writing as confidential within such period shall not be Confidential Information.  Upon termination of this Agreement and to the extent otherwise consistent with this Agreement, any Confidential Information of the disclosing Party shall be promptly returned or destroyed upon written request of the disclosing Party. 23.5   In no event shall the obligations of confidentiality set forth in this Agreement be construed to limit either Party’s right to independently develop products or conduct research without the use of the other Party’s Confidential Information, except as may be expressly limited by this Agreement or any other applicable agreements between the Parties. 23.6   The Parties agree that, unless otherwise mutually agreed to in writing, the obligations regarding nondisclosure, protection and nonuse of Confidential Information set forth in this Agreement shall, in any event, end three (3) years after disclosure of Confidential Information. 24.0   General 24.1   If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be in any way affected or impaired thereby. 24.2   No omission or delay of either Party hereto in requiring due and punctual fulfillment of the obligations of any other Party hereto shall be deemed to constitute a waiver by such Party of its rights to require such due and punctual fulfillment, or of any other of its remedies hereunder. 24.3   No amendment or modification hereof shall be valid or binding upon the Parties unless it is made in writing, cites this Agreement, and is signed by duly authorized representatives of University and Licensee. 24.4   This Agreement, and any rights or obligations hereunder, may be assigned by the University but shall not be assigned, transferred or delegated in whole or in part by Licensee, whether by a merger, a sale of assets, or in any other manner, except with the University’s express written approval.  Any attempted assignment, transfer or delegation in breach of this provision shall be deemed to be void and of no effect, and shall entitle the University to terminate this Agreement upon written notice to Licensee.  Except as otherwise provided, this Agreement shall be binding upon and inure to the benefit of the Parties’ successors and lawful assigns. 24.5   The headings of the several sections of this Agreement are inserted for convenience and reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 24.6   This Agreement, the exhibits attached hereto, and the Sponsored Research Agreement embody the entire understanding of the Parties and supersede all previous communications, representations, or understandings, either oral or written, between the Parties relating to the subject matter hereof. 24.7   Nonperformance by a Party, other than payment of any amounts due hereunder by Licensee, shall not operate as a default under or breach of the terms of this Agreement to the extent and for so long any such nonperformance is due to:  strikes or other labor disputes; prevention or prohibition by law; the loss or injury to products in transit; an Act of God; or war or other cause beyond the control of such Party. (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)               The University and Licensee, each agreeing to be bound hereby, do hereby assent to the above Agreement by the signatures of their duly-authorized representatives.   The University of Washington     Lumera Corporation By: /s/ Robert C. Miller --------------------------------------------------------------------------------   By: /s/ Todd R. McIntyre --------------------------------------------------------------------------------           Name: Robert C. Miller --------------------------------------------------------------------------------   Name: Todd R. McIntyre --------------------------------------------------------------------------------           Title: Vice Provost --------------------------------------------------------------------------------   Title: Vice President --------------------------------------------------------------------------------           Date: October 20, 2000 --------------------------------------------------------------------------------   Date: October 20, 2000 --------------------------------------------------------------------------------  

EXHIBIT NO. 10-10 STATE OF NEW YORK PUBLIC SERVICE COMMISSION Niagara Mohawk Holdings, Inc.; Niagara Mohawk Power)                                                                                                               Case No. 01-M-0075 Corporation; National Grid Group plc; National Grid USA) JOINT PROPOSAL         This Joint Proposal is sponsored by Niagara Mohawk Power Corporation (“Niagara Mohawk” or the “Company”), Niagara Mohawk Holdings, Inc., National Grid Group plc, and National Grid USA (together “National Grid”) (collectively the “Petitioners” or the “Companies”) and by the following (who, together with the Petitioners, are collectively the “Signatories”): > > > New York State Department of Public Service > > > New York State Consumer Protection Board > > > New York State Department of Economic Development¹ > > > Empire State Development Corporation¹ > > > Multiple Intervenors > > > Public Utility Law Project > > > Energetix, Inc. > > > Advantage Energy, Inc. > > > Leveraged Energy Purchasing Corporation, Inc. > > > Community Energy, Inc. > > > Natural Resources Defense Council > > > Association for Environmental Defense > > > American Wind Energy Association > > > Distributed Power Coalition of America > > > E Cubed Company, L.L.C. > > > Keyspan Technology, Inc. > > > Capstone Turbine > > > Integrated Energy Concepts Engineering PC > > > RealEnergy > > > International Brotherhood of Electrical Workers Local-97 > > > Niagara Mohawk Pension Club - Utica (IBEW Members Club No. 310) > > > Niagara Mohawk Pension Club - East > > > Niagara Mohawk Pension Club - Western Division > > > Niagara Mohawk Retirees Club - Potsdam > > > The Ski Resorts Coalition > > > Energy Enterprises, Inc.         This Joint Proposal is designed to resolve all issues presented by the merger of the Companies and to establish a Rate Plan for Niagara Mohawk (the “Rate Plan”).²          The Rate Plan reduces the revenues under Niagara Mohawk’s Electricity Delivery Rates by $159.8 million per year on the Effective Date and maintains those rates through December 31, 2011. Electricity Delivery Rates include charges for transmission, distribution, and Niagara Mohawk’s Competitive Transition Charge (“CTC”) but exclude the prices for commodity and the commodity-based Delivery Charge Adjustment (“DCA”). The reduced revenues, shown on Attachment 4, p. 2, column G, line 14, are subject to the adjustments set forth below. The lower Electricity Delivery Rates are mainly achieved by realizing synergies and efficiency gains in Niagara Mohawk’s transmission and distribution operations and by limiting and reshaping Niagara Mohawk’s recovery of its stranded costs during the Rate Plan Period. The Rate Plan sets forth the provisions for the recovery of Niagara Mohawk’s stranded costs after the Effective Date of the Rate Plan and resolves the issues associated with the estimation, allocation, and sharing of synergy savings and efficiency gains. The Rate Plan also includes a comprehensive Service Quality Assurance Program with potential annual penalties of $24 million pre-tax to encourage Niagara Mohawk to maintain and enhance safety, reliability, and service to customers (Attachment 9). Niagara Mohawk will continue its Low Income Customer Assistance Program (“LICAP”) and enhance its services to low income customers by providing bill credits to eligible customers (Attachment 19). Niagara Mohawk will have the opportunity to earn incentives of up to 250 basis points over the term of the Rate Plan for performance in implementing customer outreach and education and competition-related programs, and the low income rate discount (Attachment 8).          In addition, the Rate Plan provides for the continuation of an option for commodity sales to Niagara Mohawk’s Standard Rate Service (“SRS”) customers under which base commodity prices are partially hedged through the remainder of the Rate Plan Period by Niagara Mohawk’s portfolio of electricity supply contracts. This option, which is subject to adjustment for changes in commodity costs, will result in the continuation of Niagara Mohawk’s DCA for eligible rate classes. The Rate Plan also extends a limited hedge to all of Niagara Mohawk’s customers by continuing to reset the CTC every two years based on updated market price forecasts for the commodity portion of the electricity bill.          With regard to the natural gas rates of Niagara Mohawk, this Joint Proposal extends the current Natural Gas Rate and Restructuring Agreement for an additional 16 months beyond its current expiration date of August 31, 2003, or through December 31, 2004, subject to the terms and conditions set forth in Section 1.6.          The Signatories have agreed on the following: 1.   RATE PLAN       1.1       Effective Date and Term       1.1.1    Effective Date The Effective Date of the Rate Plan (“Effective Date”) shall be the day after the closing of the merger of Niagara Mohawk Holdings and National Grid, provided, however, that if the Effective Date occurs after January 1, 2002, Niagara Mohawk shall adjust its write off of electric stranded costs such that the remaining balance equals the amount shown for the delayed Effective Date on Attachment 2.³ Additionally, Niagara Mohawk will place into the Deferral Account set forth in Section 1.2.4, an electric customer credit of $425,000 per day for every day the Effective Date is delayed beyond January 1, 2002, pursuant to Section 1.2.4.20. Niagara Mohawk shall have the option after notice to the Commission and the parties of moving forward the Effective Date to a date following: (a) the receipt of all regulatory approvals necessary to close the merger and implement the Rate Plan; and (b) the closing of the sale of the Nine Mile Point Nuclear Units.       1.1.2    Rate Plan Expiration Date The electric Rate Plan shall continue until December 31, 2011 (“Expiration Date”). Any balances in the Deferral Account established pursuant to Section 1.2.4, whether positive or negative, remaining on the Expiration Date will be addressed in the Niagara Mohawk general rate filing at the end of the Rate Plan Period, as discussed more fully in Section 1.2.6. Certain aspects of the Rate Plan specifically delineated below, such as the recovery of the Over-Market Variable Costs of certain Independent Power Producer (“IPP”) contracts or the amortization of IPP buy down or buy out costs as set forth in Section 1.2.2.5, shall extend beyond the Expiration Date of the Rate Plan.       1.1.3    Rate Plan Period The Rate Plan Period shall be the period between the Effective Date as determined under Section 1.1.1 and the Expiration Date as determined under Section 1.1.2 unless the Commission approves a request by Niagara Mohawk or another party to change rates pursuant to Sections 1.2.8 or 1.2.7 respectively, or the Commission opens the Rate Plan pursuant to Section 3.5.       1.2    Electricity Delivery Rates       1.2.1    Reduction and Stabilization of Electricity Delivery Rates Niagara Mohawk shall implement the Electricity Delivery Rates included in Attachment 3 for usage on and after the Effective Date. Class average prices and overall impacts by rate class are included in Attachment 4. The revenue requirements analyses supporting the Electricity Delivery Rates in each year of the Rate Plan Period are shown in Attachment 1. As shown on that Attachment, State Income Taxes are rolled into the Electricity Delivery Rates. Unless otherwise authorized by the Commission, the Electricity Delivery Rates will remain constant through the Rate Plan Period, with the exception of the adjustments set forth below dealing with: > Transmission Revenue Adjustment (Section 1.2.3.1), > System Benefits Charge (Section 1.2.3.2), > Adjustment for Deferrals (Section 1.2.3.4), > Reclassification of Costs (Section 1.2.3.5), > Rate Re-opener (Section 1.2.3.6), and > Adjustment in the Event of Poor Service Quality (Section 1.2.3.7), and the following commodity-related adjustments: > New York Power Authority (“NYPA”) Reconciliation (Section 1.2.3.2), > CTC Reset (Section 1.2.3.3), and > Delivery Charge Adjustment (Section 1.3). The Electricity Delivery Rates shall also be subject to the rights to file a complaint and general rate increase pursuant to Sections 1.2.7 and 1.2.8, and the Commission’s authority set forth in Section 3.5. In addition to the Electricity Delivery Rates, Niagara Mohawk’s rates for SRS customers shall include the charges for commodity and the commodity-based DCA that are set forth in Section 1.3.       1.2.2    Components of Electricity Delivery Rates Niagara Mohawk’s Electricity Delivery Rates shall recover: (a) the costs of providing transmission and distribution service to Niagara Mohawk’s retail customers; and (b) Niagara Mohawk’s CTC, including Over-Market Variable Costs (offset by the NYPA Residential Hydropower Benefit) and Fixed Costs, defined below, as shown on Attachment 1, p. 1.       1.2.2.1    Calculation of Transmission and Distribution Charges Niagara Mohawk’s Transmission and Distribution Charges are based on the revenue requirements analyses for each year of the Rate Plan included in Attachment 1. Niagara Mohawk shall be authorized to use a 10.6% return on equity for the electric component of equity in the calculation of its Allowance for Funds Used During Construction.       1.2.2.2   Over-Market Variable Costs Recovered in CTC The estimated market value and the resulting Over-Market Variable Costs of the electricity produced from Niagara Mohawk’s power supply portfolio are established in Attachment 5 (“Over-Market Variable Costs”). The Over-Market Variable Costs shown on Attachment 5 include gas-indexing costs related to IPP contracts. The Over-Market Variable Costs shall be recovered in the CTC subject to the adjustments in Sections 1.2.2.4 and 1.2.3.3.       1.2.2.3    Fixed Cost Recovery in the CTC Is Limited In addition to Over-Market Variable Costs, Niagara Mohawk’s CTC shall recover the Fixed Costs together with a return on the unamortized balance of those Fixed Costs as shown on Attachment 1, p. 3 (“Fixed Costs”). Niagara Mohawk shall reduce the Fixed Costs included in the CTC recovery during the Rate Plan Period by writing off the balance of its stranded costs down to the level shown on Attachment 2 as of the Effective Date, and applying the write-off to the stranded costs associated with Niagara Mohawk’s ownership interest in the Nine Mile Point Nuclear Units. If the Effective Date occurs on January 1, 2002, the write-off would reduce the stranded costs associated with the Nine Mile Point Nuclear Units by about $850 million. This write-off is in addition to the write-off of $123 million of nuclear stranded costs pursuant to Niagara Mohawk’s Joint Proposal associated with the proposed sale of Nine Mile Point Nuclear Units to Constellation Nuclear LLC (“Constellation”) as announced on December 12, 2000, pending before the Commission in Case No. 01-E-0011 (“Nine Mile Point Sale”).4 The balance of Fixed Costs recovered through the CTC remaining after the above adjustments shall be recovered during the Rate Plan in accordance with the schedule of amortization and return shown in Attachment 1, subject to the adjustment mechanisms set forth in this Agreement.       1.2.2.4    Mitigation of Over-Market Costs Associated with IPP Contracts Niagara Mohawk may restructure its power contracts. Niagara Mohawk’s recovery associated with the amortization of the economic buy down or buy out payments with a return equal to Niagara Mohawk’s over-all pre-tax cost of capital shall be limited to the forecast stream of purchased power costs under the original IPP contract less a reasonable level of savings. For the period from the buy down or buy out through the next CTC Reset (see Section 1.2.3.3), Niagara Mohawk’s recovery of the amortized buy down or buy out costs as set forth in the prior sentence shall be recovered through the Commodity Adjustment Clause, defined in Rule 29 of Niagara Mohawk’s tariff. At the next CTC reset, the net revenue requirements associated with the amortization and return of the remaining net buy down or buy out payments will be reflected in the CTC component of the rates. To facilitate Commission review of the proposed ratemaking, the buy down and buy out payments and recoveries will be separately identified in the CTC Reset filing made with the Commission pursuant to Section 1.2.3.3.       1.2.2.5    Recovery of Stranded Costs beyond the Rate Plan Period Limited to Over-Market Variable Costs of IPP Contracts At the Rate Plan Expiration Date, all generation related stranded costs will be fully amortized for ratemaking purposes with the exception of: (1) any Over-Market Variable Costs associated with IPP contracts that extend beyond the Rate Plan Expiration Date (offset by the NYPA Residential Hydropower Benefit); and (2) any unamortized amounts that remain on or occur after the Rate Plan Expiration Date associated with the economic buy down or buy out of IPP contracts. At that time, Niagara Mohawk shall cease recovery of the Fixed Cost component of the CTC, but shall have the right to recover both any ongoing Over-Market Variable Costs (offset by the NYPA Residential Hydropower Benefit) and any unamortized IPP buy down or buy out costs identified in the prior sentence.       1.2.3    Adjustments to Electricity Delivery Rates Electricity Delivery Rates established under Section 1.2.2 shall be subject to adjustments, including those set forth in this section.       1.2.3.1    Transmission Revenue Adjustment Niagara Mohawk shall continue the Transmission Revenue Adjustment set forth in Rule 43 with a revised target of about $123 million of transmission revenues per year included in the Base Electricity Delivery Rates as set forth in Attachment 21.       1.2.3.2    System Benefits Charge and New York Power Authority Reconciliation Niagara Mohawk’s Electricity Delivery Rates shall continue to be adjusted for the System Benefits Charge (“SBC”) and the NYPA Residential Hydropower Benefit Reconciliation. For the SBC, the Company will recover the amounts set forth by the Commission in its Order Continuing and Expanding the System Benefits Charge for Public Benefit Programs, Case 94-E-0952, In the Matter of Competitive Opportunities Regarding Electric Service (January 26, 2001), as it may be modified from time to time. See Attachment 6 for the methodology that will be used to reconcile and adjust the NYPA Hydropower Benefit Charge.       1.2.3.3    CTC Reset The CTC component of Niagara Mohawk’s rates shall be reset every two years to reflect the impact that changes in the forecast of commodity prices for electricity and natural gas have on Niagara Mohawk’s Over-Market Variable Costs, including economic buy downs and buy outs of over-market IPP contracts as set forth in Section 1.2.2.4, that are recovered through the CTC as further described in the CTC reset procedure in Attachment 7. The Over-Market Variable Costs are established for the first two years of the Rate Plan Period through the market value forecast that is included in Attachment 5. During the period from the Effective Date of the Rate Plan through December 31, 2003 and in any periods between CTC resets, the market forecast used to establish the CTC (excluding ancillary services and NYPA Transmission Adjustment Clause (“NTAC”), which are addressed in Rule 46), will be reconciled to actual market prices monthly with the differences included in the DCA as set forth below. The procedure for resetting the CTC shall be as follows. On August 1, 2003 and every two years thereafter (the “August Filing”), Niagara Mohawk shall make a compliance filing to: (a) forecast market prices for electricity, purchased power costs (including quantities and prices), and gas indexing costs for the coming two calendar years; (b) recalculate the Over-Market Variable Costs shown on Attachment 5 for the same period; (c) use the new forecast of Over-Market Variable Costs to adjust Electricity Delivery Rates by allocating the increase or reduction in accordance with the rate design procedure set forth in Attachment 7; and (d) use the new forecast of market prices to reset the benchmark price from which the DCA is measured in the rates of SRS customers. The calculations and adjustments shall be made in accordance with the procedures set forth in the following subsections and shall become effective, after review and approval by the Commission consistent with the notice and comment periods in the State Administrative Procedures Act (“SAPA”), for usage on and after January 1 of the calendar year following the filing and remain in effect for two calendar years.       1.2.3.3.1    Market Price Forecast In the August Filing, Niagara Mohawk shall forecast market prices for the following two calendar years using a method that provides a reasonable estimate of the prices of electricity and natural gas used for the design of electricity rates in the zones that Niagara Mohawk serves. The new market price forecast should extend throughout the balance of the 10-year rate plan period for illustrative purposes.       1.2.3.3.2    Recalculation of Over-Market Variable Costs The Over-Market Variable Costs shall be adjusted by the new forecast (excluding any costs or benefits from New Hedges, as defined in Section 1.2.3.3.4) using the methodology shown on Attachment 7.       1.2.3.3.3    Adjust Electricity Delivery Rates Any increase or decrease in Over-Market Variable Costs caused by the forecast process in Sections 1.2.3.3.1 and 1.2.3.3.2 shall be reflected in an adjustment to Niagara Mohawk’s Electricity Delivery Rates using the methodology set forth in Attachment 7. This methodology for adjusting the Electricity Delivery Rates is designed to allocate the costs and benefits of Niagara Mohawk’s hedges executed on or before June 1, 2001 to both SRS and Market Rate Service (“MRS”) customers. Any increase or decrease caused by the Adjustment for Deferrals, set forth in Section 1.2.3.4 will be a separate adjustment to Electricity Delivery Rates and allocated among rate classes using the methodology set forth in Attachment 7.       1.2.3.3.4    Reset the DCA for SRS Customers The CTC for SRS customers shall be reset so that the benchmark price from which the DCA is measured results in a forecast DCA of zero for each class, plus or minus the projected net costs or benefits of New Hedges, defined below, plus the balance, if any, carried forward from the DCA Cap, set forth in Rule 29. A New Hedge is the Erie Boulevard Orion contract extension accepted by the Commission by Order issued on June 22, 20015 and any other contract or other instrument that mitigates SRS customers’ market price risk for power or gas supplies related to electric power supply arrangements executed on or before June 1, 2001. The buy out or restructuring of power supply and hedging contracts in place on June 1, 2001 shall not be construed as a New Hedge.       1.2.3.4    Adjustment for Deferrals Niagara Mohawk’s Electricity Delivery Rates will also be subject to an adjustment for the balances in the Deferral Account as defined in Section 1.2.4. The Adjustment for Deferrals will include any items above the thresholds set forth in that section, including the plus or minus $100 million cap on all deferrals for all items subject to the Deferral Account, and the $20 million cap on Customer Service Backout Credits, Metering Credits, and Billing Credits in excess of their respective Short Run Avoided Costs (“SRAC”) that applies when the Deferral Account is positive (that is when customers owe Niagara Mohawk money), implemented in accordance with Section 1.2.4.9. The Adjustment for Deferrals will be implemented with a compliance filing made at the same time as the CTC Reset. The balances as of June 30 in the year of the CTC Reset filing will be used to determine whether the thresholds for deferrals have been exceeded. Any amounts in excess of the thresholds, as updated at least through September 30, together with a forecast of future deferrals through the end of the CTC Reset Period, will be recovered pursuant to the procedure set forth in Section 1.2.3.3.3.       1.2.3.5    Reclassification of Costs The Electricity Delivery Rates and transmission and distribution charges of Niagara Mohawk are based on the current separation of costs among the generation, supply, transmission, and distribution functions of the electricity supply and delivery system, and between the electric operations and the natural gas operations of Niagara Mohawk. To the extent that Niagara Mohawk’s service responsibilities change, including, without limitation, (a) through the introduction of competition in metering, billing, and information services, (b) through a change in responsibilities between Niagara Mohawk and the New York Independent System Operator and any successors thereto (defined as the “NYISO”), (c) through a restructuring of Niagara Mohawk’s transmission operations, (d) through a change in Niagara Mohawk’s franchise rights to provide distribution and transmission service within its service territory, (e) through a change in the allocation of costs and revenues now allocated between Niagara Mohawk’s natural gas and electric operations,6 or (f) through any other change in the allocation of costs and revenues to or from Niagara Mohawk’s transmission and distribution operations by the Commission, Federal Energy Regulatory Commission (“FERC”), NYISO, or any other agency having authority over how such costs or revenues are allocated to or away from the distribution or transmission function, Niagara Mohawk shall make appropriate adjustments to its Electricity Delivery Rates and to its transmission and distribution charges all of which are subject to normal Commission approval procedures. Any such reallocation of responsibilities shall not affect: (i) Niagara Mohawk’s ability to recover from retail customers all of the revenues allowed under this Joint Proposal, including without limitation, the CTC; and (ii) Niagara Mohawk’s ability to retain its fifty percent allocation of Synergy Savings, Efficiency Gains, and Costs to Achieve. It is the intent of the signatories that any reclassification or reallocation be done in a revenue neutral manner.7 To the extent that any reclassification or reallocation leads to an under- or over-recovery of electricity delivery revenues, Niagara Mohawk shall include such under- or over-recovery in its Electricity Delivery Rates using a rate design specified at the time of Commission approval.8       1.2.3.6    Rate Re-opener Niagara Mohawk’s Rate Plan shall be subject to a Rate Re-opener in the calendar year beginning on January 1, 2007, if its cumulative earnings as calculated under the Earnings Sharing Mechanism, set forth in Section 1.2.5, for the period from the Effective Date through December 31, 2005 show earnings in excess of an 11.75 percent Return on Equity (“ROE”). For the purposes of this section only, the 11.75 percent ROE shall not be adjusted for Niagara Mohawk’s performance under the Competition-Related and Low Income Incentive Mechanisms set forth in Attachment 8. The need for a Rate Re-opener shall be determined using the following procedure.       1.2.3.6.1    File Cumulative Earnings Report By July 1, 2006, Niagara Mohawk shall file with the Commission a Cumulative Earnings Report for the period from the Effective Date through December 31, 2005. The Cumulative Earnings Report shall calculate Niagara Mohawk’s Cumulative Earned Return on Equity using the procedures and with the adjustments as applied to the Earnings Sharing Mechanism set forth in Section 1.2.5 for the period through December 31, 2005. Niagara Mohawk shall hold an information session on the Cumulative Earnings Report. If the parties agree or the Commission finds that the Cumulative Earnings Report demonstrates that an 11.75 percent ROE has not been reached during the period through December 31, 2005, no Rate Re-opener filing by Niagara Mohawk will be required for the period that begins on January 1, 2007.       1.2.3.6.2    File Rate Re-opener If, and only if, Niagara Mohawk agrees or the Commission finds that the Cumulative Earnings Report demonstrates that an 11.75 percent ROE has been exceeded for the period through December 31, 2005, Niagara Mohawk shall divide the amount of pretax earnings in excess of 11.75 percent by the number of years, representing the period between the Effective Date and December 31, 2005, to calculate the annualized amount of excess earnings.9 Niagara Mohawk shall then make a compliance filing by September 15, 2006 of a credit to reduce its Electricity Delivery Rates by fifty percent of the annualized amount of the excess earnings (the “Re-opener Credit”). The Re-opener Credit shall become effective for services rendered on and after January 1, 2007, and remain in effect through the Rate Plan Expiration Date.       1.2.3.6.3    Re-evaluations in the Event the Re-opener Credit Has Not Been Implemented If, and only if, the Cumulative Earnings Report filed under Section 1.2.3.6.1 demonstrated that no excess earnings over 11.75 percent ROE were realized during the period from the Effective Date through December 31, 2005, and as a result no Re-Opener Credit was implemented on January 1, 2007, then Niagara Mohawk shall repeat the analysis in the following year by making a compliance filing by July 1, 2007 for the four-year period from January 1, 2003 through December 31, 2006. In the event the analysis again shows that no excess earnings were realized, the analysis will be repeated each year reflecting the most recent four calendar years. In the first analysis which shows that excess earnings occurred, Niagara Mohawk shall make the compliance filing pursuant to Section 1.2.3.6.2 and implement a Re-opener Credit to reduce Electricity Delivery Rates by 50 percent of the earnings in excess of an 11.75 percent ROE for the remainder of the Rate Plan Period. Only one Re-opener Credit will be implemented during the Rate Plan Period, and once a Re-opener Credit is implemented, this section will no longer apply for the remainder of the Rate Plan, and the Modified Sharing Schedule set forth in Section 1.2.5.3 will become effective from and after the effective date of the Re-opener Credit.       1.2.3.7    Adjustment in the Event of Poor Service Quality Under the Service Quality Assurance Program set forth in Attachment 9, Niagara Mohawk is required to report on its performance for the prior year by March 31. Whenever that performance indicates that penalties greater than or equal to $7.5 million have accrued during the prior year, Niagara Mohawk shall reflect the entire amount as a credit to the customer charge of each of its electric and gas customers using the following methodology. The portion of the credit associated with penalties relating to electric reliability will be determined by dividing the amount of electric reliability penalty accrued in the prior year by the number of Niagara Mohawk’s total electric bills expected for the following July. The portion of the credit associated with penalties relating to customer service will be determined by dividing the amount of customer service penalty accrued in the prior year by the number of electric and gas bills expected for the following July. The credit shall be implemented in July billings, shall be accompanied by a bill insert explaining the credit, and shall be fully reconciled through the Deferral mechanism pursuant to Section 1.2.4.8.       1.2.4    Deferral Account Niagara Mohawk shall establish a Deferral Account to accumulate balances pursuant to this section. At the end of each month in the Rate Plan Period, the appropriate balances in the accounts set forth below shall be summed, and added or subtracted from Niagara Mohawk’s rate base. The Deferral Account shall be subject to audit by DPS Staff, and Niagara Mohawk shall compile and file a report with the Commission on July 1 of each year detailing activity in the Deferral Account. On-site DPS Staff shall receive monthly updates. In the event that the cumulative balance in the Deferral Account exceeds plus or minus $100 million as of June 30 in a year in which Niagara Mohawk is scheduled to make a CTC reset filing, Niagara Mohawk shall make a compliance filing to determine the excess over plus or minus $100 million, as updated at least through September 30, plus a forecast of future deferrals through the end of the upcoming CTC reset period. Niagara Mohawk shall collect or refund any such excess amounts over the upcoming CTC Reset Period as an adjustment to rates using the procedure set forth in Section 1.2.3.3 unless otherwise required under Section 1.2.4.9. The revenues collected or refunded under this adjustment shall be included in the Deferral Account and fully reconciled. The balance in the Deferral Account remaining at the end of the Rate Plan Period shall be estimated and addressed in the rate filing under Section 1.2.6, and nothing in this Joint Proposal shall preclude Niagara Mohawk from proposing to recover or return the remaining balances in the Deferral Account by extending or shortening the CTC recoveries at the end of the Rate Plan Period. Any party may propose an alternative method for recovery or refund of any item or amounts that would otherwise be included in the Deferral Account. If Niagara Mohawk agrees or the Commission orders implementation of the proposed alternative method, Niagara Mohawk shall file a tariff adjustment that will be subject to Commission review and approval. The Deferral Account shall include the items listed in the following sections:       1.2.4.1    Existing Deferral Balances The beginning balance in the Deferral Account shall include the existing regulatory deferrals and the deferrals of NYISO Rate Schedule 1 and 2 costs as authorized in the Year 4 and 5 Compliance Filing in Case Nos. 94-E-0098 and 0099, all as shown on Attachment 11. The actual balances on the Effective Date shall be reflected in the Deferral Account following an audit by DPS Staff. The MRA Interest Savings Deferral included in the deferral balances shall continue through August 31, 2003 and shall be calculated in the same way as Niagara Mohawk has calculated the interest savings in Attachment 11. Deferrals associated with the Memorandum of Understanding between NYPA and Niagara Mohawk shall continue until the expiration of the agreement on August 31, 2003 or the date through which such agreement is extended.       1.2.4.2    Tax and Accounting Changes       1.2.4.2.1    Externally Imposed Niagara Mohawk shall include in the Deferral Account all of the effects of any externally imposed accounting change, and all of the effects associated with any change in the federal or state rates, laws, regulations, or precedents governing income, revenue, sales, franchise, or property taxes, if the accounting or tax change evaluated individually increases or decreases Niagara Mohawk’s costs or revenues from regulated electric operations at an annual rate of more than $2.0 million per year. This provision shall also cover refunds to or payments (with interest and net of deferred taxes) reasonably made by Niagara Mohawk associated with electric operations as the result of ongoing examinations by federal and state tax authorities of Niagara Mohawk’s tax returns filed prior to the Effective Date and during the Rate Plan Period. In addition, this provision shall cover any reduction in revenues associated with the Power for Jobs Program from the revenues that are now recovered as a credit against the tax imposed pursuant to §186-2 of the Tax Law, but which may not be recovered from that source in the future either because the tax liability pursuant to that section falls below zero or for any other reason.       1.2.4.2.2    Internally Adopted Niagara Mohawk shall notify the DPS Director of the Office of Accounting and Finance of any significant changes to its accounting policies. Niagara Mohawk shall include in the Deferral Account the net impact of any accounting change adopted as a matter of internal accounting policy during the Rate Plan Period (other than those accounting changes incorporated in the Fair Value Report provided pursuant to Section 1.2.5.2.8) when the accounting change, evaluated individually, increases or decreases Niagara Mohawk’s costs or revenues from regulated operations or changes Niagara Mohawk’s policy for capitalizing or expensing any item by more than $500,000 per year. The approval of the DPS Director of the Office of Accounting and Finance shall be required for any such charges or credits to the Deferral Account.       1.2.4.3    Legislative or Regulatory Changes Unless otherwise provided for in Section 1.2.3.5, Niagara Mohawk shall include in the Deferral Account all of the effects of any legislative, court, or regulatory change, which imposes new or modifies existing obligations or duties and which, evaluated individually, increases or decreases Niagara Mohawk’s revenues or costs from regulated electric operations at an annual rate of more than $2.0 million per year.       1.2.4.3.1    Material Regulatory Changes To the extent that the actions of FERC, the New York ISO, or any other agency having authority over how costs or revenues are allocated to or away from the distribution or transmission function, materially alter the existing ratemaking and/or cost responsibility for retail electric customers, interested parties will reconvene and negotiate in good faith to resolve the impact on electricity delivery rates, if any.       1.2.4.4    Extraordinary Inflation During each of the first five years of the Rate Plan, Niagara Mohawk shall include in the Deferral Account the amount by which the actual inflation in the prior year as measured by Gross Domestic Product Price Index (“GDPPI”) exceeds the GDPPI indexed at 4.5 percent from the Effective Date. During the second five years of the rate plan, the 4.5 percent GDPPI inflation index for excess inflation shall be adjusted to equal a percentage that is 2.3 percent over the January 2007 Blue Chip consensus forecast of inflation for calendar years 2007 and 2008. The excess inflation determined in the prior sentence shall be applied to a base that equals the amounts shown on Attachment 12 and shall be capped by the actual increases to Niagara Mohawk’s departmental expenses using the methodology shown in Attachment 12. The addition to the Deferral Account shall be made when actual inflation exceeds the cumulative GDPPI inflation index from the Effective Date, provided, however, that any adjustment under this section shall never be less than zero, and provided further, that no adjustment shall be made under this section to the extent that: (a) Niagara Mohawk’s earnings in the calendar year, as calculated in the earnings sharing analysis pursuant to Section 1.2.5.2, are greater than 10.6 percent or (b) Niagara Mohawk’s actual electric Departmental Expenses are below the forecasted electric Departmental Expenses shown on Attachment 12. The calculation for the adjustment is illustrated in the example set forth in Attachment 12.       1.2.4.5    Costs Associated with Extraordinary Storms Using the methodology illustrated in Attachment 13, Niagara Mohawk shall include in the Deferral Account any Incremental Costs that exceed $2.0 million from any individual Major Storm occurring in a calendar year, provided that Niagara Mohawk has first spent a total of $6.0 million on Incremental Costs of Major Storms in that year, which has not been included in the Deferral Account. A Major Storm shall be defined in accordance with the Commission’s definition in 16 NYCRR Part 97. Incremental Costs shall include overtime and associated overheads paid to employees to restore service following the Major Storm, rest time wages incurred as the result of a Major Storm as specified in Niagara Mohawk’s union contracts, outside vendor costs (including the costs of crews from affiliate companies), lodging and meal charges, and material and supply charges that Niagara Mohawk would have not incurred, except for the Major Storm. Any capitalized costs shall be excluded from Incremental Costs, and proceeds from insurance shall be deducted from Incremental Costs. Niagara Mohawk shall open a work order for each Major Storm, and the Incremental Costs charged as a result of any Major Storm shall be subject to audit by the DPS Staff for reasonableness and appropriateness. The $2.0 million deductible for each Major Storm resolves any and all issues related to the Incremental Costs having the effect of reducing Niagara Mohawk’s ongoing operating costs.       1.2.4.6    Site Investigation and Remediation Costs Niagara Mohawk shall include in the Deferral Account any Site Investigation and Remediation (“SIR”) Costs allocated to electric operations paid in excess or below $12.75 million per year. SIR Costs are defined in Attachment 14, and are consistent with the SIR Costs that are now being deferred under Power Choice.      1.2.4.7    Economic Development Fund Each month, Niagara Mohawk shall include in the Deferral Account any difference between one twelfth of the annual amounts shown on line 4 in Attachment 15 and the actual costs or revenue reductions occurring in that month associated with: (a) the actual Empire Zone Discounts10 associated with Contestable Loads as defined in the tariff for SC-12 up to one twelfth of the annual amounts shown on line 6 of Attachment 15 and 50 percent of the amounts in excess of that level; (b) the actual Empire Zone Discounts other than for Contestable Loads up to one twelfth of the annual amounts shown on line 7 of Attachment 15 and 90 percent of the amounts in excess of that level; (c) the actual discounts provided under SC-11 and SC-12 during the month11 and (d) the fully documented actual incremental non-labor costs associated New Program Initiatives developed pursuant to Section 1.2.10.2, which have been filed with and approved by the Commission and which were incurred during the month. Niagara Mohawk’s obligations under subparagraphs (a) and (b), above shall be limited to $2.0 million per year, and after this threshold is reached, the 50 percent in subparagraph (a) and the 90 percent in subparagraph (b) shall be revised to 100 percent.       1.2.4.8    Service Quality Penalties Niagara Mohawk shall include in the Deferral Account any penalties associated with failure to meet the Service Quality standards set forth in Attachment 9, not otherwise credited to customers under Section 1.2.3.7.       1.2.4.9    Customer Service Backout, Metering, and Billing Credits Niagara Mohawk shall include in the Deferral Account the sum of: (a) the difference between the Customer Service Backout Credits provided pursuant to Section 1.3.3 to customers choosing to take service from an energy service provider other than Niagara Mohawk and SRAC associated with such Customer Service Backout Credits as set forth in Section 1.3.3; (b) following approval by the Commission of Niagara Mohawk’s SRAC for metering, the difference between the metering credits provided by Niagara Mohawk pursuant to the Commission’s orders in Case Nos. 94-E-0952 and 00-E-0165 and the approved SRAC, unless the Commission requires an alternative method for recovery; and (c) following approval by the Commission of Niagara Mohawk’s SRAC for billing, the difference between the billing credits provided by Niagara Mohawk pursuant to the Commission’s orders in Case Nos. 99-M-0631 and 98-M-1343 and the approved SRAC, unless the Commission requires an alternative method for recovery. If the Deferral Account established under Section 1.2.4 is positive (that is, customers owe Niagara Mohawk money) as of June 30 in the year of any CTC Reset filing, the deferral under this Section 1.2.4.9 shall be limited to $20 million, after which the current differential in excess of $20 million, as updated at least through September 30, plus a forecast of future differentials through the end of the upcoming CTC Reset period shall be reflected in current rates commencing on the date of the next CTC Reset following the procedure set forth in Sections 1.2.3.3 and 1.2.3.4. If the Deferral Account is negative (that is, Niagara Mohawk owes customers money) as of June 30, in the year of any CTC Reset filing, the $20 million cap set forth in this Section 1.2.4.9 shall not apply and no rate adjustment shall be made. Such Deferral shall continue unless the Commission has established an alternative method for the recovery of these costs. If the Commission has established such an alternative method, this Deferral shall cease on the date when Niagara Mohawk implements the alternative method.       1.2.4.10    Earnings Sharing Mechanism Niagara Mohawk shall include in the Deferral Account the customers’ share of the earnings above the Applicable ROE Cap calculated pursuant to the procedure set forth in Section 1.2.5, below.       1.2.4.11    Stranded Cost Mitigation and Adjustment Niagara Mohawk shall include in the Deferral Account any reductions or additions to stranded costs associated with the implementation of the Niagara Mohawk Joint Proposal for Nine Mile Point (Case No. 01-E-0011), and the implementation of any of Niagara Mohawk’s other agreements for the sale of the fossil and hydro generating assets to the extent allowed by the orders in those cases.12       1.2.4.12    Renewables Cap Niagara Mohawk shall include in the Deferral Account any revenues in the tracking/projection account as currently allowed in Rule 12.8 of Niagara Mohawk’s PSC 207 tariff.       1.2.4.13    Pension and OPEB Expense Niagara Mohawk shall include in the Deferral Account any amounts or credits authorized or required under the procedures set forth in Attachment 16.       1.2.4.14    Incremental Expenses Associated with the Customer Outreach and Education Program and the Competition-Related and Low Income Incentive Mechanisms Niagara Mohawk shall include in the Deferral Account any approved incremental non-labor costs associated with the implementation of the Customer Outreach and Education Program and the Competition-Related and Low Income Incentive Mechanisms, as set forth in Attachment 8.       1.2.4.15    Religious Rates Any refunds or revenue effects associated with the resolution of Case No. 99-E-0503 shall be included in the Deferral Account.       1.2.4.16    Major Investments in Years Seven to Ten of the Rate Plan Period Niagara Mohawk shall have the right to petition the Commission for special ratemaking treatment for major programs and expenditures that may occur in years seven through ten of the Rate Plan Period. In the petition, Niagara Mohawk must demonstrate that the proposed investment was incremental to the original 10-year forecasts underlying the rates agreed to in this Joint Proposal and that any expenses or savings go beyond such forecasts. To this end, Niagara Mohawk shall, within six months of the Effective Date and every two years thereafter, file with the Commission a five-year capital and expense budget including therein a schedule of projects consistent with and developed from the capital expenditure forecasts underpinning this Joint Proposal. Any significant additional projects would be accompanied by an engineering economic and/or technical justification. In the petition, Niagara Mohawk shall have the right to propose a sharing of any efficiency gains as a method to recover the costs for such program or expenditures. To the extent that the petition as approved by the Commission increases or decreases pre-tax net income, Niagara Mohawk shall include the differential in the Deferral Account.       1.2.4.17    Loss of Revenue from Changes to Rules 12, 44, and 52 Niagara Mohawk shall include in the Deferral Account all verifiable losses of revenue associated with modifications to Rules 12, 44 and 52 after the filing date of this Joint Proposal, including, without limitation, the implementation of the Standby Order contemplated in Section 1.2.17.1, and the implementation of the modification to Rule 52 set forth in Section 1.2.17.3.2, but excluding the following: (a) any loss of revenues associated with the implementation of the modification of Rule 52 set forth in Section 1.2.17.3.1, and (b) for each calendar year from September 1, 2003 through the expiration of the Rate Plan Period, the first $2.0 million of verifiable losses of revenues that would otherwise be deferred under this section.13       1.2.4.18    New Services and Royalties Niagara Mohawk shall include in the Deferral Account 50 percent of any net incremental revenues from Currently Provided Incidental Services pursuant to Section 2.4.1 of Attachment 23, and commercialization of R&D products and technologies pursuant to Section 4.4.1 of Attachment 23. Niagara Mohawk shall also include the sharing level for net incremental revenues associated with proposed new services which the Commission has found appropriate pursuant to Section 2.4.2 of Attachment 23.       1.2.4.19    Follow-on Merger Credit In the event that National Grid closes any additional mergers or acquisitions within the United States, Niagara Mohawk shall implement a Follow-on Merger Credit calculated pursuant to methodology set forth in Attachment 10, which is designed to credit the Deferral Account by fifty percent of the additional synergies net of costs to achieve produced by the follow-on merger and allocable to Niagara Mohawk. The Follow-on Merger Credit to the Deferral Account shall remain in effect for the remaining term of the Rate Plan. The Follow-on Merger Credit shall begin on the closing of the Follow-on Merger after Niagara Mohawk submits a compliance filing that sets forth the synergy savings, costs to achieve and allocation method pursuant to the protocols set forth in Attachment 10. Niagara Mohawk is allowed to retain fifty percent of the Follow-on Merger synergy savings through the end of the Rate Plan Period by retaining the Follow-on Merger Synergy Allowance referenced in Section 1.2.5.2.9. Subsequent to the end of the Rate Plan, the Follow-on Merger savings are allocated pursuant to Section 1.2.6.       1.2.4.20    Delay in Effective Date On the Effective Date, Niagara Mohawk shall include in the Deferral Account an electric customer credit equal to $425,000 per day for each day between January 1, 2002 and the Effective Date as set forth in Attachment 2, p. 2.       1.2.5    Earnings Sharing Mechanism       1.2.5.1    File Cumulative Earnings Report By July 1 of each calendar year Niagara Mohawk shall file an annual earnings report calculated using the methodology set forth in this Section. On or before July 1, 2006, Niagara Mohawk shall file with the Commission the Cumulative Earnings Report realized from electric operations during the period from the Effective Date through December 31, 2005. The Cumulative Earnings Report shall be used for the Earnings Sharing Mechanism in this Section and shall also be used to evaluate the Rate Re-opener as set forth in Section 1.2.3.6.1. In addition, commencing on July 1, 2007 and annually thereafter through July 1, 2012, Niagara Mohawk shall complete a similar Cumulative Earnings Report for the prior two calendar years, excluding any excess earnings that had been subject to sharing in prior earnings sharing reviews in accordance with the methodology set forth in Attachment 17, Page 2. The Cumulative Earnings Reports shall compare Niagara Mohawk’s Cumulative Earned Return on Equity to an Applicable ROE Cap equal to 11.75 percent, plus the portion of the basis points that Niagara Mohawk will have earned by achieving the performance targets set forth in Section 1.2.5.4 and Attachment 8. The actual performance in achieving the targets in Attachment 8 in each year of the evaluation period will be used to evaluate the incentive component of the ROE Cap, and an average Applicable ROE Cap, including the incentive component, shall be calculated for the evaluation period.       1.2.5.2    Calculation of Cumulative Earned Return on Equity Niagara Mohawk shall calculate its earnings from electric operations for each of the years in the evaluation period, incorporating the adjustments set forth in the following Sections to arrive at a Cumulative Earned Return on Equity. The methodology for the calculation of the Cumulative Earned Return on Equity is set forth below, and unless otherwise specified the calculation shall be consistent with the methodology used in the Earnings Sharing Mechanism for gas operations approved by the Commission in Case No. 99-G-0336.       1.2.5.2.1    Earnings Base/Capitalization Niagara Mohawk shall perform the Earnings Base/Capitalization comparison when determining the earnings base for electric operations. When calculating the Earnings Base/Capitalization comparison, the actual figures in each calendar year shall be used to adjust the Earnings Base and the Capitalization of Niagara Mohawk. Niagara Mohawk’s Earnings Base shall include Niagara Mohawk’s unamortized regulatory asset associated with recovery of the Fixed Costs in the CTC, which, as set forth in Section 1.2.2.3 has been reduced to reflect an additional write-off of the Nine Mile Point stranded costs. Unless otherwise set forth in the Fair Value Report as provided in Section 1.2.5.2.8, neither Earnings Base nor Capitalization shall include goodwill associated with the acquisition of Niagara Mohawk by National Grid or the write-off of stranded costs set forth in Section 1.2.2.3. The calculation of the Earnings Base/Capitalization shall follow the methodology set forth in the revenue requirements analyses shown in Attachment 1, provided, however, that nothing in that analysis or in this Joint Proposal shall limit Niagara Mohawk’s ability to manage the differences between its Capitalization and Earnings Base.       1.2.5.2.2    Capital Structure Niagara Mohawk shall calculate its Cumulative Earnings using the Capital Structure calculated as set forth in Attachment 17.       1.2.5.2.3    Performance Based Compensation Niagara Mohawk shall add back to income all expenses that have been charged to Niagara Mohawk associated with supplemental executive retirement programs (“SERP”) or other executive plans, programs, or arrangements and with incentive compensation payments under the Senior Executive Program, Incentive Compensation Plan (“ICP”) I and ICP II programs for the Service Company and for the equivalent programs for Niagara Mohawk. Fifty percent of the Incentive Compensation paid to Niagara Mohawk employees under other incentive compensation programs shall also be added back to income, unless Niagara Mohawk files a report with the Commission at the time of a Cumulative Earnings Report demonstrating that Niagara Mohawk’s compensation programs are comparable to National Grid’s compensation programs. Niagara Mohawk shall also add back to income all incentive compensation payments to Niagara Mohawk employees in any year in which the penalties under the Service Quality Assurance Program in Attachment 9 exceed $7.5 million. Finally, Niagara Mohawk will add back to income incentive compensation payments to Niagara Mohawk employees to the extent that Niagara Mohawk’s actual electric departmental expenses exceed the forecast levels set forth in Attachment 12, as modified by any Follow-on Merger Synergies.       1.2.5.2.4    Interest Payments by Constellation to Niagara Mohawk As part of the sale of the Nine Mile Point Nuclear Units to Constellation, Niagara Mohawk may receive only 50 percent of the proceeds at closing, and agreed that Constellation could pay the remainder with interest over the next five years. Nevertheless, in accordance with the Joint Proposal for Nine Mile Point, Niagara Mohawk credited 100 percent of the proceeds to rate base at the closing. As a result, customers will receive the economic benefit of the sale at the outset, and Niagara Mohawk shall record any interest payments received from Constellation during the year below the line.       1.2.5.2.5    NOL Benefits Niagara Mohawk has calculated deferred taxes on the regulatory asset that are being recovered through the CTC assuming that it had received the full benefit of the income tax reductions associated with past net operating losses (“NOL”). As a result, these tax benefits have already been fully reflected in the revenue requirements analysis and in rates to customers. Thus, Niagara Mohawk shall exclude from earnings any income tax expense benefits associated with the realization of the NOL during the year, and the NOL balances shall be excluded from rate base and capitalization calculations.       1.2.5.2.6    Net Incremental Revenue from New Services and Royalties Niagara Mohawk shall subtract from its actual pre-tax earnings: 1) 50 percent of the net incremental revenues from providing operation, maintenance, and construction services to customers’ equipment (“behind the meter”) at a customer’s explicit request that is related to energy delivery services currently provided for in Rule 28 of PSC No. 207, and 2) 50 percent of royalties related to commercialization of R&D technologies pursuant to Section 4.4.1 of Attachment 23. In addition, Niagara Mohawk shall subtract from its actual pre-tax earnings any portion of the net incremental revenues from providing any yet-to-be approved services (such as billing for third parties) that the Commission allows Niagara Mohawk to retain as part of the approval to provide the services. Niagara Mohawk shall amend its Rule 28 to comply with the Commission’s ruling on the new service.       1.2.5.2.7    Synergy Savings, Efficiency Gains, and Costs to Achieve Niagara Mohawk shall also add back to expenses for electric operations fifty percent of the electric portion of the Efficiency Gains and Synergy Savings, and Costs to Achieve that have been agreed to in this Joint Proposal. The Efficiency Gains and Synergy Savings and Costs to Achieve for each year of the Rate Plan are shown on Attachment 18. They are based on a phase in of total Synergy Savings to $130 million per year, allocated 62 percent to New York, and Efficiency Gains of $60 million per year, allocated 100 percent to New York.       1.2.5.2.8    Fair Value Adjustments Any of Niagara Mohawk’s accounts that are adjusted to reflect the purchase will be included in a Fair Value Report that will be filed with the Commission within one year of the Effective Date. To the extent that the Fair Value Adjustments affect the expenses or balances on Niagara Mohawk’s accounts, these differences will be noted and quantified. Subject to the Commission’s approval, these differences will be excluded from the calculation of cumulative earnings, rate base, and capitalization during the Rate Plan Period.       1.2.5.2.9    Follow-on Merger Synergy Allowance In the event that National Grid closes any additional domestic mergers or acquisitions, Niagara Mohawk shall be authorized to add back to expenses in the Earnings Sharing Analysis Niagara Mohawk’s fifty percent share of the Follow-on Merger Synergy Allowance that is set forth in Attachment 10.       1.2.5.3    Earnings Sharing If Niagara Mohawk’s Cumulative Earned Return on Equity for the report period as adjusted in the above sections exceeds the Applicable ROE Cap established in Section 1.2.5.1, then Niagara Mohawk shall credit fifty percent of such excess, grossed up for state and federal income taxes, to the Deferral Account. The addition to the Deferral Account shall be as of January 1, 2007 for the first report and as of January 1 of the calendar year following the evaluation period for the remaining reports. The fifty percent sharing set forth above shall be adjusted to the following percentages on the earlier of the effective date of a Re-opener Credit or January 1, 2009: > > For Earnings Between: > > > > 11.75%-14.0%          50% customer/50% shareholder > > 14.0%-16.0%            75% customer/25% shareholder > > Over 16.0%               90% customer/10% shareholder       1.2.5.4    Customer Outreach and Education Program and Competition-Related and Low Income Incentive Mechanisms Customer outreach and education is an integral part of the customer service function. Niagara Mohawk shall design and implement an annual customer outreach and education program that is responsive to customers’ needs. In addition Niagara Mohawk shall design and implement mechanisms to facilitate competition and to enhance its low income programs. These programs and mechanisms are detailed in Attachment 8 and provide the grounds for the basis point incentive for the Earning Sharing Mechanism that is set forth in Section 1.2.5.1.       1.2.6    Post Rate Plan Filing By February 1, 2011, Niagara Mohawk shall make a full revenue requirements filing that includes a fully allocated cost of service study for each of its rate classes and a review of its Service Quality Standards. The rate filing shall become effective after the Expiration Date of the Rate Plan and be subject to Commission approval following normal rate case suspension periods. The rates filed shall exclude any recovery of the Fixed Costs included in the CTC and any allowance for Efficiency Gains and Synergy Savings and Costs to Achieve. Niagara Mohawk shall be authorized to continue the Follow-on Merger Synergy Allowance set forth in Section 1.2.5.2.9, only if Niagara Mohawk’s departmental expenses for the year 11 cost of service (excluding the Follow-on Merger Synergy Allowance) are lower than the forecast of departmental expenses for year 10 adjusted for inflation for the eleventh year as shown on Attachment 10, page 3 (“Departmental Expense Reduction”). In that event, Niagara Mohawk shall be authorized to add back to its expenses in the revenue requirements analysis the lesser of the Follow-on Merger Synergy Allowance or 50 percent of the Departmental Expense Reduction. See Attachment 10, page 3 for an illustration of the calculation. The Follow-on Merger Synergy Allowance authorized under this Section shall expire five years after the associated Follow-on Merger Credit became effective under Section 1.2.4.19. Niagara Mohawk shall also be allowed the opportunity to request the continuation of an Earnings Sharing Mechanism with a fifty percent sharing of ongoing efficiency gains not otherwise included in the Efficiency Gain, Synergy Savings and Cost to Achieve allowance and the Follow-on Merger Synergy allowance reflected during the Rate Plan Period. Niagara Mohawk shall document the efficiency gains that it proposes to share, and may propose other incentives that are designed to further the safe, reliable, and efficient operation of the transmission and distribution system after the expiration of the Rate Plan.       1.2.7    Right to File a Complaint During the Rate Plan Period At any time after the Effective Date, Niagara Mohawk’s Electricity Delivery Rates may be reviewed upon a complaint brought pursuant to New York Public Service Law (“PSL”), Section 71 (McKinney’s 2000). In defending against such a complaint, Niagara Mohawk shall be authorized to include in its revenue requirements 100 percent of the annual Synergy Savings, Efficiency Gains, and Costs to Achieve shown on Attachment 18 for the relevant year. Niagara Mohawk shall also be authorized to include in its revenue requirements the recovery of its CTC pursuant to the schedule set forth in Attachment 1, page 1.       1.2.8    Right to Make a General Rate Filing During the Rate Plan Period At any time after the Effective Date, Niagara Mohawk may file to increase its Electricity Delivery Rates above the levels set forth in Attachment 3 by making a general revenue requirements filing with the Commission. If as a result of any such filing Niagara Mohawk is authorized to increase its Electricity Delivery Rates, Niagara Mohawk shall be precluded from including in its revenue requirements any adjustment to retain any portion of the Synergy Savings or Efficiency Gains included in Attachment 18 or any Follow-on Merger Synergy Allowance set forth in Section 1.2.5.2.9. Niagara Mohawk shall be authorized to include in its revenue requirements the recovery of its CTC pursuant to the schedule set forth in Attachment 1, page 1, and, with the exception of the fifty percent allowances for Synergy Savings and Efficiency Gains, which are superceded by precluding their inclusion in the cost of service, the other adjustments as set forth in Sections 1.2.4 and 1.2.5. Such filing shall include a fully allocated cost of service study showing class relative rates of return on regulated services.       1.2.9    Low Income Customer Services During the Rate Plan Period, Niagara Mohawk shall implement the Low Income Customer Services that are described in Attachment 19, unless such program is modified by the Commission. SBC funding currently supports the energy efficiency service component of Low Income Customer Services. Niagara Mohawk may file for Commission approval to change the scope of the program if funding through the SBC increases, decreases, or expires during the Rate Plan, or if the allocation of funds from the SBC for Niagara Mohawk Low-Income Customer Services is changed by the Commission. Niagara Mohawk shall implement the low income rate, as set forth in Attachment 3, which provides a $5 per month discount for eligible customers from the otherwise applicable PSC 207, SC-1 rate. Customers eligible for this discount will be drawn from those customers who meet the eligibility requirements of existing assistance programs, such as Home Energy Assistance Program (“HEAP”), Supplemental Security Income (“SSI”), Food Stamps, or Temporary Assistance to Needy Families (“TANF”). Niagara Mohawk shall meet with interested parties to discuss the implementation and outreach of the low income rate within 45 days after the filing of the Joint Proposal. The total estimated discounts under the program are shown on the following table. An allowance of $2.0 million per year has been included in rates. The discounts under the program will be reconciled to the $2.0 million allowance in base rates through a separate deferral, which will be applied to future low income discounts.14 If necessary, the $2.0 million allowance built into base rates will be adjusted at the next CTC Reset. Incremental funding for the allowance, if any, shall be allocated in a manner to be determined by the Commission at the time the allowance is increased. Number of Monthly Year Bill Credits Estimated Annual Discounts ---- ------------ ------------------------- 2002 180,000 $1 Million 2003 360,000 $2 Million 2004 540,000 $3 Million 2005 720,000 $4 Million During the fourth year of the Rate Plan, Niagara Mohawk will convene meetings of interested parties to discuss and develop recommendations for the continuation, elements and/or expansion of the low income rate during years five through ten.       1.2.10    Economic Development       1.2.10.1    Continued Commitment to Economic Development Activities Niagara Mohawk will continue to implement an Economic Development Program to encourage attraction, expansion, and retention of business customers in Niagara Mohawk’s service territory. Specifically, Niagara Mohawk will continue to conduct economic development programs and other related programs and policies, and will coordinate and cooperate in good faith on economic development matters with Empire State Development, local economic development agencies, and DPS Staff.       1.2.10.2    Economic Development Plan Upon seeking input from Empire State Development, local economic development agencies, DPS Staff, and other interested parties, Niagara Mohawk shall formulate an Economic Development Plan that will provide incremental funding associated with existing programs, if required, and develop new program initiatives that may include, but not be limited to:          (a)   discounts, incentives and other cooperative programs for attraction, expansion and retention of business;          (b)   discounts on delivery of incremental NYPA Economic Development Power allocations for qualifying businesses; and,          (c)   discounts targeting customers that are also receiving benefits from local Industrial Development Authorities (IDAs). The new program initiatives and incremental funding for existing programs, if required, shall be developed with a goal to minimize the need for deferrals allowed under Section 1.2.4.7 over the entire Rate Plan period. Niagara Mohawk will file within 90 days of the Effective Date the initial Economic Development Plan with the Commission for its approval. Ensuing Economic Development Plan changes, if necessary, will be subject to Commission approval if the modified plan exceeds the $12.5 million incremental funding level or if total program costs are expected to exceed the amounts shown on Line 4, Attachment 15 and require a deferral. Programmatic changes below the $12.5 million annual funding level will be approved by the DPS Director of the Office of Consumer Education and Advocacy with the concurrence of the Commissioner of the New York State Department of Economic Development. Economic Development Plan expenditures will be subject to auditing and monitoring by DPS Staff. On September 1 of each year, Niagara Mohawk will submit a copy of the Economic Development Plan for the upcoming calendar year to Empire State Development and DPS Staff.       1.2.11    Environmental and Renewable Marketing Commitments Niagara Mohawk shall implement the environmental and renewable marketing commitments set forth in Attachment 20.       1.2.12    Contract Customers Within 30 days after the Effective Date, Niagara Mohawk shall contact all customers who are now served under SC-11 or SC-12 and apprise them of their option to be charged the rates for the otherwise applicable service class subject to the following provisions. Within 90 days of the Effective Date, customers choosing the standard tariff option will be required to sign a new contract amendment for the remaining term of their contract. A form of the new contract amendment is included in Attachment 21. The new contract amendments will contain a minimum monthly delivery provision based on the maximum demand defined below.15 The minimum monthly delivery provision will be administered on a billing period basis and will be calculated net of any commodity services for the term of the new contract agreement. The calculation of the minimum bill (net of any commodity services) shall be computed as the product of (a) the sum of the otherwise applicable demand charges and (b) the peak kilowatt service provided by Niagara Mohawk over the last 24 months prior to the Effective Date. The peak kilowatt service shall be determined on an individual customer basis and shall be adjusted to eliminate the award of NYPA allocations (Economic Development Power (“EDP”), Power For Jobs (“PFJ”), NYPA Hydro). Service under SC-12 shall remain open to customers subject to the terms and conditions of the tariff. Niagara Mohawk shall implement revised pricing options for customers who are served under Rule 46, System Average Pricing and/or are eligible for Form H Contract Extensions as set forth in Attachment 21, Customer Contract Options.       1.2.13    Transmission and Delivery Charges for Customers Taking NYPA Service under an EDP Rider, PFJ Rider or High Load Factor Fitzpatrick Delivery Charge Retail customers receiving service under Niagara Mohawk’s EDP Rider or PFJ Rider, or taking service under High Load Factor Fitzpatrick shall have their delivery charges for NYPA deliveries frozen at their current levels for the Rate Plan Period as shown in Attachment 3 unless otherwise mandated through legislative changes. New Allocations, defined in Section 1.2.15, to these customer classes will be set at Niagara Mohawk’s otherwise applicable unbundled rates.       1.2.14    Transmission and Delivery Charges for Customers Taking NYPA Hydro Service under SC-4 Transmission and distribution rates for delivery of NYPA Hydro allocations for customers shall be frozen at their current levels during the Rate Plan Period. Customers taking New Allocations will be charged the applicable transmission and distribution rates as reflected in SC-3 and SC-3A of PSC 207.       1.2.15    New Allocations Defined The term “New Allocations” as used in Sections 1.2.13 and 1.2.14, above, means allocations approved by NYPA’s Trustees after the Effective Date of this Rate Plan, but shall not include: (a) Replacement Power that becomes available for reallocation prior to September 30, 2002 under Article V of the “Agreement: Allocation and Transfer of Replacement Power Pursuant to Niagara Contract NS-1” dated April 4, 1988; or (b) transfers and assignments of allocations from a customer premise/location on Niagara Mohawk’s system (i.e., a change in ownership/occupancy of a premise/location will not be deemed “new”). A customer with an existing allocation (i.e., any allocation not within the definition of the term “New Allocations” under this section) may receive a New Allocation without causing its existing allocations to be classified as New Allocations hereunder.       1.2.16    Outdoor Lighting Service Rate design revisions for Electricity Delivery Charges for PSC 214 are incorporated in Attachment 3. Niagara Mohawk is also reviewing new rate designs and tariff proposals to streamline the administration of its outdoor lighting offerings pursuant to the Commission’s Case No. 00-E-0935. Niagara Mohawk shall have the right under this Joint Proposal to file tariff changes for its outdoor lighting services that are revenue neutral within PSC 214 rate classes, and to file non-revenue neutral cost based tariff changes for new facilities.       1.2.17    Rules 12, 44, and 52 Niagara Mohawk shall adopt the following policies toward Rules 12, 44, and 52 of PSC 207:       1.2.17.1    Rule 12 The Commission is expected to issue an order setting forth its policy on standby electric rates in Case 99-E-1470, Proceeding on Motion of the Commission as to the Reasonableness of the Rates, Terms and Conditions for the Provision of Electric Standby Service (“Standby Order”). In the Standby Order, the Commission is expected to establish a generic policy governing standby electric rates that may differ from the billings authorized by Niagara Mohawk’s Rule 12 to customers with on-site generation. The Signatories agree to implement the Commission’s Standby Order as follows: (a) If the time allotted to other utilities to file tariffs complying with the Standby Order exceeds 20 days, Niagara Mohawk shall, within 20 business days after the later of the issuance of the Standby Order or the submission of this Joint Proposal, file proposed tariff leaves for SC-2, SC-3, SC-3A and all other applicable classes that are limited to the changes required to comply with and implement the Standby Order and which would replace Rule 12. If the time allotted to utilities to comply is less than 20 days, Niagara Mohawk will comply with the Standby Order. (b) At the time of the filing, Niagara Mohawk shall serve the proposed tariff leaves and all supporting work papers on the parties to this proceeding. (c) Niagara Mohawk’s filing shall be subject to the Commission’s rules on discovery. (d) Within 14 days after the filing, Niagara Mohawk shall convene a technical conference and settlement negotiations to discuss, and attempt to resolve, any issues associated with the compliance filing as soon as possible after the filing. (e) The Signatories shall consent to a schedule for addressing Niagara Mohawk’s filing that allows for dispute resolution and the implementation of tariff leaves for standby electric rates within the later of: (a) 75 days from the date of the filing or (b) the Effective Date. In the absence of consent, an Administrative Law Judge will establish such a schedule. (f) Nothing herein shall constitute a waiver of a party’s right to challenge the Standby Order issued by the Commission. A challenge to the Standby Order shall not affect the schedule established above.       1.2.17.2    Rule 44 The parties agree that nothing in the Joint Proposal precludes any party from advocating that the Commission modify or eliminate Rule 44 or its applicability in a particular circumstance; or precludes the Commission from adopting different policies on its own initiative.       1.2.17.3    Rule 52 Niagara Mohawk shall modify Rule 52 in accordance with the following sections. A modified Rule 52 is included in Attachment 21.       1.2.17.3.1    Islanded Generation Rule 52 shall not apply to a customer’s premises which is disconnected from the Niagara Mohawk system when the customer’s electricity is either supplied by the customer or by a third party who is also disconnected from Niagara Mohawk’s system with all of the customer’s or third party’s generating capacity installed after the Effective Date, located on or immediately adjacent to the customer’s premises and used exclusively to serve that single customer, even if the customer’s premises is located within 100 feet of the Niagara Mohawk system.       1.2.17.3.2    Connected Generation Rule 52 shall not apply when the customer disconnects from the Niagara Mohawk system and is connected to a third party owning generation located on or immediately adjacent to the customer’s premises when: (a) the third party owned generation is connected to the Niagara Mohawk system; (b) all of the third party’s generating capacity has been installed after the Effective Date; (c) the generating capacity is used to serve only one retail customer at that location with any excess electricity being delivered over Niagara Mohawk’s system, even if that customer’s premises is located within 100 feet of the Niagara Mohawk system; and (d) the third party generator agrees to pay the charges under Rule 12 or Niagara Mohawk’s standby tariff for retail service notwithstanding any other payments the third party generator may make under Niagara Mohawk’s or the NYISO’s tariffs filed with the FERC or the Commission or any other rights that the third party generator may have under federal or state law. In the event that the third party generator fails to agree to pay the standby tariff, Rule 52 shall apply to the customer.       1.2.17.3.3    Reservation of Rights The parties agree that nothing in this Joint Proposal precludes any party from advocating that the Commission modify or eliminate Rule 52 or its applicability in certain circumstances, or precludes the Commission from adopting different policies on its own initiative.16       1.2.17.3.4    Accounting for Exit Fees In the event that Niagara Mohawk receives any exit fee payments from customers during the Rate Plan Period, Niagara Mohawk shall amortize such payment to income ratably over the period used to calculate each component of the exit fee.       1.2.18    Distributed Generation Pilot Program Niagara Mohawk shall implement a two-year Pilot Program to consider issuance of RFP’s for up to two Distributed Generation (“DG”) projects per year, when such DG projects may defer traditional investment in the electricity delivery system, and where such traditional investment in the electricity delivery system would otherwise cost at least $750,000 per project. Contracts will not be awarded when the bid for a DG project proposal is not superior or equal to the otherwise applicable traditional delivery system investment. Nothing in this section shall preclude the Commission from imposing additional requirements on Niagara Mohawk. Within sixty days of the Effective Date, Niagara Mohawk will commence a series of meetings with interested parties to discuss implementation of this provision, along with review of studies pertaining to the use of DG as a complement to the electricity delivery system. At a minimum, Niagara Mohawk will comply with the Commission’s order in Case No. 00-E-0005, Proceeding on Motion of the Commission to Examine Costs, Benefits and Rates Regarding Distributed Generation, and its successors.       1.2.19    IEEE Standard 1547 The Institute of Electrical and Electronics Engineers (“IEEE”) is currently drafting IEEE Standard 1547. Once this standard is approved by the IEEE Standards Board, Niagara Mohawk will convene a meeting of interested signatories to this Joint Proposal to review these standards and if appropriate incorporate the IEEE 1547 standard in its then current interconnection standards, including expanded applicability. Upon agreement, Niagara Mohawk shall implement the revised standard within 60 days of publication by IEEE unless otherwise ordered by the Commission. Any revisions to Niagara Mohawk’s interconnection standards will, at a minimum, comply with the Commission’s Opinion and Order Adopting Standard Interconnection Requirements for Distributed Generation Units in Case No. 94-E-0952 (In the Matter of Competitive Opportunities Regarding Electric Service, filed in Case No. 93-M-0229) (December 31, 1999) and its successors.       1.2.20    Terms and Conditions for Suppliers to Facilitate Retail Access Within 180 days after the Effective Date, Niagara Mohawk shall file a proposal to implement consistent terms, conditions, and protocols for suppliers of electricity and natural gas across the National Grid/Niagara Mohawk combined systems. Not less than 90 days prior to any such filing, Niagara Mohawk/National Grid shall commence technical discussions with ESCos and Marketers on any proposed implementation on retail access and shall seek to obtain consent from said ESCos and Marketers on any proposed filing. The objective will be to standardize as much as possible, consistent with the regulatory policies in New York, Massachusetts, Rhode Island, and New Hampshire, the methodologies for switching customers to marketers and suppliers, and the data requirements for the customers served on the Niagara Mohawk/National Grid systems, and not inconsistent with the explicit terms of this proposal. The goal will be to reduce costs for and improve service to all marketers and suppliers serving retail customers on the combined systems. The proposal, which will also address any potential conflicts with Uniform Business Practices, will be filed with and subject to the approval of the Commission.       1.2.21    Rights to File Revenue Neutral Rate Designs and Regulatory Simplification Niagara Mohawk shall have the right to file proposed changes in rate designs during the period of the Rate Plan, provided that such changes: (a) are revenue neutral to Niagara Mohawk; (b) do not increase the customer charges to SC-1 customers during the period from the Effective Date through December 31, 2005; and (c) are not inconsistent with the explicit terms of this Joint Proposal. Niagara Mohawk intends to and shall be authorized to include in the August Filing for its first CTC reset proposed new rate designs for its SC-2, SC-3, and SC-3A tariffs to become effective January 1, 2004, which reflect the pricing policies that the Commission may establish in the Standby Rate proceeding and such other tariff redesigns as approved by the Commission. Nothing in this Joint Proposal shall preclude any party from opposing such proposed rate design modifications. In addition, Niagara Mohawk shall have the right during the Rate Plan Period to propose methods to simplify tariffs and regulatory requirements in ways that address underlying policy objectives and facilitate the realization of the Synergy Savings and Efficiency Gains that are reflected in the Joint Proposal. Any proposed changes to Niagara Mohawk’s tariffs shall not become effective until approved by the Commission, following the notice and comment procedures in SAPA.       1.2.22    Transmission Planning and Investment Niagara Mohawk recognizes its responsibility to study, plan and implement improvements to its transmission system to continue to provide its customers with safe, reliable and economically efficient access to electric commodity. Niagara Mohawk will provide to DPS Staff, within six months of the Effective Date and every two years thereafter, economic analyses of the costs and benefits (including the expected impacts on customer commodity costs) of potential transmission investments. These studies will include transmission investments which will have the potential to benefit Niagara Mohawk customers, including, but not limited to, analyses of congestion costs, and local “load pockets,” that is, those load pockets within Niagara Mohawk’s service territory whose impacts primarily affect Niagara Mohawk customers. Analyses of local load pockets will include the costs to eliminate such load pockets, and the estimated benefits associated with eliminating the potential exercise of market power by generators within such load pockets. Analyses of local load pockets can be conducted based largely on data that are readily available to Niagara Mohawk, i.e., the amount of load within a given load pocket, the percentage of time that generation within that load pocket is needed to serve the load, and the extent to which generators within the load pocket could possess market power. Studies of other potential transmission investments, such as those investments which could have inter-utility or inter-regional benefits and costs, may also be conducted, and Niagara Mohawk will work with the NYISO and other relevant parties to obtain the data necessary to conduct these studies. The quality of the results will be subject to the provision of relevant information by those parties. Within six months of the Effective Date, Niagara Mohawk and National Grid shall file a Five Year Transmission Statement similar to that which National Grid has prepared for New England, setting forth information on demand, generation, the characteristics of the existing and planned transmission system in New England and New York, and other facts that can help transmission customers evaluate opportunities to make new or further use of the system. Niagara Mohawk and National Grid shall update such transmission statement annually, unless a regional entity assumes responsibility for issuing a similar report. Niagara Mohawk shall have the right to make to the Commission, the NYISO or successor organization, or FERC proposals for incentive regulation for transmission service, including, without limitation, an incentive to reduce or limit transmission congestion, increase reliability, or improve efficiency. Niagara Mohawk shall have the right to retain any incentive approved by the relevant agency by excluding such incentive from the Transmission Revenue Adjustment Clause and adjusting the earnings under the Rate Re-opener and the Earnings Sharing Mechanism to eliminate the approved incentive payment and any additional incremental cost otherwise allocable to Niagara Mohawk customers associated with the incentive program from Niagara Mohawk’s cumulative actual earnings during the relevant period. However, Niagara Mohawk’s right to retain such an incentive does not include programs and/or projects to be supported by the budgets underlying the rate levels being agreed to in this Joint Proposal.       1.3    Commodity Service Niagara Mohawk will continue to provide commodity service to SRS customers and MRS customers on the following terms:       1.3.1    DCA Available for SRS Customers; Partial Hedge Niagara Mohawk shall continue to offer a DCA and Commodity Adjustment Clause (“CAC”) as described in the existing PSC 207 Rule 29 to customers served under the following Service Classifications: SC-1, SC-1B, SC-1C, SC-2 non-demand, SC-2 demand, SC-3 (through the expiration of the Orion Contract), SC-4 (under 2 megawatts, through the expiration of the Orion Contract, and PSC 214. The supplies purchased by Niagara Mohawk under its hedged contracts do not match the total demands of DCA customers. As a result, Niagara Mohawk’s DCA will only provide a partial hedge against changes in the market price for electricity from that reflected in the forecast used to implement the CTC Reset under Section 1.2.3.3, above. The target percentage hedges by customer service classification for each year of the Rate Plan are set forth in Rule 29. Niagara Mohawk shall implement the changes to Rules 29, 42, and 43 as shown in Attachment 21.       1.3.2    SRS Customers May Transfer to MRS For the period from the Effective Date through 2003, Niagara Mohawk shall continue to allow SRS customers with aggregate usage totaling up to 2,150 gigawatthours per year to move from SRS to MRS as described in the existing Rule 48. Subsequent adjustments to the allotment for MRS shall be filed and implemented at the time set forth in the procedures for resetting the CTC as set forth in Section 1.2.3.3.       1.3.3    All Customers May Select an Alternative Supplier of Commodity; Customer Service Backout Credit All of Niagara Mohawk’s customers are eligible to select an alternative supplier for their commodity needs. Customers selecting an alternative supplier shall be credited with a Customer Service Backout Credit of $0.004 per kilowatthour for residential customers served under SC-1, SC-1B, SC-1C, and non-demand metered commercial customers served under SC-2, and of $0.002 per kilowatthour for all other demand metered customer classes and customers served under PSC 214 as described in existing Rule 42. These Customer Service Backout Credits are in addition to the credits for metering and billing approved by the Commission in the cases cited in Section 1.2.4.9. These Customer Service Backout Credits shall remain in place until the Commission approves an alternative credit or method of addressing these issues for the utilities following the completion of generic proceedings on unbundling, Case No. 00-M-0504. Niagara Mohawk shall recover any difference between the Customer Service Backout Credit and Niagara Mohawk’s SRAC, for which the Parties agree to use the figure of $0.0005 per kilowatthour, at this time, through the mechanism set forth in Section 1.2.4.9 until the Commission provides an alternative mechanism or method to recover these costs at the time unbundled rates for Niagara Mohawk are implemented.       1.3.4    Future Hedges for SRS Customers Niagara Mohawk shall have the right to execute reasonable hedges for its SRS customers after the Effective Date of the Rate Plan. Niagara Mohawk will file its hedging plans, for informational purposes only, coincident with the biennial August Filing for the CTC Reset under Section 1.2.3.3. The costs and benefits of all reasonable New Hedges as defined in Section 1.2.3.3.4 shall be recovered through the DCA Adjustment and shall not be allocated to MRS customers through the CTC Reset.       1.3.5    Market Match for Customers Greater than One Megawatt Niagara Mohawk will provide opportunities for ESCos and Niagara Mohawk’s business customers to exchange information. Initiatives will include the Market Match Program and Market Expo Program. Within six months of the Effective Date and one year thereafter, Niagara Mohawk shall offer to facilitate the market and assist its larger customers in receiving a hedged power supply by undertaking the pilot Market Match and Market Expo Program set forth below. The Market Match Program shall include the following elements: (a) Niagara Mohawk shall develop a system on its web site to provide exchange of customer data for MRS customers interested in obtaining a fixed price solicitation from ESCos. (b) Niagara Mohawk shall inform all MRS customers greater than one megawatt of the system via mail. At its option, Niagara Mohawk may elect to reduce the eligibility threshold of this program to less than one megawatt. (c) The customer shall inform Niagara Mohawk in writing or through the Niagara Mohawk web site of its interest to be solicited for a fixed price commodity option and shall provide a contact name, address and telephone number. (d) Niagara Mohawk shall then post on a secure web page the customer’s historical energy consumption, applicable service class, NYISO zone, name, and contact person. (e) The participating ESCos may access this information via the secure web page, and then solicit such customer by providing a fixed price offer for electricity commodity service, provided, however, that the ESCo must sign a confidentiality agreement under which the ESCo agrees not to use the information for any other purpose or release it to any other party. (f) The customer at any time may inform Niagara Mohawk in writing or through the web to withdraw its load information from the web. The Market Expo Program shall include the following elements: (a) Niagara Mohawk shall hold an Expo in Syracuse, New York to provide an exchange of customer data for MRS customers interested in obtaining a fixed price solicitation from ESCos on the date of the Expo. (b) Niagara Mohawk shall inform all MRS customers by mail at least four weeks in advance of the Expo of its date and location. (c) Three weeks prior to the Expo, the customer shall inform Niagara Mohawk in writing of its desire to have Niagara Mohawk release such customer’s historical energy consumption, applicable service class, NYISO zone, name and contact person. (d) Niagara Mohawk shall then email such customer’s historical energy consumption, applicable service class, NYISO zone, name and contact person to the participating ESCos. (e) On the date of the Expo Niagara Mohawk will (i) establish a registration procedure under which customers will schedule 15 minute sessions with specific ESCos for later in the day, (ii) give a one hour presentation on the status of the electricity market in the Northeast market along with the disposition of its retail access rules, and (iii) schedule the remainder of the day for individual meetings between customers and ESCos.       1.3.6    Commodity Sales under Existing Programs       1.3.6.1    SC-3A, Option 2 Consistent with their contracts, customers served under SC-3A, Option 2 will be provided commodity at the rates set forth in PSC 207 through August 31, 2003 or such shorter term that the customer nominated. Thereafter, the commodity to such customer will be provided under the MRS.       1.3.6.2    NYPA Commodity Sales Program Commodity costs for quantities of sales served under NYPA commodity sales programs are not affected by this Joint Proposal. If the Memorandum of Understanding between NYPA and Niagara Mohawk is not extended beyond August 31, 2003, Niagara Mohawk shall notify affected customers, and in a compliance filing, increase its rates to reflect recovery of the cost of NYISO charges directly from customers receiving NYPA power.       1.3.6.3    Empire Zone Rider Customers Niagara Mohawk shall work with Empire Zone Rider customers and suppliers to facilitate contracts between marketers and Empire Zone Rider customers who wish to procure hedged products for their commodity service.       1.3.6.4    Power for Jobs Allocation Methodology On the Effective Date, Niagara Mohawk shall adopt a first through the meter methodology for the allocation of power from the PFJ Program that is currently based on load factor sharing methodology. The change in the allocation methodology will allow PFJ recipients to receive a greater share of the economic benefits associated with the award of their PFJ allocation.       1.4    Modifications to Prices Unrelated to Electricity Delivery Rates; Introduction of New Services The Rate Plan set forth in this Joint Proposal shall govern the prices for regulated delivery service under Niagara Mohawk’s Electricity Delivery Rates and its commodity sales under SRS and MRS. Nothing in this Rate Plan shall limit in any way Niagara Mohawk’s right to modify, increase or otherwise adjust: (i) fees or charges for incidental behind the meter services now provided pursuant to Niagara Mohawk’s terms and conditions; (ii) fees or charges for new services introduced by Niagara Mohawk during the period of the Rate Plan; (iii) the pole attachment fees or fees for space in underground ducts; or (iv) fees or charges for any other contract for service between Niagara Mohawk and its customers or marketers. Niagara Mohawk shall have the right to modify the fees or charges set forth in this section by filing the proposed change with the Commission. Such modifications or new services shall become effective upon approval by the Commission. During the Rate Plan Period, Niagara Mohawk shall have the ability to introduce new services that are either optional for the customer or may be provided by alternative suppliers using procedures set forth in Section 2.4.2 of Attachment 23.17       1.5     Resolution of Outstanding Issues The reduction in stranded cost recovery, the limitation on transmission and distribution charges, and the reduction in the overall level of Electricity Delivery Rates during the Rate Plan Period are designed to resolve: (a) all issues associated with the recovery of Niagara Mohawk’s Fixed Cost component of the CTC that remains unamortized as of the Effective Date, including the amortization of the remaining regulatory assets on Niagara Mohawk’s books with a return equal to Niagara Mohawk’s weighted cost of capital18 and the full recovery of all of Niagara Mohawk’s remaining payments to IPPs under existing contracts and economic buy down or buy out agreements through the remaining periods of those contracts even if those agreements extend beyond the Rate Plan Period; and (b) all issues associated with the estimation, allocation, and sharing of Efficiency Gains, Synergy Savings, and Costs to Achieve, including the ratemaking treatment of those Efficiency Gains, Synergy Savings, and Costs to Achieve during the Rate Plan Period.       1.6    Extension of Natural Gas Rate and Restructuring Agreement In its Opinion No. 00-9, issued July 27, 2000 in Case 99-G-0336, Niagara Mohawk Power Corporation - Gas Rates and Restructuring, the Commission approved Niagara Mohawk’s Gas Rate and Restructuring Settlement Agreement (“Gas Settlement”). Among other things, the Gas Settlement provides for a delivery revenue requirement freeze for the period from November 1, 1999 through August 31, 200319 and comprehensively addresses the goals set forth by the Commission in its Policy Statement Concerning the Future of the Natural Gas Industry in New York State (issued November 3, 1998 in Case No. 93-G-0932 et al.). The Gas Settlement also makes provision for an extension beyond August 31, 2003 in the event rate or other changes to its terms are not sought or made for the post-August 31, 2003 period. See, e.g., Gas Settlement, § III (definitions of “Stayout” and “Settlement Period”).       1.6.1    Extension of Gas Freeze Niagara Mohawk shall extend the Gas Settlement by 16 months through December 31, 2004, and shall commit not to file for any delivery service rate or other change to its terms that would take effect during this period except as specified in this Joint Proposal.20 Thus, Niagara Mohawk’s gas delivery revenue requirement shall remain frozen at current levels through December 31, 2004.       1.6.1.1    Synergy Savings and Efficiency Gains in New Rates If Niagara Mohawk files for and receives a gas delivery service rate increase to become effective any time, all synergy and efficiency savings from this or any Follow-on Merger or Acquisition associated with the gas business will be allocated 100% to customers.       1.6.1.2    Roll-In of State Income Taxes Niagara Mohawk shall by May 1, 2003 make a compliance filing to roll State Income Taxes into gas delivery service rates and eliminate any surcharges associated with State Income Taxes in a manner that is revenue neutral to Niagara Mohawk. This will be done exclusive of SC-9 and SC-14 Special Contract Customers whose State Net Income Tax will be collected as a surcharge. The compliance tariffs including the State Income Tax Roll-In shall become effective September 1, 2003. The annual SIT recoveries including SC-9 and SC-14 will be $2.856 million.       1.6.1.3    Follow-on Merger Credits If Niagara Mohawk does not receive a gas delivery service rate increase, Niagara Mohawk shall implement a Follow-on Merger Credit for its gas business following the same procedure and under the same conditions as set forth for its electricity business in Section 1.4.19 and in Attachment 10, provided, however, that the Follow-on Merger Credit shall be included in the Contingency Reserve Account (“CRA”). The Follow-on Merger Credit shall be based on 50 percent of the Follow-on Merger Synergy Savings allocable to Niagara Mohawk gas operations. Niagara Mohawk shall retain its 50 percent allocation of Follow-on Merger Synergy Savings pursuant to Section 1.6.8.       1.6.1.4    Pension and OPEB Expenses Effective September 1, 2003, Niagara Mohawk shall apply the Pension and OPEB expense provisions included in Attachment 16 to gas delivery service rates for the period through the later of December 31, 2004 or Niagara Mohawk’s next gas delivery service rate filing. The provisions of paragraph 5 of Attachment 16 shall become effective for gas delivery service rates on the date that a Follow-on Merger Credit becomes effective.       1.6.1.5    Modifications and Clarifications This Joint Proposal includes certain modifications to the Gas Settlement. All provisions of the Gas Settlement, as modified by this Joint Proposal, will remain in effect through December 31, 2004, and thereafter in the event of a Stayout as defined in the Gas Settlement.       1.6.2    Other Terms and Conditions       1.6.2.1    Cathodic Protection Program The Company will continue to abide by the provisions of the Gas Settlement at Sections V.A.1 and V.E.2. (c) regarding the Cathodic Protection Program. DPS Staff and the Company will continue to plan to meet prior to January 1, 2003, and establish potential extension parameters at that time if the program were to be continued. The Signatories agree that, by taking into consideration the progress accomplished to date and with a better understanding of the unprotected pipe remaining, annual minimum and targeted mileage can more accurately be established. The Signatories should recognize diminishing returns on economical protection when setting new annual minimum and targeted mileage levels for this program.       1.6.2.2    One-Call Notice The Company will continue to abide by the provisions of the Gas Settlement at Section V.E.2. (a) regarding one-call notices. The Company will be assessed a penalty for failure, measured each calendar year, to respond on three or more occasions to Rule 753-3.1 one-call notices within the time frame required by Rule 753-4.5, other than failures to respond as a result of emergency notice notifications.       1.6.2.3    Backlog of Leaks The Company will continue to abide by the provisions of the Gas Settlement at Section V.E.2.b regarding the gas leak backlog. The Company will be assessed a penalty for exceeding annual threshold backlogs of Type 1, 2 and 2A leaks requiring repair, not including leaks repaired but pending recheck by December 31 of every calendar year. The threshold leak backlog for each year shall be as follows:                 Calendar Year       Target                      2001                     250                      2002                     200                      2003                     200                      2004                     150                      2005                     100       1.6.2.4    Upstream Capacity The Capacity Incentive Program (Section V.E. 3 of the Gas Settlement) will expire on August 31, 2003. Appendix D, Schedule 1, Item 2 of the Gas Settlement will remain in effect through December 31, 2004, and any Stayout as defined in the Gas Settlement.       1.6.2.5    Customer Migration Incentive The incentive formula for an increase in the threshold earnings level shall continue according to the provisions regarding “Subsequent Years” described in Section V. E. 5 of the Gas Settlement. Effective September 1, 2003, the floor for the threshold earnings formula will be adjusted to align with the allowed ROE in this Joint Proposal (i.e., increased from 10.0% to 10.6%).       1.6.2.6    Understanding and Awareness Incentive The incentive formula for an increase in the threshold earnings level shall continue as described under the heading, “Subsequent Years” in Section V. E. 6 of the Gas Settlement. Effective September 1, 2003, the floor for the threshold earnings formula will be adjusted to align with the allowed ROE in this Joint Proposal (i.e., increased from 10.0% to 10.6%).       1.6.2.7    Revenue Sharing The capacity release, sales for resale and portfolio management incentive mechanisms with revenue sharing at 85% / 15% for ratepayers and shareholders, respectively (Gas Settlement Section V.E. 4) shall remain in effect through December 31, 2004, and any Stayout as defined in the Gas Settlement. The incentive provisions of the Gas Settlement regarding the sharing of net revenues from the SC-4 and SC-6 classes between shareholders and customers (Gas Settlement Section V.E. 4.e) will continue through December 31, 2004, and any Stayout as defined in the Gas Settlement. The combined annual target will be changed from $6,108,000 to $4,600,000, effective September 1, 2003. Sharing levels above and below the annual target will continue at 80% and 20% for ratepayers and shareholders, respectively. The provisions of the Gas Settlement regarding the treatment of revenue variances from target for the SC-9 class (Gas Settlement Section V.A.4.b) will continue through December 31, 2004, and any Stayout as defined in the Gas Settlement. The annual target will be changed from $16,542,000 to $20,000,000, effective September 1, 2003. Sharing levels above and below the annual target will continue at 100% and 0% for ratepayers and shareholders, respectively.       1.6.3    Balancing For the period beyond September 1, 2003, the daily balancing fee shall continue to be set at a maximum of $0.244326 per maximum peak day quantity per month using the same adjustment mechanisms specified in steps 6 and 7 of Schedule 1, p. 2, of Appendix E to the Gas Settlement. Daily balancing tolerance bands shall be determined as follows, effective September 1, 2003: Nov. 1 - March 31       April 1 - October 31     ±   5%                       If  Storage Capacity Balance*  ›18,  ±10%                                       If  Storage Capacity Balance*  ›16  and  ‹18,  ±8%                                       If  Storage Capacity Balance*  ›14  and  ‹16,  ±7%                                       If  Storage Capacity Balance*  ›12  and  ‹14,  ±6%                                       If  Storage Capacity Balance*  ›10  and  ‹12,  ±5% > *     Effective April 1 of each year; quantities in MMDT. Notice will be > provided of changes in daily balancing tolerance bands to marketers >        and “direct customers” (as defined in SC-11) as soon as known, but in > no case will there be less than 30 days prior notice of such changes. If the Storage Capacity Balance is projected to drop below 10 MMDT at any time during the year, tolerance levels would be renegotiated for both the November 1 to March 31 and April 1 to October 31 periods.       1.6.4    SC-14 Gas, Transportation Service for Dual Fuel Electric Generators Delivery service revenues, net of depreciation expense, property taxes and rate of return (pre-tax) on the investment, from any new SC-14 customers (i.e., customers other than the Albany and Oswego Steam Stations) will be shared 50/50 between ratepayers and shareholders. The ratepayers’ share will be credited to the CRA. In the event of a Force Majeure, as defined in PSC 218 Gas, SC-14, there will be a 50/50 sharing between ratepayers and shareholders of any revenue shortfall not collected to cover depreciation expense, property taxes and rate of return (pre-tax) on the investment. The Company will collect the customers’ share from the CRA. Such recovery will be limited to the accumulated SC-14 revenues that previously will have been credited to the CRA.       1.6.5    Costs of New Pipeline During Extension Period Niagara Mohawk has filed for authorization to construct a new pipeline from Schenectady northward toward Glens Falls (Case No. 01-T-1160). Niagara Mohawk shall be entitled to record against the CRA the following costs related to the new pipeline: depreciation; incremental operations and maintenance expense (subject to a hard cap of $50,000 annually); property taxes; and a pre-tax return. No such costs shall be applied against the CRA before the later of September 1, 2003 or the in-service date of the new pipeline.       1.6.6    Pipeline Safety Requirements The revenue requirement impact of changes in pipeline safety standards and requirements (including but not limited to operator qualifications, testing and inspection, and public information) shall be deferred with interest accruing at the unadjusted customer deposit rate according to Section V.B.6 of the Gas Settlement (Legislative, Regulatory and Related Actions). In determining whether the deferral threshold of one percent of gas net income per year has been met, the incremental revenue requirements associated with separate pipeline safety requirements emanating from any comprehensive regulatory or legislative initiative regarding pipeline safety (e.g., Federal DOT, Office of Pipeline Safety, Docket No. RSPA-00-7666, Pipeline Integrity Management) shall be aggregated and treated as a single item. However, the company regularly is subjected to changing pipeline safety requirements in the normal course of its business and, as such, would not be allowed deferral accounting for such ongoing changes. Only major incremental changes would be subject to deferral accounting, with Commission approval on their ultimate disposition.       1.6.7    Miscellaneous Tariff and Rate Design Issues       1.6.7.1    SC-1 Minimum Charge The SC-1 minimum charge shall be increased by $1.50 effective September 1, 2003 from $11.57 to $13.07 monthly and by $1.48 effective September 1, 2004 from $13.07 to $14.55 monthly for non-heating customers. For heating customers, the minimum charge shall remain unchanged at $14.55 monthly. These changes shall be implemented on a revenue-neutral basis by reducing the unit rate in the first block after the minimum charge.       1.6.7.2    SC-2 Tail Block Rate The SC-2 Small General Service tail block rate for usage in excess of 5000 therms is $0.02583 per therm; and for SC-3 Large General Service, the equivalent rate is $0.04577 per therm. To address this anomaly whereby the large volume customer is paying a higher unit rate than the smaller use customer for the same level of usage, the SC-2 tail block rate shall be changed to $0.05 per therm effective September 1, 2003. An offsetting adjustment shall be made to the penultimate SC-2 block rate to ensure that the tail block rate change is revenue neutral.      1.6.7.3     SC-6 “Lock-in” Each month, the Statement of Rate for SC-6 Large Volume Interruptible Transportation service customers shall set forth (a) a monthly price, and (b) an annual price at which customers can lock in regardless of the date on which they migrated to SC-6 service. Customers currently locked in to an annual price will remain locked in until their current term expires. Both the monthly rate and the annual rate will be posted on Niagara Mohawk’s web site by the 15th of the month preceding the effective date of the rate. This modified approach to the SC-6 “lock in” will be implemented on the Effective Date of the Rate Plan (Section 1.1.1 of this Joint Proposal) or with the effective date of the Commission’s order, if feasible.       1.6.7.4    Classification of Multiple Dwellings Niagara Mohawk and DPS Staff will work together to develop tariff language modifications to harmonize the treatment of multiple dwelling customers under Niagara Mohawk’s electric and gas tariffs.       1.6.7.5    Former Syracuse Suburban Customer Issues Effective September 1, 2004, former customers of Syracuse Suburban Gas Company (Niagara Mohawk Suburban) taking service under Niagara Mohawk’s SC-6 tariff shall be subject to the same $350 per month administrative charge for the first 100 therms or less that applies to all other SC-6 customers. Revenues from this service class are shared 80% to ratepayers and 20% to shareholders. In addition, in continuation of a process set out in the Gas Settlement, the Niagara Mohawk Suburban rate differential for the SC-1, SC-2, and SC-5 classes shall be reduced by another one-sixth on September 1, 2004. Furthermore, if the Stayout extends beyond September 1, 2005, the final Niagara Mohawk Suburban rate differential for SC-1, SC-2, and SC-5 shall be eliminated on September 1, 2005. At that point, since no remaining differences would exist in the Niagara Mohawk Suburban tariff structure, separate delivery service rates for Niagara Mohawk Suburban in Niagara Mohawk’s gas tariffs would be eliminated. Finally, as a point of clarification of the current Gas Settlement, all incremental revenues resulting from the process to eliminate the Niagara Mohawk Suburban rate differential shall be credited to the CRA beginning with the second one-sixth rate change filed to become effective August 1, 2001.       1.6.7.6    Bill Impacts of Rate Changes The estimated impact of the proposed gas tariff and rate design changes are set forth on Attachment 22.       1.6.7.7    Gas Billing Backout Credit Niagara Mohawk currently charges gas marketers for providing billing services on their behalf. This one-bill option allows the charges for both delivery and commodity services to be included on a single bill. The customer pays for the billing in its delivery service rates and, presumably, also pays the gas marketer to contract with the utility for billing services. To avoid a double payment, there needs to be a billing backout credit applied to the delivery portion of customers’ bills. Beginning September 1, 2003 and consistent with the billing order (issued May 18, 2001) in Case 99-M-0631, Niagara Mohawk will include a backout credit of $0.53 per bill for those customers who are gas only, and the charge to gas marketers will also be set at $0.53 per bill, until a further determination is made in the generic unbundling proceeding.       1.6.8    Earnings Sharing Mechanism The earnings sharing mechanism of the Gas Settlement (Section V.D) shall remain in effect through December 31, 2004, and continue through any Stayout as defined in the Gas Settlement. Effective September 1, 2003, Niagara Mohawk shall also adjust actual earnings from gas operations to reflect fifty percent of the gas portion of the Synergy Savings, Efficiency Savings, and Costs to Achieve that have been agreed to in this Joint Proposal. The Synergy Savings, Efficiency Gains, and Costs to Achieve for each year of the Rate Plan are shown on Attachment 18. They are based on a phase in of total Synergy Savings to $130 million per year, allocated 62 percent to New York, and Efficiency Gains of $60 million per year, allocated 100 percent to New York. The Synergy Savings Allowance shall be adjusted to reflect the gas share of a Follow-on Merger Synergy Allowance on the effective date of a Follow-on Merger Credit. The Follow-on Merger Synergy Allowance shall continue until the later of the end of the Electric Rate Plan Period or five years, provided, however, the Follow-on Merger Synergy Allowance shall cease on the effective date of any general increase in gas delivery service rates.       1.6.9    Religious Rates If the resolution of Case No. 99-E-0503 results in an increase in gas revenues, such revenues will be deferred into the CRA for future customer benefit.       1.6.10    Allowance for Funds Used During Construction Effective September 1, 2003, Niagara Mohawk shall be authorized to use a 10.6% return on equity for the gas component of equity in the calculation of its Allowance for Funds Used During Construction.       1.7    Force Majeure This Joint Proposal is executed on the assumption that Niagara Mohawk is able to carry on its business without interference by acts of war or terrorism. Given that acts of war or terrorism can interfere with Niagara Mohawk’s ability to carry on its business, destroy its equipment, or otherwise result in a significant addition to Niagara Mohawk’s costs, Niagara Mohawk shall be free to file with the Commission a response plan, a request to recover additional costs not reimbursed by third parties, and any other appropriate modifications to the components of the Rate Plan necessary to implement such plan or to reflect the changed circumstances. Any modifications shall become effective only after Commission review and approval. Nothing in this Section shall relieve Niagara Mohawk of its obligations to take reasonable and appropriate measures to reduce its security risks. 2.    MERGER APPROVAL, CORPORATE AUTHORIZATIONS AND RETIREE BENEFITS       2.1    Closing of the Merger a Condition to the Settlement On September 5, 2000, National Grid and Niagara Mohawk announced their intention to merge. The closing of this transaction is a condition to the effectiveness of this Joint Proposal. In the event that the merger does not close prior to the termination of the Merger Agreement or any agreed upon extensions, the Rate Plan will, as of the termination date of the Merger Agreement, be deemed withdrawn and any order of the Commission approving or implementing the Rate Plan will become ineffective and unenforceable. In that event, the Power Choice Settlement for electric service and the Gas Settlement will remain effective and enforceable according to their terms.       2.2    Support before All Regulatory Agencies To assure that the condition in the prior paragraph is achieved, the Parties to this Joint Proposal shall not oppose the approval of the merger before any state or federal agency whose approval is required to close the merger.       2.3    Approval of the Merger, Financings, Corporate Structure, and Affiliate Rules The Signatories agree:       (a)     that the merger of the Petitioners is in the public interest and should be approved;       (b)     that the approvals and requested authorizations set forth in the January 17, 2001 Petition and below should be granted including the following;              (i)    Acquisition of Niagara Mohawk Stock. Approval pursuant to N.Y. Public Service Law §70 to enable National Grid indirectly to acquire 100 percent of the common                     stock of Niagara Mohawk in accordance with the description in the Petition as it may be modified prior to closing as long as Niagara Mohawk does not                     assume any obligations.              (ii)    Joint Proposal and Incentive Rate Plan. Approval under the N.Y. PSL§§65(1) and 110 of the Joint Proposal in a form substantially similar to that proposed by Petitioners.             (iii)    Financing. A finding under the N.Y. PSL§ 69 that Niagara Mohawk’s participation in the National Grid USA Money Pool, whether as a borrower or lender, and                      participation of Niagara Mohawk’s affiliates as lenders, are appropriate, so long as such participation is fully in conformance with the National Grid USA                      Money Pool Agreement.              (iv)    Change in Fiscal Year. Authorization pursuant to N.Y. PSL §66(4) for Niagara Mohawk to convert from a calendar year fiscal year to fiscal year ending March 31.              (v)    Extension for Filing of PSC Annual Report. Authorization for Niagara Mohawk to delay its filing of its PSC Annual Report to June 1 of each calendar year.      (c)      that the proposed corporate structure, affiliate rules, and contracts, accounting treatment and dividend limitations, and standards of competitive conduct set                 forth in Attachment 23 should be authorized and approved;      (d)      that the limited waiver from the Commission Statement of Policy on pensions and post-retirement benefits other than pensions, and the other provisions set                 forth in Section 2.5.4, below should be authorized and approved;      (e)      that approval of this Joint Proposal should represent a finding of no significant environmental impact under the State Environmental Quality Review Act and its                 implementing regulations, 6 NYCRR Part 617; and      (f)       that, except for SEQRA finding referenced in Section 2.3(e), no other approvals or authorizations from the Commission are known to be necessary to consummate                 the merger and implement the proposed Scheme of Arrangement.       2.4    Labor Negotiations Reserved As detailed in Section 1.2.5.2.7, the Rate Plan contemplates Efficiency Gains and Synergy Savings of $190 million per year. Niagara Mohawk and National Grid have been working jointly to develop an integration plan to achieve these savings while improving service to customers. These savings will be achieved through a combination of adoption of best practices, non-staff savings, and through elimination of redundant positions. It is the objective of Niagara Mohawk and National Grid to accomplish the necessary reduction in staff over time through attrition and voluntary programs, such as early retirement and voluntary separation programs. While neither Niagara Mohawk nor IBEW Local 97 intend to waive any rights under the currently effective collective bargaining agreement or applicable federal and state labor laws, Niagara Mohawk agrees to initiate negotiations with IBEW Local 97 promptly after approval of the merger with the objective of avoiding the need for involuntary terminations (i.e., layoffs). Among other things, negotiations between Niagara Mohawk and IBEW Local 97 shall include the terms of an early retirement program for represented employees in areas where staff reductions are possible, enhancements to the existing separation plans, a voluntary separation plan, and/or retraining programs and associated costs. Nothing in this Joint Proposal shall affect the rights, obligations, or abilities of Niagara Mohawk and IBEW local 97 to engage in collective bargaining on issues related to represented employees.       2.5    Retiree Benefits Retirement benefits are a key component of the compensation and benefits package offered to Niagara Mohawk employees. From time to time Niagara Mohawk, subject to its duty to bargain concerning represented employees, adjusts future retirement benefits in response to changing needs or conditions relative to Niagara Mohawk, its workforce and/or retirees. Historically, none of those changes have resulted in significant additional costs to existing retirees. In fact, many changes have been to their benefit. Niagara Mohawk and National Grid have publicly stated that they have no present intention to reduce retirees’ benefits, and their historical track records evidence that retiree benefits have been delivered as designed. In addition, federal law prohibits the reduction of retiree pension benefits, although similar restrictions do not exist with respect to retiree health and life benefits. That does not mean, however, that retirees do not have legal rights relative to retiree health and life benefits under existing laws or contracts, which rights are not diminished by the merger. Further, there are natural disincentives for changing existing retirees’ health and life benefits in a negative way, including: the adverse impact such changes could have on the morale of the current workforce, many of whom anticipate being future retirees; and the lobby of retirees, who can have a positive or negative impact on Niagara Mohawk’s and National Grid’s initiatives depending upon their satisfaction with Niagara Mohawk and National Grid. Additionally, as set forth in Section 2.5.4, National Grid and Niagara Mohawk will follow the Commission’s Statement of Policy that eliminates any profit or loss to Niagara Mohawk and National Grid from changes in retiree benefits. Nonetheless, in order to respond to potential future changes in the way health and life benefits are delivered or other unpredictable circumstances, the merged company needs to maintain its various rights permitted by law, the plans, and contracts in just the same manner Niagara Mohawk has reserved those rights to date. Notwithstanding the above assertions and protections, certain Niagara Mohawk retirees have expressed concern about the continuation of their existing benefits following the merger. In order to address these concerns, Niagara Mohawk and National Grid have agreed to the following accommodations:       2.5.1    Extension of Commitments in Merger Agreement The National Grid/Niagara Mohawk Merger Agreement states that: > > > “For a period of two years immediately following the Closing Date, the > > > compensation, benefits and coverage provided to current employees and > > > retirees of the Company or any Company Subsidiary, other than those > > > covered by a collective bargaining agreement, who continue employment with > > > Newco or one of its Subsidiaries (the “Affected Employees”) pursuant to > > > compensation and employee benefit plans or arrangements maintained by > > > Newco or one of its subsidiaries shall be, in the aggregate, not less > > > favorable (as determined by Newco and the Surviving Entity using > > > reasonable assumptions and valuation methods) than those provided, in the > > > aggregate, to such Affected Employees by the Company and any Company > > > Subsidiary immediately prior to the Closing Date.” National Grid and Niagara Mohawk have agreed that the protection afforded to retirees under the above provision would be extended so that it applies for a period of four years from the Closing Date, rather than the original two. Nothing in this Joint Proposal shall preclude retirees either individually or as group from arguing that their protections extend beyond this four year extension.       2.5.2    Retiree’s Advisory Committee Established A Niagara Mohawk Retirees’ Advisory Committee will be established. The committee will be made up of a minimum of two representatives from each organized chapter of Niagara Mohawk’s retiree association. Niagara Mohawk and National Grid will advise the Retiree Advisory Committee of any future changes they intend to implement to retirees’ health/life benefits, premiums or out of pocket costs not contemplated by the arrangements in existence at the time of merger by providing the Retiree Advisory Committee with at least 45 days notice. Notice will generally be measured from the effective date of the changes, but all reasonable efforts will be made to provide the Retiree Advisory Committee with applicable notice at least 30 days in advance of their general announcement, provided, however, that such notice and information shall be disclosed to IBEW Local 97 at the same time it is provided to the Retiree’s Advisory Committee. The role of the Retiree Advisory Committee shall be to facilitate information exchange, allow the retirees to express their views, and allow those views to be considered by Niagara Mohawk and National Grid when reaching their independent business decisions regarding retiree issues. The Retiree Advisory Committee shall not be considered a bargaining agent. Niagara Mohawk and National Grid representatives will be available to meet with Retiree Advisory Committee representatives annually to discuss retiree benefit matters. Retiree representatives will be welcome to discuss their thoughts relative to any and all other retirement benefit issues at the meeting. Niagara Mohawk will reimburse members for reasonable costs incurred to attend this annual meeting with company representatives.       2.5.3    Annuitization of Pensions Requires Prior Notice to and Approval from the Commission Niagara Mohawk and National Grid commit not to purchase annuities from an insurance company in lieu of the pension trust delivered benefits for any Niagara Mohawk retirees who retired between the period January 1, 1989 and July 1, 1998 for four years after the closing of the merger. Moreover, Niagara Mohawk and National Grid have no current intentions of purchasing annuities in lieu of continuing to pay legally protected pension obligations from the pension trust after that period. It is worthwhile to repeat that such an endeavor would be risky under current law since it is not clear that the pension trust would not remain liable for spun-off obligations, making such a transaction generally uneconomic. In any event, however, to ensure that such a transaction, which could only take place after year four, is only undertaken with the input from interested parties, Niagara Mohawk and National Grid have also agreed to an explicit notice provision on this topic. If at any time during the period after year four through the end of the ten year term of the Rate Plan, Niagara Mohawk and National Grid propose to purchase annuities from an insurance company in lieu of pension trust delivered benefits for any Niagara Mohawk retirees who retired between January 1, 1989 and July 1, 1998, Niagara Mohawk and National Grid will give 60 days advance notice to the Retiree Advisory Committee and the Director of Accounting and Finance of the New York Department of Public Service. This provides affected retirees the opportunity to petition the company and/or to express their concerns to the Commission. In the event that the Commission decided that it was appropriate to hold a hearing on the subject matter, then retirees would have the same rights as any other interested parties to participate in the proceedings. In addition, Niagara Mohawk and National Grid will not purchase annuities from an insurance company, in lieu of benefits derived from its entire trust devoted to Niagara Mohawk retirees, without first seeking and obtaining approval from the Commission.       2.5.4    Commission’s Statement of Policy Followed for Ratemaking In general, the company will adhere for the full ten years of the Rate Plan Period to the Commission’s Statement of Policy (“SOP”) regarding Pensions and Post-retirement benefits. Under the SOP, Niagara Mohawk reconciles its pension and benefit expense with the allowance in its rates and will realize no profit or loss from changes to retirees benefits under its pension and benefit plans. However, Niagara Mohawk and National Grid will be granted waiver from the requirements of the SOP in the following limited respects: (a) Although Niagara Mohawk and National Grid will not merge their pensions funds without prior approval of the Commission following notice to the signatories, they may establish a single master trust, with separate segregated sub-trusts for its New York and New England retirees, as long as a complete separate accounting of the assets, liabilities and annual expense levels can be made for the Niagara Mohawk sub-trust. Any information, not otherwise confidential, provided to the Commission shall be made available upon request to any signatory. (b) ServiceCo (a Massachusetts corporation defined in Attachment 23) will be permitted to manage the pension/OPEB plans subject to Commission staff review as long as a separate, non-affiliated entity is handling the investment decisions pertaining to the plans.       2.5.5    No Effect on Collective Bargaining Process Niagara Mohawk, IBEW Local 97, and individual retirees do not waive any rights that they may have under the currently effective or any prior collective bargaining agreements, or other contracts, or applicable federal and state labor laws. Nothing in this Section 2.5 shall affect the rights, obligations, or abilities of Niagara Mohawk and IBEW Local 97 to engage in collective bargaining on pension and benefit issues relative to represented employees.       2.6    Operations in New York The parties agree that integration of Niagara Mohawk and National Grid, and achievement of the associated Synergy Savings and Efficiency Gains upon which the rate reduction included in the Joint Proposal is predicated, will require changes in the location of facilities and the means used to deliver services to customers as best practices between the merging companies and among the industry generally are adopted throughout the combined company. Notwithstanding the foregoing, Niagara Mohawk will notify the Commission prior to implementing any significant changes to the location(s) and/or means of delivery of services, including emergency response, associated with its customer service functions. Further, Niagara Mohawk’s corporate headquarters will be maintained in Syracuse, New York. Niagara Mohawk also agrees that its officers and the senior management team responsible for day-to-day electric and gas operations in New York will maintain offices in New York State. In addition, Niagara Mohawk agrees to provide safe and reliable service to customers consistent with the objectives set forth in the Service Quality Assurance Program established in Section 1.2.4.8 and Attachment 9. To achieve these defined customer service and reliability objectives, Niagara Mohawk agrees to maintain a level of workforce in New York that, in its view, is sufficient to achieve these objectives and to utilize all other necessary resources, including but not limited to, internal and external human resources, investments in plant and technology. 3.   ADDITIONAL PROVISIONS       3.1    No Admissions The making of this Joint Proposal shall not be construed, interpreted or otherwise deemed in any respect to constitute an admission by any party regarding any allegation or contention in this proceeding or any other proceeding.       3.2    Discussion Privileged The discussions which have produced this Joint Proposal have been conducted on the explicit understanding that any and all prior proposals and discussions relating thereto are and shall be privileged, shall be without prejudice to the position of any party or participant presenting such offer or participating in any such discussions or proceedings, and are not to be used in any manner in connection with these or any other proceedings.       3.3    Commission Acceptance a Condition This Joint Proposal is expressly conditioned upon the Commission’s acceptance of all provisions hereof without change or condition. In the event the Commission does not by order accept it in its entirety, each Signatory shall have the right to withdraw from the Joint Proposal upon written notice to the Commission. If any of the Petitioners give such notice, this Joint Proposal shall be deemed withdrawn, it shall not constitute any part of the record in this proceeding or be used for any other purpose, and each of its provisions shall be deemed to be null and void.       3.4    Dispute Resolution In the event of any disagreement over the interpretation of this Joint Proposal or the implementation of any of the provisions of this Joint Proposal, which cannot be resolved informally among the Parties, such disagreements shall be resolved in the following manner unless otherwise provided herein. The Parties shall promptly convene a conference and in good faith shall attempt to resolve such disagreement. If any such disagreement cannot be resolved by the Parties, any Party may petition the Commission for relief on a disputed matter.       3.5    Commission Authority Nothing in this Joint Proposal shall be construed to limit the Commission’s authority to reduce Niagara Mohawk’s rates should it determine, in accordance with the Public Service Law, that the established rates are in excess of just and reasonable rates for Niagara Mohawk’s electric and gas service. Respectfully submitted, -------------------------------------------------------------------------------- FOOTNOTES 1 This party has indicated its intention to sign the Joint Proposal on or before October 12, 2001. 2 The Merger Agreement itself contains many commitments among the Petitioners. Those commitments shall remain in place in accordance with the Merger Agreement unless expressly modified by this Joint Proposal. 3 See Section 1.6 for the provisions affecting natural gas delivery service rates. 4 The Joint Proposal by Multiple Intervenors, the Department of Public Service Staff (“DPS Staff”), and Niagara Mohawk filed with the Commission on May 7, 2001 in Case No. 01-E-0011 (“Joint Proposal for Nine Mile Point”) is incorporated by reference into this Joint Proposal. If the Commission approves the Joint Proposal for Nine Mile Point, all commitments, rights, and obligations set forth in that agreement shall apply during the Rate Plan Period, unless expressly modified in this Joint Proposal. Among the agreements in the Joint Proposal for Nine Mile Point was the stipulation that Niagara Mohawk would flow through the full consideration agreed upon for the Nine Mile Point Units as a reduction to rate base upon closing, even though Constellation may only pay a portion of the amount at closing with the balance to be paid over time with interest. In consideration of the immediate reduction in rate base, Niagara Mohawk is allowed to record the interest payments from Constellation below the line. 5 Case No. 01-E-0383. 6 The expense allocations in this Joint Proposal are based on 83 percent to electric operations and 17 percent to gas operations. In the event the Commission modifies these allocation percentages in either a gas or electric proceeding, Niagara Mohawk shall make a compliance filing to incorporate the new allocations in this Joint Proposal and Attachments 10, 12, and 16. 7 For example, if FERC were to increase the rate of return on transmission assets, then electricity distribution rates would be reduced such that the bundled retail delivery rate remains unchanged. 8 Nothing in this section or in the Joint Proposal shall prejudice any rights a party may have in the proceeding on Niagara Mohawk’s Open Access Transmission Tariff in the FERC Docket No. OA96-194-00. 9 For example, if the Effective Date is February 15, 2002, the number of years is 3.875. 10 The Laws of 2000, Chapter 63, Part GG, Section 15 changed the name of Economic Development Zones to Empire Zones. Accordingly, Economic Development Zones or EDZ, wherever appearing in Niagara Mohawk’s Tariffs shall be deemed to mean Empire Zones for all purposes. 11 Niagara Mohawk has credited the Deferral Account by $300,000 pursuant to the Customer Contract Options Section of Attachment 21. 12 See Case Nos. 94-E-0098 and 94-E-0099 for the order dated June 7, 1999, approving the sale of Huntley and Dunkirk Stations, and the order dated May 27, 1999, approving the sale of the hydro stations, the order dated April 26, 2000, approving the sale of the Albany Station; see those dockets and Case No. 96-E-0898 for the order dated October 21, 1999, approving the sale of the Oswego Station; see those dockets and Case Nos. 96-E-0909 and 96-E-0897 for the order dated December 20, 2000, approving the sale of the Roseton Station; and see Case No. 98-E-1028 for the order dated September 29, 1999, approving the sale of the Glen Park Hydro Station. 13 For the period from September 1, 2003 through December 31, 2003, the under-recovery shall be limited to $667,000. 14 For purposes of recording the annual deferrals in this mechanism, actual annual funding of discounts will be capped at the estimated annual levels shown in the table in Section 1.2.9. 15 The minimum monthly electricity delivery bill provision of the new contract represents service under a standard tariff offering subject to a demand ratchet. Therefore, the Commission’s guidelines for flexible contracts do not apply. 16 Nothing in Section 1.2.17 or in the Joint Proposal shall prejudice any rights a party may have in Case No. 99-E-0844. 17 The parties recognize that special service programs like Niagara Mohawk’s Master Card or Advertise with Us shall be filed with the Commission for approval under this provision. 18 The remaining regulatory assets include the unamortized balance of Niagara Mohawk’s payments under the Master Restructuring Agreement. Niagara Mohawk shall be authorized to realize a return on this regulatory asset as shown in Attachment 1. The return shall be adjusted to match the Commission’s finding on the weighted cost of capital should Niagara Mohawk’s rates be changed pursuant to Sections 1.2.7, 1.2.8, or 3.5 during the period of the Rate Plan. 19 The almost four year revenue requirement freeze established in the Gas Settlement follows the Commission’s 1996 adoption of a three year settlement agreement that provided for an annualized $10 million rate decrease for Niagara Mohawk’s gas customers. See Case No. 95-G-1095 et al., Opinion No. 96-32, issued December 19, 1996. 20 However, the Gas Settlement and this Joint Proposal recognize the possibility of certain changes to the Gas Settlement being made that would not affect its continuing validity. See, e.g., Gas Settlement, Section VII.C.5.

  EXHIBIT 10(iv) COOPER TIRE & RUBBER COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN TABLE OF CONTENTS ARTICLE I. PURPOSE       Section 1.1 Statement of Purpose; Effective Date ARTICLE II. DEFINITIONS AND CONSTRUCTION       Section 2.1. Definitions       Section 2.2. Construction ARTICLE III. PARTICIPATION AND DEFERRALS       Section 3.1. Eligibility and Participation       Section 3.2. Ineligible Participant ARTICLE IV. DEFERRAL OF BASE SALARY; CASH AWARDS AND GAIN SHARES       Section 4.1. Deferral of Base Salary       Section 4.2. Deferral of Cash Awards       Section 4.3. Deferral of Receipt of Gain Shares ARTICLE V. PARTICIPANTS’ ACCOUNTS       Section 5.1. Establishment of Accounts       Section 5.2. Crediting of Base Salary and Cash Awards Deferrals       Section 5.3. Crediting of Deferred Gain Shares       Section 5.4. Determination of Accounts       Section 5.5. Adjustments to Accounts       Section 5.6. Statement of Accounts       Section 5.7. Vesting of Accounts ARTICLE VI. FINANCING OF BENEFITS       Section 6.1. Investment of Accounts       Section 6.2. Financing of Benefits       Section 6.3. Funding ARTICLE VII. DISTRIBUTION OF BENEFITS       Section 7.1. Settlement Date       Section 7.2. Amount to be Distributed       Section 7.3. Death or Termination for Cause Distribution       Section 7.4. In-Service Distribution       Section 7.5. Form of Distribution       Section 7.6. Hardship Distributions       Section 7.7. Special Distributions       Section 7.8. Small Benefit ARTICLE VIII. BENEFICIARY DESIGNATION       Section 8.1. Beneficiary Designation       Section 8.2. Facility of Payment       Section 8.3. Amendments ARTICLE IX. ADMINISTRATION       Section 9.1. Administration       Section 9.2. Plan Administrator       Section 9.3. Binding Effect of Decisions       Section 9.4. Successors       Section 9.5. Indemnity of Committee and Administrator       Section 9.6. Claims Procedure       Section 9.7. Expenses   --------------------------------------------------------------------------------   ARTICLE X. AMENDMENT AND TERMINATION OF PLAN       Section 10.1. Amendment       Section 10.2. Termination ARTICLE XI. MISCELLANEOUS       Section 11.1. No Guarantee of Employment       Section 11.2. Governing Law       Section 11.3. Nonassignability       Section 11.4. Severability       Section 11.5. Withholding Taxes       Section 11.6. Legal Fees, Expenses Following a Change in Control       Section 11.7. Top-Hat Plan       Section 11.8. Relationship to Other Plans   --------------------------------------------------------------------------------   COOPER TIRE & RUBBER COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN ARTICLE I. PURPOSE Section 1.1 Statement of Purpose; Effective Date. This is the Cooper Tire & Rubber Company Executive Deferred Compensation Plan made in the form of this Plan and in related agreements made between the Company and certain management and highly compensated employees of the Company or its Affiliates. The Plan is hereby established to provide designated management and highly compensated employees with the option to defer the receipt of a portion of their regular compensation, annual and multi-year cash incentives under the 2001 Incentive Compensation Plan and 1998 Incentive Compensation Plan and any successor to such plans and gains from the exercise of nonqualified stock options granted under the 2001 Incentive Compensation Plan, 1998 Incentive Compensation Plan, 1986 Incentive Stock Option Plan, 1981 Incentive Stock Option Plan, and any subsequent plans pursuant to which nonqualified stock options or annual and multi-year cash incentives are granted. It is intended that the Plan will assist in attracting and retaining employees of exceptional ability by providing these benefits. The Plan shall be effective as the Effective Date. The terms and conditions of the Plan are set forth below. ARTICLE II. DEFINITIONS AND CONSTRUCTION Section 2.1 Definitions. Whenever the following terms are used in this Plan they shall have the meanings specified below unless the context clearly indicates to the contrary:          (a)  “Account” means the bookkeeping account maintained on the books of the Company pursuant to Articles IV and V for the purpose of accounting for (i) the amount of Base Salary that a Participant elects to defer under the Plan, (ii) the amount of Cash Award that a Participant elects to defer under the Plan, and (iii) the unrealized gains from the exercise of a nonqualified stock option that a Participant elects to defer in Gain Shares under the Plan. A Participant’s Account shall consist of (i) a “Common Shares” Subaccount if the Participant elects to defer the receipt of Gain Shares, (ii) a “Cash” Subaccount if the Participant elects to defer the receipt of Base Salary or Cash Awards, and (iii) one or more Subaccounts for Investments.          (b)  “Accounting Date” means the last business day of each month and any other date selected by the Committee.          (c)  “Accounting Period” means the period beginning on the day immediately following an Accounting Date and ending on the next following Accounting Date.          (d)  “Administrator” means a committee consisting of one or more persons who shall be appointed by and serve at the pleasure of the Committee.          (e)  “Affiliate” means any corporation, limited liability company, joint venture, partnership, or other legal entity in which the Company owns, directly or indirectly, or has previously owned at least fifty percent (50%) of the capital stock, profits, interest or capital interest.          (f)  “Automotive Group” means the automotive operating business of the Company, which manufactures plastic, rubber and other related products.   --------------------------------------------------------------------------------            (g)  “Base Salary” means a Participant’s base earnings paid by the Company without any regard to any increases or decreases in base earnings as a result of an election to defer base earnings under this Plan, or an election between benefits or cash provided under a plan of the Company maintained pursuant to Section 125 or 401(k) of the Code.          (h)  “Beneficiary” means the person or persons (natural or otherwise) designated or deemed to be designated by the Participant pursuant to Article VIII to receive benefits payable under the Plan in the event of Participant’s death.          (i)  “Board” means the Board of Directors of the Company.          (j)  “Cash Award” means an Employee’s awards for a Plan Year which may consist of (i) the annual cash award under the Incentive Compensation Plans which is earned with respect to services performed by the Employee during such Plan Year, whether or not such award is actually paid to the Employee during such Plan Year, and (ii) a multi-year cash incentive bonus under the 1998 Incentive Compensation Plan, 2001 Incentive Compensation Plan, or successor incentive compensation plan, which is earned with respect to a period of service performed by the Employee ending in such Plan Year, whether or not such award is actually paid to the Employee during such Plan Year.   (k)   “Cause” means termination of the Participant’s employment with the Company or an Affiliate by the Board because of:             (i) the willful and continued failure by the Participant to perform substantially the duties of the Participant’s position; or               (ii) the willful engaging by the Participant in conduct which is demonstrably injurious to the Company or an Affiliate, monetarily or otherwise; or the conviction of a criminal violation involving fraud, embezzlement or theft in connection with Participant’s duties or in the course of Participant’s employment with the Company or an Affiliate.          (1)  “Change in Control” means the occurrence of any of the following events:             (i) the Company merges into itself, or is merged or consolidated with, another entity and as a result of such merger or consolidation less than 51% of the voting power of the then-outstanding voting securities of the surviving or resulting entity immediately after such transaction are directly or indirectly beneficially owned in the aggregate by the former stockholders of the Company immediately prior to such transaction;               (ii) (A) all or substantially all the assets accounted for on the consolidated balance sheet of the Company are sold or transferred to one or more corporations or persons, and as a result of such sale or transfer less than 51% of the voting power of the then-outstanding voting securities of such entity or person immediately after such sale or transfer is directly or indirectly beneficially held in the aggregate by the former stockholders of the Company immediately prior to such transaction or series of transactions or (B) all or substantially all of the assets of the Tire Group, Automotive Group or such other group of the Company so designated by the Board, and to the extent of any delegation of the Board to a committee, by such committee, are sold or transferred to one or more corporations or persons;   --------------------------------------------------------------------------------               (iii) a person, within the meaning of Section 3(a)(9) or 13(d)(3) (as in effect on the date of this Agreement) of the Exchange Act become the beneficial owner (as defined in Rule 13d-3 of the Securities and Exchange Commission pursuant to the Exchange Act) of (i) 15% or more but less than 35% of the voting power of the then outstanding voting securities of the Company without prior approval of the Board, or (ii) 35% or more of the voting power of the then-outstanding voting securities of the Company; provided, however, that the foregoing does not apply to any such acquisition that is made by (w) any Affiliate of the Company; (x) any employee benefit plan of the Company or any Affiliate; or (y) any person or group of which employees of the Company or of any Affiliate control a greater than 25% interest unless the Board determines that such person or group is making a “hostile acquisition;” or (z) any person or group that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Participant; or               (iv) a majority of the members of the Board are not Continuing Directors, where a "Continuing Director” is any member of the Board who (x) was a member of the Board on the date of this Plan or (y) was nominated for election or elected to such Board with the affirmative vote of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election.          (m)  “Claimant” has the meaning set forth in Section 9.6(a).          (n)  “Code” means the Internal Revenue Code of 1986, as amended from time to time; any reference to a provision of the Code shall also include any successor provision thereto.          (o)  “Committee” means the Compensation Committee of the Board.          (p)  “Common Shares” means shares of the Company’s common stock, par value $1.00 per share.          (q)  “Common Stock Fund” means the Cooper Tire & Rubber Company Stock Fund under the Cooper Tire & Rubber Company Thrift and Profit Sharing Plan, as amended.          (r)  “Company” means Cooper Tire & Rubber Company and any successor or successors thereto.          (s)  “Disability” means when the Participant has been totally disabled by bodily injury or disease so as to prevent him from being physically able to perform Participant’s assigned duties, and such total disability shall have: (i) continued for five (5) consecutive months, and in the opinion of a qualified physician selected by the Company, such disability will presumably be permanent and continuous during the remainder of the Participant’s life; (ii) entitled the Participant to benefits under any long-term disability plan sponsored by the Company or an Affiliate; or (iii) entitled the Participant to benefits under the Social Security Act of the United States.          (t)  “Effective Date” means January 1, 2002.          (u)  “Employee” means any employee of the Company or an Affiliate who is, as determined by the Committee, a member of a “select group of management or highly compensated employees” of the Company, within the meaning of Sections 201, 301 and 401 of ERISA, and who is designated by the Committee as an Employee eligible to participate in the Plan.   --------------------------------------------------------------------------------            (v)  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time; any reference to a provision of ERISA shall also include any successor provision thereto.          (w)  “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any rules promulgated thereunder (or any successor provision thereto).          (x)  “Fair Market Value” means, with respect to the Company’s Common Shares, the fair market value thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Committee. In the absence of any alternative valuation methodology approved by the Committee, the Fair Market Value of the Company’s Common Shares shall equal the average of the highest and the lowest quoted selling price of a share of common stock as reported on the composite tape for securities listed on the New York Stock Exchange, or such other national securities exchange as may be designated by the Committee, or, in the event that the Common Shares are not listed for trading on a national securities exchange but is quoted on an automated system, on such automated system, in any such case on the valuation date (or, if there were no sales on the valuation date, the average of the highest and the lowest quoted selling prices as reported on said composite tape or automated system for the most recent day during which a sale occurred).          (y)  “Financial Hardship” means an unforeseeable financial emergency of the Participant, determined by the Administrator as provided in Section 7.6 on the basis of information supplied by the Participant, arising from an illness, Disability, casualty loss, sudden financial reversal or other such unforeseeable occurrence, but not including foreseeable events such as the purchase of a house or education expenses for children.          (z)  “Gain Shares” means the difference between the number of Common Shares deliverable upon exercise of the related Options and the number of Common Shares delivered by the Participant in satisfaction of the exercise price for such Options.          (aa)  “Incentive Compensation Plans” means the Cooper Tire & Rubber Company 2001 Incentive Compensation Plan, the Cooper Tire & Rubber Company 1998 Incentive Compensation Plan (the “1998 Incentive Compensation Plan”), the Cooper Tire & Rubber Company 1986 Incentive Stock Option Plan and the Cooper Tire & Rubber Company 1981 Incentive Stock Option Plan, as amended, and any successor or subsequent incentive compensation plan.          (bb)  “Insider Participant” means any Participant who is required to file reports with the Securities and Exchange Commission pursuant to Section 16(a) of the Exchange Act.          (cc)  “Investments” has the meaning set forth in Section 6.1(a).          (dd)  “Options” means any stock option, other than an “incentive stock option” as defined in Section 422 of the Code, granted to a Participant under the Incentive Compensation Plans.          (ee)  “Participant” means an Employee participating in the Plan in accordance with the provisions of Section 3.1, or a former Employee retaining benefits under the Plan that have not been fully paid.          (ff)  “Participation Agreement” means the agreement(s) submitted by a Participant to the Administrator as provided in Section 3.1(b) in the form approved by the Administrator.   --------------------------------------------------------------------------------            (gg)  “Plan” means this Cooper Tire & Rubber Company Executive Deferred Compensation Plan as it may, from time to time, be amended.          (hh)  “Plan Year” means the 12-month period beginning January 1 and ending the following December 31.          (ii)  “Request” has the meaning set forth in Section 6.1(b).          (jj)  “Retirement” means termination of employment with the Company and its Affiliates on or after (i) attainment of age 65 or (ii) attainment of the age and service necessary to qualify for early retirement under the Company’s Salaried Employees’ Retirement Plan, effective January 1, 1989, as amended.          (kk)  “Retirement Committee” has the meaning set forth in Article XIV of the Cooper Tire & Rubber Company Thrift and Profit Sharing Plan, effective September 1, 1994, as amended.          (ll)  “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act (or any successor rule to the same effect), as in effect from time to time.          (mm)  “Settlement Date” means the date on which a Participant terminates employment with the Company. Leaves of absence granted by the Company will not be considered as termination of employment during the term of such leave. Settlement Date shall also include with respect to any deferral the date prior or subsequent to termination of employment selected by a Participant in a Participation Agreement for distribution of all or a portion of the amounts deferred during a Plan Year as provided in Section 7.5.          (nn)  “Terminated Participant” has the meaning set forth in Section 11.3(a).          (oo)  “Tire Group” means the tire operating business of the Company, which manufactures tires, inner tubes, retreading and other related products.          (pp)  “Trust” has the meaning set forth in Section 6.3(a).          (qq)  “Trust Agreement” has the meaning set forth in Section 6.3(a).          (rr)  “Trustee” has the meaning set forth in Section 6.3(a). Section 2.2. Construction. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary. The words “hereof,” “herein,” “hereunder,” and other similar compounds of the word “here” shall mean and refer to the entire Plan, and not to any particular provision or Section. ARTICLE III. PARTICIPATION AND DEFERRALS          Section 3.1 Eligibility and Participation.          (a)  Eligibility. Eligibility to participate in the Plan for any Plan Year is limited to those management and/or highly compensated Employees who are designated, from time to time, by the Committee.          (b)  Participation. Participation in the Plan shall be limited to eligible Employees who elect to participate in the Plan by filing a Participation Agreement with the Administrator. A properly completed and executed Participation Agreement shall be filed (i) on or prior to the   --------------------------------------------------------------------------------   December 31 immediately preceding the Plan Year in which the Participant’s participation in the Plan will commence with respect to deferral of Base Salary, (ii) on or prior to the June 30 of the Plan Year with respect to which an annual Cash Award will be earned, (iii) on or prior to the twelve (12) months preceding the last Plan Year with respect to which a multi-year Cash Award will be earned or (iv) at least six (6) months prior to the exercise date of each Option with respect to which the Gain Shares relate. The election to participate shall be effective as provided therein following receipt by the Administrator of the Participation Agreement. Each Participation Agreement for the Plan shall be effective only with regard to Base Salary, Cash Awards and Gain Shares earned and payable following the later of the effective date of the Participation Agreement or the date the Participation Agreement is filed with the Administrator.          (c)  Initial Year of Participation. Notwithstanding Section 3.1(b), a Participant who first becomes an eligible Employee during a Plan Year may, within 30 days after he becomes an eligible Employee, elect to participate in the Plan for such Plan Year and any Plan Year thereafter by filing a Participation Agreement with the Administrator, and his Participation Agreement shall be effective only with regard to Base Salary, Cash Awards and Gain Shares earned following the filing of the Participation Agreement with the Administrator.          (d)  Termination of Participation. Participation in the Plan shall continue as long as the Participant is eligible to receive benefits under the Plan. A Participant may elect to terminate his or her participation in the Plan by filing a written notice thereof with the Committee. The termination shall be effective at any time specified by the Participant in the notice, but not earlier than the first day of the next Plan Year following receipt by the Administrator. Amounts credited to such Participant’s Account with respect to periods prior to the effective date of such termination shall continue to be payable pursuant to, receive earnings and be credited with gains and debited with losses thereon (where applicable), and otherwise governed by, the terms of the Plan. Notwithstanding any other provision of this Article III, a Participant who is actively employed by the Company and who elects a distribution pursuant to Section 7.7 shall immediately terminate his or her participation in the Plan for the balance, if any, of the Plan Year during which the Participant’s election is submitted to the Administrator and for the next two Plan Years.          Section 3.2. Ineligible Participant. Notwithstanding any other provisions of this Plan to the contrary, if the Administrator determines that any Participant may not qualify as a “management or highly compensated employee” within the meaning of ERISA or regulations thereunder, the Administrator may determine, in its sole discretion, that such Participant shall cease to be eligible to participate in this Plan. Upon such determination, the Company shall make an immediate lump sum payment to the Participant equal to the amount credited to his Account. Upon such payment no benefit shall thereafter be payable under this Plan either to the Participant or any Beneficiary of the Participant, and all of the Participant’s elections as to the time and manner of payment of his Account shall be deemed to be cancelled. Such payment shall completely discharge the Company’s obligations under this Plan. ARTICLE IV. DEFERRAL OF BASE SALARY; CASH AWARDS AND GAIN SHARES          Section 4.1. Deferral of Base Salary. With respect to each Plan Year, a Participant may elect to defer a specified dollar amount or percentage of Base Salary, up to 80% of the Participant’s Base Salary, provided the total amount of Base Salary the Participant elects to defer under this Plan shall   --------------------------------------------------------------------------------   not be less than $10,000 annually. A Participant may change the dollar amount or percentage of Participant’s Base Salary to be deferred by filing a written notice thereof with the Administrator. Any such change shall be effective as of the first day of the Plan Year following the Plan Year in which such notice is filed with the Administrator.          Section 4.2 Deferral of Cash Awards. With respect to each Plan Year, a Participant may elect to defer a specified dollar amount or percentage of Participant’s annual and/or multi-year Cash Awards, up to the full amount of the Participant’s annual and multi-year Cash Awards, provided that the total amount of annual or multi-year Cash Awards the Participant elects to defer under this Plan shall not be less than $10,000 annually. A Participant may change the dollar amount or percentage of Participant’s annual or multi-year Cash Award to be deferred by filing a written notice thereof with the Administrator. Any such change shall be effective following the receipt by the Administrator of such notice, if such notice is filed at least (i) six (6) months prior to the closing of the current performance period, as determined by the Committee, for an annual Cash Award or (ii) twelve (12) months prior to the closing of a current multi-year performance period, as determined by the Committee, for a multi-year Cash Award.          Section 4.3 Deferral of Receipt of Gain Shares.          (a)  With respect to each Plan Year, a Participant may elect to specify the number of shares and award date(s) of the Options to which the Participant elects to defer the receipt of Gain Shares, up to the full amount of the Participant’s Gain Shares, provided that the total value of Gain Shares the Participant elects to defer under this Plan shall not be less than $10,000 annually. By delivering a Participation Agreement for the deferral of Gain Shares to the Administrator, the Participant irrevocably waives his rights under the related Options to (i) exercise the Options for cash at any time that the Participant remains eligible to participate in the Plan and (ii) exercise the Options in any manner during the period commencing on the effective date of the Participation Agreement and ending six (6) months thereafter; provided, however, that such waiver shall be null and void in the event that during such six-month period (a) the Participant’s employment is terminated by the Company or an Affiliate without Cause, (b) the Participant’s employment terminates as a result of his death, Retirement or Disability, or (c) there is a Change in Control of the Company. A Participant may change the number of shares and award date(s) of the Options with respect to the Gain Shares to be deferred by filing a written notice thereof with the Administrator. Any such change shall be effective following the receipt of such notice by the Administrator, if such notice is received by the last business day that is six (6) months prior to the exercise date of the Participant’s Options, or if not so timely filed, then such change shall be effective as of the first day of the next succeeding Plan Year.          (b)  In order to exercise Options with respect to which a Participant has filed a Participation Agreement that remains in effect, the Participant must tender, in satisfaction of the Option exercise price, Common Shares which the Participant has owned for at least six (6) months having a Fair Market Value as of the exercise date that is equal to the aggregate exercise price for the Options exercised. Upon such exercise, the Company shall (i) deliver to the Participant a number of Common Shares equal to the number of Common Shares surrendered by the Participant in payment of the exercise price and (ii) credit the Gain Shares to the Participant’s Common Shares Subaccount.   --------------------------------------------------------------------------------   ARTICLE V. PARTICIPANTS’ ACCOUNTS          Section 5.1. Establishment of Accounts. The Company, through its accounting records, shall establish an Account for each Participant. In addition, the Company may establish one or more subaccounts of a Participant’s Account, if the Company determines that such subaccounts are necessary or appropriate in administering the Plan. For a Participant who elects to defer the receipt of Gain Shares, the Account of such Participant shall include a Common Shares Subaccount.          Section 5.2. Crediting of Base Salary and Cash Awards Deferrals. The portion of a Participant’s Base Salary or Cash Awards that is deferred pursuant to a Participation Agreement shall be initially credited to the Participant’s Cash Subaccount as of the date the corresponding non-deferred portion of his award would have been paid to the Participant. Any withholding of taxes or other amounts with respect to any deferred award which is required by state, federal or local law shall be withheld from the Participant’s non-deferred compensation.          Section 5.3. Crediting of Deferred Gain Shares.          (a)  The portion of a Participant’s Gain Shares that is deferred pursuant to a Participation Agreement shall be credited to the Participant’s Common Shares Subaccount as of the date the Participant exercises his Options. A Participant’s Common Shares Subaccount shall be deemed to be invested in Common Shares and shall be credited with stock dividends declared thereon. Such dividends shall be credited to the Common Shares Subaccount as whole and fractional Common Shares based on the Fair Market Value on the dividend payment date. Any withholding of taxes or other amounts with respect to any deferred Gain Shares which is required by state, federal or local law shall be withheld pursuant to the terms of the Incentive Compensation Plans under which the exercised Options were granted.          (b)  A Participant’s Cash Subaccount shall be credited on the date cash or other property dividends (including cash dividends on Common Shares) are paid with an amount equal to the amount of the cash (or fair market value of other property) dividend with respect to Common Shares multiplied by the number of Common Shares credited to the Participant’s Common Shares Subaccount as of the record date for the corresponding dividend.          Section 5.4. Determination of Accounts.          (a)  Determination of Accounts. The amount credited to each Participant’s Account as of a particular date shall equal the deemed balance of such Account as of such date. The balance in the Account shall equal the amount credited pursuant to Section 5.2 and Section 5.3, and shall be adjusted in the manner provided in Section 5.5.          (b)  Accounting. The Company, through its accounting records, shall maintain a separate and distinct record of the amount in each Account as adjusted to reflect income, gains, losses and distributions.          Section 5.5. Adjustments to Accounts.          (a)  The Participant’s Account shall next be credited or debited, as the case may be, with an income (loss) and expense factor equal to an amount determined by multiplying (i) the balance credited to the Participant’s Account as of the immediately preceding Accounting Date (as adjusted pursuant to Section 5.2, Section 5.3, Section 5.5(a) and Section 5.5(c) for the current Accounting Period) by (ii) the rate of return net of expenses as determined by the Administrator for the Accounting Period or portion thereof ending on such Accounting Date on deemed Investments provided for in Section 6.1.   --------------------------------------------------------------------------------            (b)  After the crediting or debiting described in subsection (a) above, each Participant’s Account shall be immediately debited with the amount of any distributions under the Plan to or on behalf of the Participant or, in the event of his death, the Participant’s Beneficiary.          (c)  The Committee may make or provide for such adjustments in the number of Common Shares credited to Participants’ Common Shares Subaccounts and in the kind of shares so credited, as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities or (iii) any other corporate transaction or event having an effect similar to any of the foregoing.          Section 5.6. Statement of Accounts. At least annually, a statement shall be furnished to each Participant or, in the event of his death, to his Beneficiary showing the status of his Account as of the end of the most recent Accounting Period, any changes in his Account since the date of the most recent statement furnished to the Participant, and such other information as the Administrator shall determine.          Section 5.7. Vesting of Accounts. Each Participant shall at all times have a nonforfeitable interest in his Account balance. ARTICLE VI. FINANCING OF BENEFITS          Section 6.1. Investment of Accounts.          (a)  As soon as practicable after the crediting of any amount other than Gain Shares to a Participant’s Account, the Company may, in its sole discretion, direct that the Retirement Committee invest the amount credited, in whole or in part, in one or more separate investment funds or vehicles, including, without limitation, certificates of deposit, mutual funds, money market accounts or funds, limited partnerships, real, personal, tangible or intangible property, or debt or equity securities, including equity securities of the Company (measured by market value, book value or any formula selected by the Retirement Committee), (collectively the “Investments"), as the Retirement Committee shall direct, or may direct that the Company retain the amount credited as cash to be added to its general assets. The Company shall be the sole owner and beneficiary of all Investments, and all contracts and other evidences of the Investments shall be registered in the name of the Company. The Company, under the direction of the Retirement Committee, shall have the unrestricted right to sell any of the Investments included in any Participant’s Account, and the unrestricted right to reinvest the proceeds of the sale in other Investments or to credit the proceeds of the sale to a Participant’s Account as cash.          (b)  Each Participant shall file a Request to be effective as of the beginning of the next Accounting Period with respect to the amounts other than Gains Shares credited to his Account and amounts subsequently credited to his Account. A Request will advise the Administrator as to the Participant’s preference with respect to investment vehicles for all or some portion of such amounts in specified multiples of 5%. The Administrator may, but is under no obligation to, deem such amounts to be invested in accordance with the Request made by the Participant, or the Committee may, instead, in   --------------------------------------------------------------------------------   its sole discretion, deem such amounts to be invested in any deemed Investments selected by the Retirement Committee.          (c)  A Request, unless modified as described below, shall apply to all amounts other than Gain Shares credited to a Participant’s Account with respect to each subsequent Plan Year. A Request may be changed with respect to such amounts previously credited to a Participant’s Account as of such date and amounts other than Gain Shares subsequently credited to his Account by giving the Administrator prior written notice. Any such modified Request shall be effective upon processing by the Administrator but not later than the fifth business day following the day the Request is received by the Administrator.          (d)  Notwithstanding the foregoing, if an Insider Participant modifies his Request to have the deemed investment of any portion of the amounts other than Gain Shares previously credited to such Insider Participant’s Account changed (x) to the Company’s Common Stock Fund consisting of the Common Shares of the Company from any of the other investment funds or (y) from the Company’s Common Stock Fund consisting of the Common Shares of the Company to any of the other investment funds, then in either such case such Request will not be processed by the Administrator if, in the sole judgment of the Administrator, the processing of such Request would result in the Insider Participant being liable to the Company under Section 16(b) of the Exchange Act, as amended. The provisions of this Section 6.1(d) with respect to Insider Participants shall apply to any Participant immediately upon the time such Participant becomes an Insider Participant and shall continue until such time as such Participant is no longer an Insider Participant.          (e)  Earnings on any amounts deemed to have been invested in any Investments shall be deemed to have been reinvested in such Investments.          Section 6.2. Financing of Benefits. Benefits payable under the Plan to a Participant or, in the event of his death, to his Beneficiary shall be paid by the Company from its general assets. Notwithstanding the fact that the Participants’ Accounts may be adjusted by an amount that is measured by reference to the performance of any deemed Investments as provided in Section 6.1, no person entitled to payment under the Plan shall have any claim, right, security interest or other interest in any fund, trust, account, insurance contract, or asset of the Company which may be responsible for such payment.          Section 6.3. Funding.          (a)  Notwithstanding the provisions of Section 6.2, nothing in this Plan shall preclude the Company from setting aside amounts in trust (the “Trust") pursuant to one or more trust agreements between a trustee and the Company. However, Participants, their Beneficiaries, and their heirs, successors and assigns, shall have no secured interest or claim in any property or assets of the Company or the Trust. The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future. Notwithstanding the foregoing, upon the earlier to occur of (i) a Change in Control or (ii) a declaration by the Board that a Change in Control is imminent, the Company shall promptly, to the extent it has not previously done so, and in any event within five (5) business days after such Change in Control (or on such fifth business day if the Board has declared that a Change in Control is imminent), create an irrevocable trust to hold funds to be used in payment of the obligations of the Company under the Plan, and the Company shall fund such trust by transferring for the Accounts of those Participants whom the Board has identified to the Trustee as having been affected by such Change in Control an amount sufficient to fund no less than the total value of such   --------------------------------------------------------------------------------   Participants’ Accounts under the Plan as of the most recent Accounting Date to National City Bank or its successor (the “Trustee") to be added to the principal of the trust under the Cooper Tire & Rubber Company Master Grantor Trust Agreement, between the Company and Trustee (the “Trust Agreement"), provided that any funds contained therein or in the Trust shall remain liable for the claims of the Company’s general creditors.          (b)  Any payments of benefits by the Trustee to the Participant pursuant to the Trust Agreement shall, to the extent thereof, discharge the Company’s obligation to pay benefits under the terms of this Plan, it being the intent of the Company that assets in the Trust be held as security for the Company’s obligation to pay benefits under this Plan. ARTICLE VII. DISTRIBUTION OF BENEFITS          Section 7.1. Settlement Date. A Participant or, in the event of his death, his Beneficiary shall be entitled to distribution of all or a part of the balance of his Account, as provided in this Article VII, following his Settlement Date or Dates.          Section 7.2. Amount to be Distributed. The amount to which a Participant or, in the event of his death, his Beneficiary is entitled in accordance with the following provisions of this Article shall be based on the Participant’s adjusted account balance determined as of the Accounting Date coincident with or next following his Settlement Date or Dates.          Section 7.3 Death or Termination for Cause Distribution. Upon the earlier of (i) termination of service of the Participant as an Employee of the Company for Cause, or (ii) the death of a Participant, the Company shall, in accordance with this Article VII, pay to the Participant or his Beneficiary (or, upon the death of a Beneficiary, to the Beneficiary’s estate), as the case may be, the balance of his Account in a lump sum. Such payment shall completely discharge the Company’s obligations under this Plan.          Section 7.4. In-Service Distribution. A Participant may irrevocably elect to receive an in-service distribution of his deferred Base Salary, Cash Awards and Gain Shares and earnings thereon for any Plan Year on or commencing not earlier than the beginning of the third Plan Year following the Plan Year in which such Base Salary, Cash Awards and Gain Shares otherwise would have been first payable. A Participant’s election of an in-service distribution shall be made in the Participation Agreement filed as provided in Section 3.1. The Participant shall elect irrevocably to receive such Base Salary, Cash Awards and Gain Shares as an in-service distribution under one of the forms provided in Section 7.5(b)(i) and Section 7.5(c)(i); provided, however, that Section 7.5(d) shall not apply to an in-service distribution. Any benefits paid to the Participant as an in-service distribution shall reduce the Participant’s Account.          Section 7.5. Form of Distribution.          (a)  As soon as practicable after the end of the Accounting Period in which a Participant’s Settlement Date occurs, but in no event later than 30 days following the end of such Accounting Period, the Company shall distribute or cause to be distributed to the Participant the balance of the Participant’s Account as determined under Section 7.2, under one of the forms provided in this Section. Notwithstanding the foregoing, except as provided in Section 7.3, if elected by the Participant, the distribution of all or a portion of the Participant’s Account may be made or commence on a date   --------------------------------------------------------------------------------   between the Settlement Date and the date the Participant attains age sixty-five (65).          (b)  Distribution of a Participant’s Cash Subaccount with respect to any Plan Year shall be made in one of the following forms as elected by the Participant:             (i) by payment in cash in a specified sum;               (ii) by payment in cash in not greater than ten annual installments, provided, however, that each payment is not less than $10,000; or a combination of (i) and (ii) above. The Participant shall designate the percentage payable under each option.          (c)  Distribution of a Participant’s Common Shares Subaccount with respect to any Plan Year shall be made in one of the following forms as elected by the Participant:             (i) by delivery of a specified number of Common Shares;               (ii) by delivery of Common Shares in not greater than ten annual installments, provided, however, that the Fair Market Value of each installment is not less than $10,000; or               (iii) a combination of (i) and (ii) above. The Participant shall designate the percentage payable under each option.          (d)  The Participant’s election of the form of distribution shall be made by written notice filed with the Administrator at least one (1) year prior to the Participant’s voluntary termination of employment with, or Retirement from, the Company. Any such election may be changed by the Participant at any time and from time to time without the consent of any other person by filing a later signed written election with the Administrator; provided that any election made less than one (1) year prior to the Participant’s voluntary termination of employment or Retirement shall not be valid, and in such case payment shall be made in accordance with the Participant’s prior election; and provided, further, that the Administrator may, in its sole discretion, waive such one (1) year period upon a request of the Participant made while an active or inactive Employee of the Company.          (e)  The amount of each installment under Section 7.5(b) or Section 7.5(c) shall be equal to the quotient obtained by dividing the Participant’s Account balance as of the date of such installment payment by the number of installment payments remaining to be made to or in respect of such Participant at the time of calculation.          (f)  If a Participant fails to make an election in a timely manner as provided in this Section 7.5, distribution shall be made in cash and Common Shares, as applicable, in a single lump sum.          Section 7.6 Hardship Distributions. Upon a finding by the Administrator that a Participant has suffered a Financial Hardship, the Administrator may, in its sole discretion, distribute, or direct the Trustee to distribute, to the Participant an amount which does not exceed the amount required to meet the immediate financial needs created by the Financial Hardship and not reasonably available from other sources of the Participant; provided, however, that in no event shall any amount attributable to a Participation Agreement be distributed less than six (6) months after the date of the applicable Participation Agreement. No distributions pursuant to   --------------------------------------------------------------------------------   this Section 7.6 may be made in excess of the value of the Participant’s Account at the time of such distribution.          Section 7.7 Special Distributions. Notwithstanding any other provision of this Article VII, a Participant, whether or not in pay status, may elect to receive a distribution of part or all of his Account in one or more distributions if (and only if) the amount in the Participant’s Account subject to such distribution is reduced by ten percent (10%). Any distribution made pursuant to such an election shall be made as soon as practicable following the date such election is submitted to the Administrator. The remaining ten percent (10%) of the portion of the electing Participant’s Account subject to such distribution shall be forfeited.          Section 7.8 Small Benefit. In the event the Committee determines that the balance of the Participant’s Account is less than $10,000 at the time of commencement of payments, the Company may pay the benefit in the form of a lump sum payment, notwithstanding any provision of the Plan to the contrary. Such lump sum payment shall be equal to the balance of the Participant’s Account, or the portion thereof payable to a Beneficiary. ARTICLE VIII. BENEFICIARY DESIGNATION          Section 8.1. Beneficiary Designation.          (a)  As used in the Plan the term “Beneficiary” means:             (i) The person last designated as Beneficiary by the Participant in a writing on a form prescribed by the Administrator;               (ii) If there is no designated Beneficiary or if the person so designated shall not survive the Participant, such Participant’s spouse; or               (iii) If no such designated Beneficiary and no such spouse is living upon the death of a Participant, or if all such persons die prior to the full distribution of the Participant’s Account balance, then the legal representative of the last survivor of the Participant and such persons, or, if the Administrator shall not receive notice of the appointment of any such legal representative within one (1) year after such death, the heirs-at-law of such survivor shall be the Beneficiaries to whom the then remaining balance of the Participant’s Account shall be distributed (in the proportions in which they would inherit his intestate personal property).          (b)  Any Beneficiary designation may be changed from time to time by the filing of written notice filed with the Administrator. No notice given under this Section shall be effective unless and until the Administrator actually receives such notice.          Section 8.2. Facility of Payment. Whenever and as often as any Participant or his Beneficiary entitled to payments hereunder shall be under a legal Disability or, in the sole judgment of the Administrator, shall otherwise be unable to apply such payments to his own best interests and advantage, the Administrator in the exercise of its discretion may direct all or any portion of such payments to be made in any one or more of the following ways: (i) directly to him; (ii) to his legal guardian or conservator; or (iii) to his spouse or to any other person, to be expended   --------------------------------------------------------------------------------   for his benefit; and the decision of the Administrator, shall in each case be final and binding upon all persons in interest.          Section 8.3. Amendments. Any Beneficiary designation may be changed by a Participant by the filing of a new Beneficiary designation, which will cancel all Beneficiary designations previously filed. ARTICLE IX. ADMINISTRATION          Section 9.1. Administration.          (a)  The Plan shall be administered by the Administrator. The Administrator shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms.          (b)  The Administrator shall have sole and absolute discretion to interpret the provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to make factual findings with respect to any issue arising under the Plan, to determine the rights and status under the Plan of Participants and other persons, to decide disputes arising under the Plan and to make any determinations and findings (including factual findings) with respect to the benefits payable thereunder and the persons entitled thereto as may be required for the purposes of the Plan. In furtherance of, but without limiting the foregoing, the Administrator is hereby granted the following specific authorities, which it shall discharge in its sole and absolute discretion in accordance with the terms of the Plan (as interpreted, to the extent necessary, by the Administrator):             (i) To determine the amount of benefits, if any, payable to any person under the Plan (including, to the extent necessary, making any factual findings with respect thereto); and               (ii) To conduct the claims procedures specified in Section 9.6.     All decisions of the Administrator as to the facts of any case, as to the interpretation of any provision of the Plan or its application to any case, and as to any other interpretative matter or other determination or question under the Plan shall be final and binding on all parties affected thereby, subject to the provisions of Section 9.6.          (c)  The Administrator may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who may be counsel to the Company.          Section 9.2. Plan Administrator. The Company shall be the “administrator” under the Plan for purposes of ERISA.          Section 9.3. Binding Effect of Decisions. All decisions and determinations by the Administrator shall be final and binding on all parties. All decisions of the Administrator shall be made by the vote of the majority, including actions in writing taken without a meeting. All elections, notices and directions under the Plan by a Participant shall be made on such forms as the Administrator shall prescribe.          Section 9.4. Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and to agree to perform this   --------------------------------------------------------------------------------   Plan in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Plan shall be binding upon and inure to the benefit of the Company and any successor of or to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by sale, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Plan), and the heirs, Beneficiaries, executors and administrators of each Participant.          Section 9.5. Indemnity of Committee and Administrator. The Company shall indemnify and hold harmless the members of the Committee and the Administrator and their duly appointed agents against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to the Plan, except in the case of gross negligence or willful misconduct by any such member or agent of the Committee and the Administrator.          Section 9.6. Claims Procedure.          (a)  the Participant or his designated beneficiary (the “Claimant”) may file a written claim for payments under this Plan with the Administrator. Except under special circumstances, such claims shall be approved or denied within ninety (90) days. Any denial of such claim shall be by written notice from the Administrator stating:             (i) the specific reason for the denial;               (ii) the specific provisions of the Plan or related agreements on which the denial is based;               (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, along with an explanation as to why such material or information is necessary; and               (iv) information as to how the Claimant may submit the claim to the Administrator for review.          (b)  The Claimant, within ninety (90) days of such notice, may file with the Administrator a written request for a review of the denial. Except under special circumstances, the Administrator’s decision on review shall be made within sixty (60) days of the request. Such decision shall be by a written notice stating the reasons for the decision, and such decision shall be final.          Section 9.7. Expenses. All direct expenses of the Plan shall be paid by the Company. ARTICLE X AMENDMENT AND TERMINATION OF PLAN          Section 10.1. Amendment. The Company may at any time amend, suspend or reinstate any or all of the provisions of the Plan, except that no such amendment, suspension or reinstatement may adversely affect any Participant’s Account, as it existed as of the effective date of such amendment, suspension or reinstatement, without such Participant’s prior written consent. Written notice of any amendment or other action with respect to the Plan shall be given to each Participant.          Section 10.2. Termination. The Company, in its sole discretion, may terminate this Plan at any time and for any reason whatsoever. Upon   --------------------------------------------------------------------------------   termination of the Plan, the Administrator shall take those actions necessary to administer any Accounts existing prior to the effective date of such termination; provided, however, that a termination of the Plan shall not adversely affect the value of a Participant’s Account, the earnings credited to a Participant’s Account under Section 5.5(b) or the timing or method of distribution of a Participant’s Account without the Participation’s prior written consent. ARTICLE XI. MISCELLANEOUS          Section 11.1. No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment between the Company and any Employee, or as a right of any Employee, to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its Employees, with or without Cause.          Section 11.2. Governing Law. All questions arising in respect of the Plan, including those pertaining to its validity, interpretation and administration, shall be governed, controlled and determined in accordance with the applicable provisions of federal law and, to the extent not preempted by federal law, the laws of the State of Ohio.          Section 11.3. Nonassignability.          (a)  No right or interest under the Plan of a Participant or his or her Beneficiary (or any person claiming through or under any of them), other than the surviving spouse of any deceased Participant, shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of any such Participant or Beneficiary. If any Participant or Beneficiary (other than the surviving spouse of any deceased Participant) shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, then the Committee, in its discretion, may terminate his or her interest in any such benefit to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence. Termination shall be effected by filing a written “termination declaration” with the General Counsel of the Company and making reasonable efforts to deliver a copy to the Participant or Beneficiary whose interest is adversely affected (the “Terminated Participant”).          (b)  As long as the Terminated Participant is alive, any benefits affected by the termination shall be retained by the Company and, in the Committee’s sole and absolute judgment, may be paid to or expended for the benefit of the Terminated Participant, his or her spouse, his or her children or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of the Terminated Participant, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be disposed of according to the provisions of the Plan that would apply if he or she died prior to the time that all benefits to which he or she was entitled were paid to him or her.          Section 11.4. Severability. Each section, subsection and lesser section of this Plan constitutes a separate and distinct undertaking, covenant and/or provision hereof. Whenever possible, each provision of this Plan shall be interpreted in such manner as to be effective and valid under applicable law. In the event that any provision of this Plan shall finally   --------------------------------------------------------------------------------   be determined to be unlawful, such provision shall be deemed severed from this Plan, but every other provision of this Plan shall remain in full force and effect, and in substitution for any such provision held unlawful, there shall be substituted a provision of similar import reflecting the original intention of the parties hereto to the extent permissible under law.          Section 11.5. Withholding Taxes. If the Company is required to withhold any taxes or other amounts from a Participant’s Account pursuant to any state, federal or local law, such amounts shall be withheld from the amounts paid under the Plan.          Section 11.6. Legal Fees, Expenses Following a Change in Control. It is the intent of the Company that following a Change in Control no Employee or former Employee be required to incur the expenses associated with the enforcement of his or her rights under this Plan by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to an Employee hereunder. Accordingly, if following a Change in Control it should appear that the Company has failed to comply with any of its obligations under this Plan or in the event that the Company or any other person takes any action to declare this Plan void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Employee the benefits intended to be provided to such Employee hereunder, the Company irrevocably authorizes such Employee from time to time to retain counsel of his or her choice, at the expense of the Company, as hereafter provided, to represent such Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to such Employee’s entering into an attorney-client relationship with such counsel, and in that connection the Company and such Employee agree that a confidential relationship shall exist between such Employee and such counsel. Following a Change in Control, the Company shall pay and be solely responsible for any and all attorneys’ and related fees and expenses incurred by such Employee as a result of the Company’s failure to perform under this Plan or any provision thereof; or as a result of the Company or any person contesting the validity or enforceability of this Plan or any provision thereof.          Section 11.7. Top-Hat Plan. The Plan is intended to be a plan which is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, notwithstanding any other provision of the Plan, the Plan will terminate and no further benefits will accrue hereunder in the event it is determined by a court of competent jurisdiction or by an opinion of counsel based upon a change in law that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA, which is not so exempt. In addition and notwithstanding any other provision of the Plan, in the absolute discretion of the Committee, the amount credited to each Participant’s Account under the Plan as of the date of termination, which shall be an Accounting Date for purposes of the Plan, will be paid immediately to such Participant in a single lump sum cash payment. Such payment shall completely discharge the Company’s obligations under this Plan.          Section 11.8. Relationship to Other Plans. This Plan is intended to serve the purposes of and to be consistent with the Incentive Compensation Plans and any similar plan approved by the Committee for purposes of this Plan. The issuance or transfer of Common Shares pursuant to this Plan shall be subject in all respects to the terms and conditions of the Incentive Compensation Plans and any successor plan and any other such plan. Without   --------------------------------------------------------------------------------   limiting the generality of the foregoing, Common Shares credited to the Participants’ Common Shares Subaccount pursuant to this Plan shall take into account the shares available for issuance under the Incentive Compensation Plans and for purposes of the corresponding provisions of any other such plan. IN WITNESS WHEREOF, Cooper Tire & Rubber Company has caused this instrument to be executed in its name as of the Effective Date.               COOPER TIRE & RUBBER COMPANY               By:   /s/ Philip G. Weaver         --------------------------------------------------------------------------------     Its:   Vice President & CFO         -------------------------------------------------------------------------------- Attest:      /s/ Richard N. Jacobson       

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This SECOND AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into this 28th day of February, 2001, by and between HAROLD'S STORES, INC.("Harold's") and REBECCA P. CASEY ("Casey"). For and in consideration of the mutual covenants set forth herein, Harold's and Casey agree as follows: 1. Employment Agreement. Harold's and Casey are parties to an Employment Agreement dated February 1, 1998 and a First Amendment to Employment Agreement effective May 1, 1999, (together, the "Employment Agreement"). Harold's and Casey desire to amend the Employment Agreement as set forth herein. 2. Amendment to Section 1.01. Section 1.01 of the Employment Agreement is amended to state in its entirety as follows: 1.01 Employment of Casey. Casey shall serve as Executive Vice President for Trend and Design of Harold's, subject to approval of the Board of Directors, and shall perform such duties as are assigned to her from time to time by the Board of Directors or the Chief Executive Officer of Harold's. 3. Amendment to Section 2.01(a). Section 2.01(a) of the Employment Agreement is amended to state in its entirety: 2.01(a) Gross Base Salary. Casey shall receive a base salary of Two Hundred Twenty-Five Thousand Dollars ($225,000) per year, which shall be paid to her bi-weekly. 4. Amendment to Section 3.01. Section 3.01 of the Employment Agreement is amended to state in its entirety: 3.01 Fringe Benefits. Except as specified below to indicate minimums, Casey shall receive such fringe benefits. including life. health, dental. disability and other forms of insurance, sick leave, vacation, automobile, professional dues, clothing allowance, community, civic and country club memberships as are provided to executive officers of Harold's generally from time to time. 3.01(b) Meetings. Casey will be permitted to be absent from Harold's during working days to attend meetings and to attend to outside professional duties in the retailing field as permitted by Harold's policies applicable to executive officers generally, as amended from time to time. Attendance at such meetings and accomplishment of such duties shall be fully compensated service time and shall not be considered vacation time. Harold's shall reimburse Casey for all expenses incurred by her incident to attendance at such meetings, and such entertainment incurred by Casey in furtherance of the interests of Harold's; provided, however, that such reimbursement shall be approved by the Board of Directors. 3.01(c) Dues and Fees. Harold's agrees to pay dues and fees to professional associations and societies and to such community organizations, civic clubs) country clubs, service organizations and other organizations of which Casey is, or becomes) a member, in each case subject to the approval of the Board of Directors. 3.01(d) Insurance and Automobile. Harold's also agrees to: (i) Provide, throughout the term of this contract. such group life insurance, disability insurance and health, major medical and dental insurance benefits as are provided to executive officers generally; (ii) Continue furnishing for Casey for the first three (3) years of the term of this Agreement, the vehicle which Harold's currently furnishes to her, and pay or reimburse her for expenses of its operation, including, but not limited to, insurance. After three (3) years, Casey shall be entitled to a new vehicle, in accordance with the Board of Directors' guidelines governing the purchase of vehicles for officers which are in effect at that time. 5. Amendment to Section 4.02. Section 4.02 of the Employment Agreement is amended to state in its entirety: 4.02 Termination 4.02(a) Termination for Cause. Harold's may at any time terminate this Agreement and Casey's employment with Harold's for "cause" (as herein defined), and Casey shall be paid at her then current rate of salary up to the effective date of termination and no more. The term "cause," as used herein, shall mean (i) fraud, theft, misappropriation, embezzlement, larceny or other felony, willful misconduct, gross malfeasance or breach of trust by Casey resulting or intended to result directly or indirectly in gain or personal enrichment to Casey at the expense of Harold's, (ii) chemical dependence of Casey, Casey's abuse of alcohol or drugs, or any act involving moral turpitude which is the subject of a criminal proceeding or could result in a conviction for a crime involving moral turpitude, (iii) personal misconduct or violation by Casey of any law or regulation applicable to Casey or to Harold's or its business which could result in material liability to Harold's (including without limitation acts of illegal or actionable harassment or discrimination), (iv) willful neglect or repeated failure to perform Casey's employment duties pursuant to this Agreement or (v) material breach by Casey of any provision of this Agreement. 4.02(b) Termination Other than for Cause. Harold's may terminate this Agreement and Casey's employment for any reason other than for cause, or for no reason, at any time, with or without notice. In the event of such termination Casey shall be entitled to the severance benefits set forth in the Severance Pay policy adopted by Harold's Board of Directors on ________________, 2001 (the "Severance Policy"), the provisions of which are attached hereto. The provisions of the Severance Policy shall remain contractual obligations of Harold's to Casey even if the Severance Policy is subsequently revised or revoked. 4.02(c) Termination by Employee. Casey may terminate her employment under this Agreement at any time upon sixty (60) days written notice to the Company. In the event of any such termination by Casey that is not for Good Reason, the Company shall not be obligated to pay severance. If Casey terminates her employment for Good Reason, she shall be entitled to receive the same severance and benefits as if her termination was by the Company for other than Cause. For purposes of this Agreement, Good Reason means any or any combination of the following occurring without Casey's express written consent: (i) any material diminution in Casey's title or responsibilities; (ii) any material diminution in Casey's remuneration or benefits; (iii) any relocation of Casey's principal place of employment by more than seventy five (75) miles; or (v) any material breach by the Company of any provision of this Agreement which has not been cured within thirty (30) days after notice of such noncompliance has been given by Casey to the Company. 4.02(d) Death During Employment. If Casey dies during the term of this Agreement, this Agreement shall automatically terminate and Harold's shall pay to Casey's estate the compensation and benefits that would be otherwise payable to Casey up to the end of the month in which her death occurred. 6. Effective Date. The Effective Date of this Agreement shall be upon the closing of the transaction contemplated in the $6,000,000 Preferred Stock Issuance Preliminary Indicative Summary of Terms dated February 6, 2001, with Harold's as issuer and INTER-HIM, N.V. as Purchaser. 7. Other Provisions. All other provisions of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. HAROLD'S STORES, INC.   By: Title:   REBECCA POWELL CASEY                                                               935155.1

EXHIBIT 10.1 Amendment No. 1 to Continental Airlines, Inc. Incentive Plan 2000 as Amended and Restated on March 27, 2000 This Amendment (this "Amendment") to the Continental Airlines, Inc. Incentive Plan 2000, as amended and restated as of March 27, 2000 (the "Plan"), is dated as of May 15, 2001 and has been adopted by the Board of Directors of Continental Airlines, Inc., a Delaware corporation (the "Company"), on May 15, 2001: Pursuant to Section 13 of the Plan, the Plan is hereby amended as follows: 1. Section 12(c) of the Plan is hereby amended to read in its entirety as follows: "Change in Control. As used in the Plan (except as otherwise provided in an applicable Grant Document), the term "Change in Control" shall mean: (aa) any person (within the meaning of Section 13(d) or 14(d) under the Exchange Act, including any group (within the meaning of Section 13(d)(3) under the Exchange Act), a "Person") is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company (such Person being referred to as an "Acquiring Person") representing 25% or more of the combined voting power of the Company's outstanding securities; other than beneficial ownership by (i) the Company or any subsidiary of the Company, (ii) any employee benefit plan of the Company or any Person organized, appointed or established pursuant to the terms of any such employee benefit plan (unless such plan or Person is a party to or is utilized in connection with a transaction led by Outside Persons), (iii) a Person who has a Schedule 13G on file with the Securities and Exchange Commission pursuant to the requirements of Rule 13d-1 under the Exchange Act, with respect to its holdings of the Company's voting securities ("Schedule 13G"), so long as (1) such Person is principally engaged in the business of managing investment funds for unaffiliated securities investors and, as part of such Person's duties as agent for fully managed accounts, holds or exercises voting or dispositive power over voting securities of the Company, (2) such Person acquires beneficial ownership of voting securities of the Company pursuant to trading activities undertaken in the ordinary course of such Person's business and not with the purpose nor the effect, either alone or in concert with any Person, of exercising the power to direct or cause the direction of the management and policies of the Company or of otherwise changing or influencing the control of the Company, nor in connection with or as a participant in any transaction having such purpose or effect, including any transaction subject to Rule 13d-3(b) of the Exchange Act and (3) if such Person is a Person included in Rule 13d-1(b)(1)(ii) of the Exchange Act, such Person is not obligated to, and does not, file a Schedule 13D with respect to the securities of the Company, or (iv) (I) 1992 Air, Inc., (II) any Person who controlled 1992 Air, Inc. as of February 26, 1998, including David Bonderman and James Coulter, or (III) any Person controlled by any such Person (Persons referred to in clauses (i) through (iv) hereof are hereinafter referred to as "Excluded Persons"); or (bb) individuals who constituted the Board as of May 15, 2001 (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to May 15, 2001 whose appointment to fill a vacancy or to fill a new Board position or whose nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board or who was nominated for election by Excluded Persons shall be considered as though such individual were a member of the Incumbent Board; or (cc) the Company merges with or consolidates into or engages in a reorganization or similar transaction with another entity pursuant to a transaction in which the Company is not the "Controlling Corporation"; or (dd) the Company sells or otherwise disposes of all or substantially all of its assets, other than to Excluded Persons. For purposes of clause (aa) above, if at any time there exist securities of different classes entitled to vote separately in the election of directors, the calculation of the proportion of the voting power held by a beneficial owner of the Company's securities shall be determined as follows: first, the proportion of the voting power represented by securities held by such beneficial owner of each separate class or group of classes voting separately in the election of directors shall be determined, provided that securities representing more than 50% of the voting power of securities of any such class or group of classes shall be deemed to represent 100% of such voting power; second, such proportion shall then be multiplied by a fraction, the numerator of which is the number of directors which such class or classes is entitled to elect and the denominator of which is the total number of directors elected to membership on the Board at the time; and third, the product obtained for each such separate class or group of classes shall be added together, which sum shall be the proportion of the combined voting power of the Company's outstanding securities held by such beneficial owner. For purposes of clause (aa) above, the term "Outside Persons" means any Persons other than (I) Persons described in clauses (aa)(i) or (iii) or (iv) above (as to Persons described in clause (aa)(iii) or (iv) above, while they are Excluded Persons) and (II) members of senior management of the Company in office immediately prior to the time the Acquiring Person acquires the beneficial ownership described in clause (aa). For purposes of clause (cc) above, the Company shall be considered to be the Controlling Corporation in any merger, consolidation, reorganization or similar transaction unless either (1) the shareholders of the Company immediately prior to the consummation of the transaction (the "Old Shareholders") would not, immediately after such consummation, beneficially own, directly or indirectly, securities of the resulting entity entitled to elect a majority of the members of the Board of Directors or other governing body of the resulting entity or (2) those persons who were directors of the Company immediately prior to the consummation of the proposed transaction would not, immediately after such consummation, constitute a majority of the directors of the resulting entity, provided that (I) there shall be excluded from the determination of the voting power of the Old Shareholders securities in the resulting entity beneficially owned, directly or indirectly, by the other party to the transaction and any such securities beneficially owned, directly or indirectly, by any Person acting in concert with the other party to the transaction, (II) there shall be excluded from the determination of the voting power of the Old Shareholders securities in the resulting entity acquired in any such transaction other than as a result of the beneficial ownership of Company securities prior to the transaction and (III) persons who are directors of the resulting entity shall be deemed not to have been directors of the Company immediately prior to the consummation of the transaction if they were elected as directors of the Company within 90 days prior to the consummation of the transaction. The exclusion described in clause (aa)(iii) above shall cease to have any force or effect (and the Person described therein shall cease to be an Excluded Person) if that Person becomes an "Acquiring Person" within the meaning of the Amended and Restated Rights Agreement dated as of November 15, 2000 between the Company and Mellon Investor Services LLC, as amended from time to time. The exclusion described in clause (aa)(iv) above shall cease to have any force or effect (and the Persons described therein shall cease to be Excluded Persons) if (A) the Person acquiring beneficial ownership is not controlled by David Bonderman or James Coulter, or (B) the Person acquiring beneficial ownership (together with any Person controlling, controlled by or under common control with such Person) ceases to be after such acquisition, for a period of thirty consecutive calendar days, the beneficial owner, directly or indirectly, of securities of the Company representing at least 25% of the combined voting power of the Company's outstanding securities. Upon the occurrence of a Change in Control, with respect to each recipient of an Award hereunder, (AA) all Options granted to such recipient and outstanding at such time shall immediately vest and become exercisable in full (but subject, however, in the case of Incentive Stock Options, to the aggregate fair market value, determined as of the date the Incentive Stock Options are granted, of the stock with respect to which Incentive Stock Options are exercisable for the first time by such recipient during any calendar year not exceeding $100,000) and, except as required by law, all restrictions on the transfer of shares acquired pursuant to such Options shall terminate, (BB) all restrictions applicable to such recipient's Restricted Stock and Incentive Awards that are outstanding at such time shall be deemed to have been satisfied and such Restricted Stock and Incentive Awards shall immediately vest in full, and (CC) all Retention Awards granted to such recipient and outstanding at such time shall immediately vest in full. In addition, except as otherwise provided in the applicable Grant Document, if a recipient of an Award hereunder becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an Award) pursuant to the terms of the Plan (the "Total Payments"), which are or become subject to the tax imposed by section 4999 of the Code (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company or subsidiary for whom the recipient is then performing services shall pay to the recipient an additional amount (the "Gross-Up Payment") such that the net amount retained by the recipient, after reduction for any Excise Tax on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-Up Payment, shall equal the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the recipient shall be deemed (aa) to pay federal income taxes at the highest stated rate of federal income taxation (including surtaxes, if any) for the calendar year in which the Gross-Up Payment is to be made; and (bb) to pay any applicable state and local income taxes at the highest stated rate of taxation (including surtaxes, if any) for the calendar year in which the Gross-Up Payment is to be made. Any Gross-Up Payment required hereunder shall be made to the recipient at the same time any Total Payment subject to the Excise Tax is paid or deemed received by the recipient." 2. The Plan, as amended by this Amendment, shall apply to all Awards made under the Plan on or after the date hereof. The Plan, as in effect prior to the adoption of this Amendment, shall continue to govern Awards made under the Plan prior to the date hereof except as may otherwise be agreed to by a recipient of an Award. In all other respects, the Plan shall continue in full force and effect with respect to all Awards made thereunder. 3. Capitalized terms used in this Amendment without definition are defined in the Plan and are used in this Amendment with the same meanings as in the Plan.   IN WITNESS WHEREOF, the undersigned has executed this Amendment on behalf of the Company as of May 15, 2001. CONTINENTAL AIRLINES, INC.   By:__________________________ Jeffery A. Smisek Executive Vice President - Corporate  

  ADC TELECOMMUNICATIONS, INC. 401(k) EXCESS PLAN (2001 Restatement)   First Effective September 1, 1990 As Restated Effective January 1, 2001     ADC TELECOMMUNICATIONS, INC. 401(k) EXCESS PLAN (2001 Restatement) TABLE OF CONTENTS   PREAMBLES   SECTION 1 INTRODUCTION     1.1 Definitions   1.1.1 Accounts   1.1.2 Affiliate   1.1.3 Annual Enrollment Period   1.1.4 Annual Valuation Date   1.1.5 Beneficiary   1.1.6 Code   1.1.7 Committee   1.1.8 Compensation   1.1.9 Disability   1.1.10 Effective Date   1.1.11 Employer   1.1.12 ERISA   1.1.13 Excess Compensation   1.1.14 Excess Savings Agreement   1.1.15 Event of Maturity   1.1.16 Participant   1.1.17 Plan   1.1.18 Plan Statement   1.1.19 Plan Year   1.1.20 Principal Sponsor   1.1.21 Recognized Employment   1.1.22 Retirement Savings Plan   1.1.23 Unit Share   1.1.24 Valuation Date   1.1.25 Vested   1.2 Rules of Interpretation   1.3 Transitional Rules   SECTION 2 ELIGIBILITY AND ENROLLMENT     2.1 Eligibility   2.2 Special Eligibility Rule for Employees Eligible as of November 1, 2000       2.3 Special Eligibility Rule for Transition Benefit   2.4 Excess Savings Agreement   2.4.1 Deferral Percentages   2.4.2 Automatic Cancellation   2.4.3 Voluntary Cancellation   2.4.4 Form of Agreement   2.4.5 Employer Administrative Error   2.5 Specific Exclusion   SECTION 3 ADDITIONS TO ACCOUNTS     3.1 Excess Savings Additions   3.1.1 Amount   3.1.2 Crediting the Account   3.2 Fixed Match Additions   3.2.1 Amount   3.2.2 Crediting the Account   3.2.3 Eligible Participant   3.3 Performance Match Additions   3.3.1 Amount   3.3.2 Crediting the Account   3.3.3 Eligible Participant   3.4 Transition Benefit   3.4.1 Amount   3.4.2 Crediting the Account   3.5 Nonduplication of Benefits   SECTION 4 ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS     4.1 Participant Accounts   4.1.1. Establishment of Accounts   4.1.2. Adjustment of Accounts   4.1.3. Investment of Accounts   4.1.4. Rules   4.2 Dividend Adjustment for Phantom Stock   4.3 Antidilution Adjustment for Phantom Stock   4.4 Not Funded   SECTION 5 VESTING ACCOUNTS     5.1 Full Vesting       SECTION 6 MATURITY       6.1 Events of Maturity   6.2 Effect of Maturity upon Further Participation in Plan                 SECTION 7 DISTRIBUTION     7.1 Time of Distribution   7.2 Modification of Initial Designation and Failure to Designate   7.3 Forms of Distribution   7.4 Distribution in Cash   7.5 280G Limitation   7.6 Designation of Beneficiaries   7.6.1 Right To Designate   7.6.2 Failure of Designation   7.6.3 Disclaimers of Beneficiaries   7.6.4 Definitions   7.6.5 Special Rules   7.6.6 Spousal Rights   7.7 Death Prior to Full Distribution   7.8 Facility of Payment   SECTION 8 SPENDTHRIFT PROVISIONS   SECTION 9 AMENDMENT AND TERMINATION     9.1 Amendment and Termination   9.2 Change in Control   9.2.1 In General   9.2.2 Special Definitions   9.2.3 Amendment   9.2.4 Termination of Employment   9.2.5 Pending Distributions   9.2.6 Commutation of Installments   9.2.7 Not Amendable   SECTION 10 ADMINISTRATION     10.1 Authority   10.2 Liability   10.3 Procedures   10.4 Claim for Benefits   10.5 Claims Procedure   10.5.1 Original Claim   10.5.2 Claims Review Procedure   10.5.3 General Rules   10.6 Errors in Computations     SECTION 11 PLAN ADMINISTRATION     11.1 Principal Sponsor   11.1.1 Officers   11.1.2 Compensation and Organization Committee   11.1.3 Board of Directors   11.1.4 Amendment   11.2 Conflict of Interest   11.3 Administrator   11.4 Service of Process   SECTION 12 DISCLAIMERS     12.1 Term of Employment   12.2 Employment   12.3 Source of Payment   12.4 Guaranty   12.5 Delegation               ADC TELECOMMUNICATIONS, INC. 401(k) EXCESS PLAN (2001 Restatement)                       WITNESSETH:  That                     WHEREAS, ADC TELECOMMUNICATIONS, INC., a Minnesota corporation (the “Principal Sponsor”), by resolution of its Board of Directors, has heretofore established and maintained a nonqualified, unfunded, deferred compensation and supplemental retirement plan for the benefit of a select group of management or highly compensated eligible employees, which in its most restated form, is embodied in a document effective September 1, 1990 and entitled “ADC Telecommunications, Inc. 401(k) Excess Plan (1990 Restatement),” as amended by five amendments; and                     WHEREAS, The Principal Sponsor has reserved to itself the power to make further amendments of the Plan documents; and                     WHEREAS, It is desired to amend and restate the Plan documents to be a single document in the manner hereinafter set forth;                     NOW, THEREFORE, The Plan documents are hereby amended and restated, effective as of January 1, 2001, to read in full as follows:   SECTION 1 INTRODUCTION 1.1     Definitions.  When the following terms are used herein with initial capital letters, they shall have the following meanings:           1.1.1            Accounts - the following Accounts will be maintained under the Plan for Participants: (a)                Total Account - for convenience of reference, the separate unfunded and unsecured general obligation of the Employer established with respect to each person who is a Participant in the Plan in accordance with Section 2, including the Participant’s Excess Savings Account, Fixed Match Account, Performance Match Account and Transition Benefit Account. (b)                Excess Savings Account - the bookkeeping account maintained for each Participant to which is credited the voluntary deferral amounts specified in Section 3.1. (c)                Fixed Match Account - the bookkeeping account maintained for each Participant to which is credited the fixed matching contribution amounts specified in Section 3.2. (d)                Performance Match Account - the bookkeeping account maintained for each Participant to which is credited the performance matching contribution amounts specified in Section 3.3. (e)                Transition Benefit Account - the bookkeeping account maintained for each Participant to which is credited the amount specified in Section 3.4.           1.1.2            Affiliate - a business entity which is under “common control” with the Employer or which is a member of an “affiliated service group” that includes the Employer, as those terms are defined in section 414(b), (c) and (m) of the Code.  A business entity, which is a predecessor to the Employer, shall be treated as an Affiliate if the Employer maintains a plan of such predecessor business entity or if, and to the extent that, such treatment is otherwise required by regulations under section 414(a) of the Code.  A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code.  In addition to said required treatment, the Principal Sponsor may, in its discretion, designate as an Affiliate any business entity which is not such a “common control,” “affiliated service group” or “predecessor” business entity but which is otherwise affiliated with the Employer, subject to such limitations as the Principal Sponsor may impose.           1.1.3            Annual Enrollment Period - the time period designated by the ADC Telecommunications, Inc. Corporate Benefits Department during which eligible employees may, pursuant to rules established by the ADC Telecommunications, Inc. Corporate Benefits Department, enroll in the Plan as Participants or change their deferral percentages under the Plan.  An Annual Enrollment Period for a Plan Year will end no later than December 31 of the preceding Plan Year.             1.1.4            Annual Valuation Date - each December 31.           1.1.5            Beneficiary - a person designated by a Participant (or automatically by operation of this Plan Statement) to receive all or a part of the Participant’s Total Account in the event of the Participant’s death prior to full distribution thereof.  A person so designated becomes a Beneficiary after the death of the Participant with respect to whom the person is a Beneficiary.           1.1.6            Code - the Internal Revenue Code of 1986, including applicable regulations for the specified section of the Code.  Any reference in this Plan Statement to a section of the Code, including the applicable regulation, shall be considered also to mean and refer to any later amendment or replacement of that section or regulation.           1.1.7            Committee - the Committee known as the ADC Retirement Committee, referred to in this Plan Statement as Committee or Retirement Committee.           1.1.8            Compensation - Recognized Compensation as defined in the ADC Retirement Savings Plan, but for purposes of this Plan, determined without regard to the limitation in section 401(a)(17) of the Code ($170,000 in 2001, and as subsequently adjusted for inflation).           1.1.9            Disability - a physical or mental condition resulting from injury or illness which is of such a nature that it constitutes total disability as defined for purposes of the group long-term disability insurance program maintained by the Employer, whether or not the individual is actually covered by such group long-term disability insurance program.           1.1.10          Effective Date - September 1, 1990.           1.1.11          Employer - the Principal Sponsor, any business entity affiliated with the Principal Sponsor that adopts the Plan, and any successor thereof that adopts the Plan.           1.1.12          ERISA - the Employee Retirement Income Security Act of 1974, including applicable regulations for the specified section of ERISA.  Any reference in this Plan Statement to a section of ERISA, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.           1.1.13          Excess Compensation - Compensation for a Plan Year that exceeds the limitations in section 401(a)(17) of the Code for such Plan Year ($170,000 in 2001, and as subsequently adjusted for inflation).           1.1.14          Excess Savings Agreement - the agreement which may be entered into by a Participant as provided in Section 2.2.             1.1.15          Event of Maturity - any of the occurrences described in Section 6 by reason of which a Participant or Beneficiary may become entitled to a distribution from the Plan.           1.1.16          Participant - an employee of the Employer who has satisfied the eligibility rules in Section 2 and receives a credit under an Account pursuant to the rules of Section 3.  An employee who has become a Participant shall be considered to continue as a Participant in the Plan until the Participant’s date of death or if earlier, the date upon which the Participant is no longer employed in Recognized Employment and upon which the Participant no longer has any Account under the Plan (that is, the Participant has both received a distribution of all of the Participant’s Total Account, if any).           1.1.17          Plan - the program of deferred compensation and supplemental retirement income benefit of the Employer established for the benefit of employees eligible to participate therein, as first set forth in this Plan Statement.  (As used herein, “Plan” refers to the legal entity established by the Employer and not to the document pursuant to which the Plan is maintained.  That document is referred to herein as the “Plan Statement.”) The Plan shall be referred to as the ADC TELECOMMUNICATIONS, INC. 401(k) EXCESS PLAN.”           1.1.18          Plan Statement - this document entitled ADC TELECOMMUNICATIONS, INC. 401(k) EXCESS PLAN (2001 Restatement)” as adopted by the Principal Sponsor effective as of January 1, 2001, as the same may be amended from time to time thereafter.           1.1.19          Plan Year - the twelve (12) consecutive month period ending on any Annual Valuation Date.           1.1.20          Principal Sponsor - ADC TELECOMMUNICATIONS, INC., a Minnesota corporation.           1.1.21          Recognized Employment - employment as a common law employee of the Employer in a position which is: (a)                classified as Recognized Employment under the Retirement Savings Plan; and (b)                is at a salary grade for which the midpoint plus annual target cash incentive normally results in total target cash compensation equal to or greater than the Code section 401(a)(17) compensation limit which is $170,000 in 2000 (and is periodically adjusted under the Code for cost of living increases.) The Employer’s classification of a person at the time of inclusion or exclusion in Recognized Employment shall be conclusive for the purpose of the foregoing rules.  No reclassification of a person’s status with the Employer, for any reason, without regard to whether it is initiated by a court, governmental agency or otherwise and without regard to whether or not the Employer agrees to such reclassification, shall result in the person being included in Recognized Employment, either retroactively or prospectively.  Any uncertainty concerning a person’s classification shall be resolved by excluding the person from Recognized Employment.             1.1.22          Retirement Savings Plan - the tax qualified defined contribution plan of the Principal Sponsor established for the benefit of employees eligible to participate therein, as set forth in the document entitled “ADC RETIREMENT SAVINGS PLAN TRUST AGREEMENT (1999 Restatement)” as adopted by the Principal Sponsor effective as of April 1, 1999, as the same may be amended from time to time thereafter.           1.1.23          Unit Share - a bookkeeping unit which is the equivalent of one (1) share of common stock of the Principal Sponsor.           1.1.24          Valuation Date - the Annual Valuation Date and any day during which the New York Stock Exchange is open for business or any other date chosen by the Committee.           1.1.25          Vested - nonforfeitable, i.e., a claim obtained by a Participant or the Participant’s Beneficiary to that part of an immediate or deferred benefit hereunder which arises from the Participant’s service, which is unconditional and which is legally enforceable against the Plan. 1.2     Rules of Interpretation.  An individual shall be considered to have attained a given age on the individual’s birthday for that age (and not on the day before).  The birthday of any individual born on a February 29 shall be deemed to be February 28 in any year that is not a leap year.  Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Participant or Beneficiary shall be deemed for all purposes of this Plan and all elections and designations made under this Plan to have died before such Participant or Beneficiary.  A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this Section.  In the absence of a conviction of felonious and intentional killing, the Employer shall determine whether the killing was felonious and intentional for the purposes of this Section.  Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; and the words “hereof”, “herein” or “hereunder” or other similar compounds of the word “here” shall mean and refer to this entire Plan Statement and not to any particular paragraph or Section of this Plan Statement unless the context clearly indicates to the contrary.  The titles given to the various Sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof.  Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation.  This document has been adopted in the State of Minnesota and has been drawn in conformity to the laws of that State and shall, except to the extent that federal law is controlling, be construed and enforced in accordance with the laws of the State of Minnesota. 1.3     Transitional Rules.  The Employer may adopt such transition rules as necessary to implement the Plan Statement effective January 1, 2001, including, but not limited to, permitting the execution of Excess Savings Agreements prior to that date.   SECTION 2 ELIGIBILITY AND ENROLLMENT 2.1     Eligibility.  An employee is eligible to enroll in this Plan for a Plan Year if such employee:  (i) is in Recognized Employment on the November 1 immediately proceeding such Plan Year; and (ii) is selected by the Committee to participate in the Plan for such Plan Year. 2.2     Special Eligibility Rule for Employees Eligible as of November 1, 2000.  Notwithstanding anything to the contrary, any employee who was eligible to participate in this Plan on or before November 1, 2000 shall remain eligible to participate in this Plan for each Plan Year following December 31, 2000 until such Participant’s Event of Maturity pursuant to Section 6 of this Plan.  Employees who are eligible to participate in this Plan pursuant to this rule shall not be subject to the automatic cancellation rules in Section 2.4. 2.3     Special Eligibility Rule for Transition Benefit.  Any employee of the Employer or an Affiliate who, in a Plan Year, receives: (i) Excess Compensation and (ii) a Transition Benefit under the ADC Retirement Savings Plan shall be eligible for a a contribution under this Plan. 2.4     Excess Savings Agreement.  To enroll for participation in this Plan, an eligible employee must complete an Excess Savings Agreement and deliver it to the Employer during the Annual Enrollment Period for the Plan Year in which the employee desires to participate in the Plan.  Subject to the provisions of Section 2.4.2 and Section 2.4.3, an employee’s Excess Savings Agreement shall remain in effect for each subsequent Plan Year.           2.4.1            Deferral Percentages.  Elections for Excess Savings Additions may be made in increments of one percent (1%) and shall be equal to not less than one percent (1%) nor more than fifteen percent (15%) of the amount of the employee’s Compensation.  Such elections may be changed during any Annual Enrollment Period.           2.4.2            Automatic Cancellation.  An employee’s Excess Savings Agreement shall be automatically cancelled upon the Participant’s termination of employment or, if the Participant remains an employee of the Employer but is no longer in Recognized Employment, the employee’s Excess Savings Agreement shall be automatically cancelled effective as of December 31 of the Plan Year in which the employee is no longer eligible to participate in this Plan.           2.4.3            Voluntary Cancellation.  An eligible employee who has an Excess Savings Agreement in effect may cancel completely the Excess Savings Agreement as of any December 31.  Written notice of the cancellation must be delivered to the Employer during the Annual Enrollment Period for the Plan Year in which the employee desires the cancellation to be effective.           2.4.4            Form of Agreement.  The Employer shall specify the form of the Excess Savings Agreement, the form of any notices modifying the Excess Savings Agreement, and all procedures for the delivery and acceptance of forms and notices.             2.4.5            Employer Administrative Error.  Notwithstanding anything in this Section to the contrary, the Employer, in its sole discretion, may modify or accept an eligible employee’s Excess Savings Agreement during the Plan Year if the modification is necessary to correct an administrative error made by the Employer or if the Plan Administrator has failed to initially enroll the Participant as of January 1.  However, such modification shall only be to the extent necessary to correct the error. 2.5     Specific Exclusion.  Notwithstanding anything apparently to the contrary in the Plan or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in the Plan, develop benefits under the Plan or be entitled to receive benefits under the Plan (either for the individual or the individual’s survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA).  If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in the Plan at any time.  If any individual not so defined has been erroneously treated as a Participant in the Plan, upon discovery of such error such individual’s erroneous participation shall immediately terminate ab initio and upon demand such individual shall be obligated to reimburse the Principal Sponsor for all amounts erroneously paid to that individual.   SECTION 3 ADDITIONS TO ACCOUNTS 3.1     Excess Savings Additions.           3.1.1            Amount.  The Employer shall credit each Participant’s Excess Savings Account with the amount of deferred Compensation agreed to by each Participant pursuant to the Participant’s Excess Savings Agreement.  No excess savings additions shall be credited to an eligible employee’s account for a Plan Year prior to the date the employee has either:  (i) contributed the maximum amount of voluntary pretax elective deferrals to the Retirement Savings Plan allowable under Section 402(g) of the Code for the Plan Year; or (ii) earned Compensation that exceeds the limitations in Section 401(a)(17) of the Code for such Plan Year.           3.1.2            Crediting the Account.  The amount of Excess Compensation deferred with respect to each Participant shall be credited in dollar amounts to the Participant’s Excess Savings Account as soon as administratively practicable following the last payroll cycle of a month for which the Compensation was deferred. 3.2     Fixed Match Additions.           3.2.1            Amount.  The Employer shall credit each eligible Participant’s Fixed Match Account with an amount equal to one hundred percent (100%) of the first six percent (6%) of reduction in Excess Compensation for each pay period which was agreed to by the Participant pursuant to an Excess Savings Agreement.           3.2.2            Crediting the Account.  The fixed match addition which is made with respect to a Participant shall be credited in dollar amounts to the Participant’s Match Account as soon as administratively practicable following the last payroll cycle of a month for which the fixed match is made.           3.2.3            Eligible Participant.  For purposes of this Section 3.2, a Participant shall be an “Eligible Participant” for a Plan Year for any payroll cycle beginning after the date such Participant has completed one year of Eligibility Service (as determined under the Retirement Savings Plan) with the Employer or an Affiliate. 3.3     Performance Match Additions.           3.3.1            Amount.  Each Plan Year, the Employer may (but shall not be required to) credit to each eligible Participant’s Performance Match Account a percentage of the eligible Participant’s Excess Compensation that is determined each Plan Year.  The percentage shall be the performance match percentage, if any, determined for making performance match contributions for the Plan Year under the Retirement Savings Plan.  The amount, if any, credited to each eligible Participant’s Performance Match Account for a Plan Year shall be a percentage (equal to the Performance Match Contribution percentage under the Retirement Savings Plan for such Plan Year) of the first six percent (6%) reduction in Excess Compensation under this Plan which was agreed to by the Participant pursuant to an Excess Savings Agreement.             3.3.2            Crediting the Account.  The performance match addition which is made with respect to an eligible Participant shall be credited in dollar amounts to the Participant’s Performance Match Account as soon as administratively practicable following the Annual Valuation Date in the Plan Year for which the addition is made.           3.3.3            Eligible Participant.  For purposes of this Section 3.3, a Participant shall be an “eligible Participant” for a Plan Year only if such Participant is on the last day of such Plan Year an employee of the Employer or an Affiliate (including for this purpose any Participant who then is on temporary layoff or authorized leave of absence or who, during such Plan Year, was inducted into the Armed Forces of the United States from employment with the Employer) and, prior to or during such Plan Year, the Participant has completed one year of Eligibility Service (as determined under the Retirement Savings Plan) with the Employer or an Affiliate. 3.4     Transition Benefit.           3.4.1            Amount.  For a Plan Year in which an employee is eligible for a transition benefit under this Plan, the Employer shall credit a Transition Benefit Account established for such employee with an addition equal to the the employee's Excess Compensation for such Plan Year multipled by the transition benefit percentage determined for such employee under the Retirement Savings Plan for such Plan Year.  However, any transition benefit to be allocated and credited to a Participant’s Account which is in excess of the maximum permissible addition which would have been contributed on behalf of the Participant under the Retirement Savings Plan but for the limitation on annual additions imposed under section 415 of the Code shall be credited not to this Plan but to the ADC Telecommunications, Inc. Supplemental Retirement Plan.           3.4.2            Crediting the Account.  The transition benefit addition which is made with respect to a Participant shall be credited in dollar amounts to the Participant’s Transition Benefit Account as soon as administratively practicable following the last day of the calendar month for which the addition is made. 3.5     Nonduplication of Benefits.  The Plan shall be construed to prevent the duplication of benefits provided under any other plan or arrangement, whether qualified or nonqualified, funded or unfunded, to the extent that such other benefits are provided directly or indirectly by the Employer.   SECTION 4 ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS 4.1.    Participant Accounts.           4.1.1.           Establishment of Accounts.  The Committee shall cause a bookkeeping account to be kept in the name of each Participant which shall reflect the value the Participant deferral additions, fixed match additions, performance match additions, transition benefit additions, and any earnings thereon, credited to each Account of a Participant.           4.1.2.           Adjustment of Accounts.  The Committee shall cause the value of each Account to be increased (or decreased) from time to time for distributions, additions, investment gains (or losses) and expenses charged to the Account.           4.1.3.           Investment of Accounts.  Except as provided in Sections 4.2 and 4.3, amounts credited to a Participant’s Account will be adjusted for gains and losses to the same extent that equal amounts would have been adjusted if they had been invested as directed by the Participant in the subfund or subfunds designated by the Committee.           4.1.4.           Rules.  The Committee shall establish additional rules for the adjustment of Accounts, including the times when additions shall be credited under Section 3 for the purpose of crediting gains or losses under this Section 4. 4.2     Dividend Adjustment for Phantom Stock.  At such time that dividends are paid on common stock of the Employer, the Unit Shares credited to the Participant’s Account, if any, shall be increased by crediting in Unit Shares the amount of the dividend which would have been paid if the number of Unit Shares had been shares of common stock of the Employer. 4.3     Antidilution Adjustment for Phantom Stock.  In the event that the outstanding shares of stock of the Employer, of whatever class or series, are increased, decreased or changed into or exchanged for a different number or kind of shares or other securities of the Employer or of another corporation by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, stock dividends or otherwise, then the number of Unit Shares credited to the Participant’s Account, if any, shall be adjusted so that the resulting number of Unit Shares shall be in the same ratio to the original number of Unit Shares as the number of shares of stock of the Employer, of whatever class or series, outstanding immediately after the transaction described above giving rise to an adjustment hereunder bears to the number of shares of stock of the Employer, of whatever class or series, outstanding immediately prior to the transaction.  Adjustments shall be made as are necessary to prevent dilution or enlargement of the benefits credited under the Plan.   4.4     Not Funded.  The obligations of the Employer to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Employer to make such payments, and the Participant shall have no lien, prior claim or other security interest in any property of the Employer.  No fund, trust or account (other than a bookkeeping account or reserve) will be established or maintained by the Employer for the purpose of funding or paying the benefits promised under this Plan.  If such a fund is established, the property therein shall remain the sole and exclusive property of the Employer.  The Employer will pay the cost of the Plan out of its general assets.  All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the Employer’s obligation to Participants in the Plan and shall not be construed to impose on the Employer the obligation to create any separate fund for purposes of the Plan.   SECTION 5 VESTING ACCOUNTS 5.1     Full Vesting.  The Accounts of each Participant shall be fully (100%) Vested at all times.   SECTION 6 MATURITY 6.1     Events of Maturity.  A Participant’s Total Account shall mature and shall become distributable in accordance with Section 7 upon the earliest occurrence of any of the following events while in the employment of the Employer of an Affiliate:   (a) the Participant’s death,         (b) the Participant’s termination of employment, whether voluntary or involuntary,         (c) the Participant’s Disability, or         (d) termination of the Plan; provided, however, that a transfer from Recognized Employment to employment with the Employer or an Affiliate that is other than Recognized Employment shall not constitute an Event of Maturity. 6.2     Effect of Maturity upon Further Participation in Plan.  On the occurrence of an Event of Maturity, a Participant shall cease to have any interest in the Plan other than the right to receive payment of all Accounts as provided in Section 7, adjusted from time to time as provided in Section 4.   SECTION 7 DISTRIBUTION 7.1     Time of Distribution.  Upon the occurrence of an Event of Maturity effective as to a Participant, the Employer shall make or commence distribution of the Participant’s Total Account (reduced by the amount of any applicable payroll, withholding and other taxes) as of one of the following times as the Participant shall designate in writing prior to the first Plan Year in which the Participant first receives additions to the Participant’s Accounts. (a)      Annual Valuation Date.  Distribution may be made or commenced as of the Annual Valuation Date coincident with or next following the Event of Maturity.  Actual distribution shall be made or commenced in the calendar month immediately following the Annual Valuation Date or as soon thereafter as administratively feasible. (b)      Quarterly Valuation Date.  Distribution may be made or commenced as of the quarterly Valuation Date coincident with or next following the Event of Maturity.  Actual distribution shall be made or commenced in the calendar month immediately following the quarterly Valuation Date or as soon thereafter as administratively feasible. 7.2     Modification of Initial Designation and Failure to Designate. (a)      A Participant may rescind the initial designation of the form of distribution made pursuant to Sections 7.1 and 7.3 by making a new designation on a form designated by the Employer, provided that such new designation is made no later than the last day of the second Plan Year preceding the Plan Year in which distribution is to commence. (By way of example, a participation who receives a distribution in 2002 must make a new designation no later than December 31, 2000 for the new designation to be effective.) (b)      A Participant who fails to designate a time and form of distribution shall receive their distribution in a single lump sum (pursuant to the rules of Sections 7.1 and 7.3) as of the quarterly Valuation Date coincident with or next following their Event of Maturity. 7.3     Forms of Distribution.  Distribution of the Participant’s Total Account shall be made to the Participant or the Beneficiary entitled to receive distribution (the “Distributee”) in one of the following ways as the Participant shall designate in writing prior to the first Plan Year in which the Participant first receives additions to the Participant’s Accounts. (a)      Lump Sum.  If the Distributee is either a Participant or a Beneficiary, in a single lump sum.   (b)      Five Annual Installments.  If the Distributee is a Participant, in a series of substantially equal installments payable annually over a term of five (5) years.  If the Distributee is a Beneficiary of a Participant and distribution had commenced to the Participant over a five (5) year period, in a series of substantially equal installments payable annually over the remainder of the five (5) year period.  If the Distributee is a Beneficiary of a Participant and distribution had not commenced prior to the Participant’s death, in a series of substantially equal installments payable annually over a term of five (5) years. The amount of the installment distribution to be made in substantially equal annual installments shall be determined by dividing the Account value as of the Valuation Date of the installment distribution by the number of remaining installments (including the installment being computed). 7.4     Distribution in Cash.  The Employer shall make or commence distribution of the Participant’s Total Account in cash.  The portion of the Participant’s Account credited with Unit Shares of phantom stock to be distributed as of a Valuation Date shall be converted to a dollar amount based on the greater of: (a) the stock price on the last day of the calendar quarter preceding payment, or (b) an average stock price used by the Trustee to purchase stock for the Retirement Savings Plan for the calendar quarter preceding payment. 7.5     280G Limitation.  The amount of any cash distribution to be received by the Participant under the Plan shall be reduced (but not below zero) by the amount, if any, necessary to prevent any part of any payment or benefit received or to be received by the Participant in connection with a Change of Control of the Employer (as defined in Section 9.2) or the termination of the Participant’s employment (whether payable under the terms of the Plan or any other plan, contract, agreement or arrangement with the Employer, with any person whose actions result in a Change in Control of the Employer or with any person constituting a member of an “affiliated group” (as defined in section 280G(d)(5) of the Code)), with the Employer or with any person whose actions result in a Change in Control of the Employer (such foregoing payments or benefits referred to collectively as the “Total Payments”) from being treated as an “excess parachute payment” within the meaning of section 280G(b)(1) of the Code, but only if and to the extent such reduction will also result in, after taking into account all applicable state or federal taxes (computed at the highest marginal rate) including any taxes payable pursuant to section 4999 of the Code, a greater after-tax benefit to the Participant than the after-tax benefit to the Participant of the Total Payments computed without regard to any such reduction.  For purposes of the foregoing, (a) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Employer and acceptable to the Participant does not constitute a “parachute payment” within the meaning of section 280G(b)(2) of the Code; (b) any reduction in payments under the Plan shall be computed by taking into account that portion of the Total Payments which constitute reasonable compensation within the meaning of section 280G(b)(4)(B) of the Code in the opinion of such tax counsel; (c) the value of any non-cash benefit or of any deferred cash payment included in the Total Payments shall be determined by the Employer in accordance with the principles of section 280G(d)(3) and (4) of the Code; and (d) in the event of any uncertainty as to whether a reduction in Total Payments to the Participant is required under the Plan, the Employer shall initially make the payment to the Participant and the Participant shall agree to refund to the Employer any amounts ultimately determined not to have been payable under the terms of this Section.   7.6     Designation of Beneficiaries.           7.6.1            Right To Designate.  Each Participant may designate, upon forms to be furnished by and filed with the Employer, one or more primary Beneficiaries or alternative Beneficiaries to receive all of a specified part of the Participant’s Total Account in the event of the Participant’s death.  The Participant may change or revoke any such designation from time to time without notice to or consent from any Beneficiary or spouse.  No such designation, change or revocation shall be effective unless executed by the Participant and received by the Employer during the Participant’s lifetime.           7.6.2            Failure of Designation.  If a Participant:   (a) fails to designate a Beneficiary,         (b) designates a Beneficiary and thereafter such designation is revoked without another Beneficiary being named, or         (c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant, such Participant’s Total Account, or the part thereof as to which such Participant’s designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Participant and (except in the case of the Participant’s surviving issue) in equal shares if there is more than one member in such class surviving the Participant:   Participant’s surviving spouse   Participant’s surviving issue per stirpes and not per capita   Participant’s surviving parents   Participant’s surviving brothers and sisters   Representative of Participant’s estate.           7.6.3            Disclaimers of Beneficiaries.  A Beneficiary entitled to a distribution of all or a portion of a deceased Participant’s Total Account may disclaim his or her interest therein subject to the following requirements.  To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of a Total Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant’s death.  Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public.  A disclaimer shall state that the Beneficiary’s entire interest in the undistributed Total Account is disclaimed or shall specify what portion thereof is disclaimed.  To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Employer after the date of the Participant’s death but not later than nine (9) months after the date of the Participant’s death.  A disclaimer shall be irrevocable when delivered to the Employer.  A disclaimer shall be considered to be delivered to the Employer only when actually received by the Employer.  The Employer shall be the sole judge of the content, interpretation and validity of a purported disclaimer.  Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed.  A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of the provisions of Section 8 and shall not be considered to be an assignment or alienation of benefits in violation of federal law prohibiting the assignment of alienation of benefits under this Plan.  No other form of attempted disclaimer shall be recognized by the Employer.           7.6.4            Definitions.  When used herein and, unless the Participant has otherwise specified in his or her Beneficiary designation, when used in a Beneficiary designation, “issue” means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; “child” means an issue of the first generation; “per stirpes” means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and “survive” and “surviving” mean living after the death of the Participant.           7.6.5            Special Rules.  Unless the Participant has otherwise specified in his or her Beneficiary designation, the following rules shall apply: (a)      If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant. (b)      The automatic Beneficiaries specified in Section 7.6.2. and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant’s death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary’s estate. (c)      If the participant designates as a Beneficiary the person who is the Participant’s spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or the legal termination of marriage between the Participant and such person shall automatically revoke such designation.  (The foregoing shall not prevent the Participant from designation a former spouse as a Beneficiary on a form executed by the Participant and received by the Employer after the date of the legal termination of marriage between the Participant and such former spouse, and during the Participant’s lifetime.) (d)      Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participant’s death. (e)      Any designation of a Beneficiary only by Statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant’s death. A Beneficiary designation is permanently void if it either is executed or is filed by a Participant who, at the time of such execution or filing, is then a minor under the law of the state of the Participant’s legal residence.  The employer shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.           7.6.6            Spousal Rights.  No spouse or surviving spouse of a Participant and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under the Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Participant. 7.7     Death Prior to Full Distribution.  If a Participant dies after an Event of Maturity but before distribution of the Participant’s Total Account has been completed, the remainder of the undistributed Total Account shall be distributed in the same manner as hereinbefore provided in the Event of Maturity by reason of death.  If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Total Account which is payable to the Beneficiary (and shall not be paid to the Participant’s estate). 7.8     Facility of Payment.  In case of the legal disability, including minority, or a Participant or Beneficiary entitled to receive any distribution under the Plan, payment shall be made, if the Employer shall be advised of the existence of such condition: (a)      to the duly appointed guardian, conservator or other legal representative of such Participant or Beneficiary, or (b)      to a person or institution entrusted with the care or maintenance of the incompetent or disabled Participant or Beneficiary, provided such person or institution has satisfied the Employer that the payment will be used for the best interest and assist in the care of such Participant or Beneficiary, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such Participant of Beneficiary. Any payment made in accordance with the foregoing provisions of this Section shall constitute a complete discharge of any liability or obligation of the Employer.   SECTION 8 SPENDTHRIFT PROVISIONS No Participant or Beneficiary shall have any transmissible interest in any Account nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in possession or control of the Employer, nor shall the Employer recognize any assignment thereof, either in whole or in part, nor shall any Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the Employer. The power to designate Beneficiaries to receive the Total Account of a Participant in the event of the Participant’s death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber the Participant’s Account or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Employer. This Section shall not prevent the Employer from exercising, in its discretion, any of the applicable powers and options granted to them upon the occurrence of an Event of Maturity, as such powers may be conferred upon them by any provision hereof.   SECTION 9 AMENDMENT AND TERMINATION 9.1     Amendment and Termination.  The Compensation  and Organization Committee of the Board of Directors of ADC Telecommunications, Inc. hereby reserves the power to unilaterally amend the Plan Statement and to partially terminate or totally terminate the Plan and to reduce, suspend or discontinue its additions to the Plan, either prospectively or retroactively or both; provided that no amendment or termination shall be effective to reduce or divest the Accounts of any Participant without such Participant’s consent.  The Retirement Committee is authorized to amend the Plan Statement in any respect that does not materially increase the cost of the Plan. 9.2     Change in Control.           9.2.1            In General.  Notwithstanding any other provision of the Plan Statement, Section 9.2.3, Section 9.2.4, Section 9.2.5 and Section 9.2.6 shall take effect if and only if a Maturity Date (as defined in the Retirement Savings Plan) occurs effective as to this Plan following a Change in Control.  A Maturity Date cannot occur if there is no Change in Control.  A Maturity Date effective as to this Plan does not occur merely because there is a Change in Control or merely because a Maturity Date occurs effective as to the Retirement Savings Plan.  A Maturity Date following a Change in Control must be effective as to this Plan.           9.2.2            Special Definitions.  For purposes of this Section 9.2, the special definitions in Section 9.5.2 of the Retirement Savings Plan shall apply.           9.2.3            Amendment.  Notwithstanding any other provision of the Plan Statement, during the two (2) years following the date of a Change in Control, the provisions of the Plan Statement may not be amended if any amendment would adversely affect the rights, expectancies or benefits provided by the Plan (as in effect immediately prior to the Change in Control), of any Participant, Beneficiary or other person entitled to payments under the Plan.  The Plan may not be terminated or merged with any other plan during the same two (2) year period.           9.2.4            Termination of Employment.  Notwithstanding any other provision of the Plan Statement, the Total Account of any Participant actively employed on the date of a Change in Control who terminates employment for any reason including Good Reason, death, disability (as defined in section 22(e)(3) of the Code) or Cause during the two (2) years following the date of the Change in Control shall be distributed in a single lump sum cash payment as soon as administratively feasible after such termination.           9.2.5            Pending Distributions.  Notwithstanding any other provision of the Plan Statement, any distribution (whether lump sum or installment) which is pending but which has not actually been made or commenced on the date of a Change in Control shall be distributed in a single lump sum cash payment as soon as administratively feasible after the date of the Change of Control.             9.2.6            Commutation of Installments.  Notwithstanding any other provision of the Plan Statement, any remaining installments due to any Participant who terminated employment before the date of a Change of Control shall be distributed in a single lump sum cash payment as soon as administratively feasible after the date of the Change of Control.           9.2.7            Not Amendable.  Notwithstanding any other provision of the Plan Statement, this Section 9.2 may not be amended to decrease any of the benefits which it provides during the two (2) years following the date of a Change in Control without the affirmative written consent of a majority in both number and interest of the Participants actively employed on the date of the Change in Control. SECTION 10 ADMINISTRATION 10.1   Authority.  The Plan shall be administered by the Committee, which shall have full discretionary power and authority to administer and interpret the Plan and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amount of their respective interests.  The Committee may delegate or redelegate to one or more persons, jointly or severally, and whether or not such persons are members of the Committee or employees of the Employer, such functions assigned to the Committee hereunder as it may from time to time deem advisable. 10.2   Liability.  No member of the Committee and no director or member of the management of the Employer shall be liable to any persons for any actions taken under the Plan, or for any failure to effect any of the objective or purposes of the Plan, by reason of insolvency or otherwise. 10.3   Procedures.  The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan. 10.4   Claim for Benefits.  No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee. 10.5   Claims Procedure.  Until modified by the Committee, the claims procedure set forth in this Section 10.5 shall be the claims procedure for the resolution of disputes and disposition of claims arising under the Plan.           10.5.1          Original Claim.  Any employee, former employee, or Beneficiary of such employee or former employee may, if the employee, former employee or Beneficiary so desires, file with the Committee a written claim for benefits under the Plan.  Within ninety (90) days after the filing of such a claim, the Committee shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim.  If the claim is denied in whole or in part, the Committee shall state in writing:   (a) the specific reasons for the denial,         (b) the specific references to the pertinent provisions of this Plan on which the denial is based,         (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and         (d) an explanation of the claims review procedure set forth in this Section.             10.5.2          Claims Review Procedure.  Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments.  Within sixty (60) days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days (120) from the date the request for review was filed) to reach a decision on the request for review.           10.5.3          General Rules. (a)      No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure.  The  Committee may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Committee upon request. (b)      All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee. (c)      The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim. (d)      Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization.  A claimant=s representative shall be entitled to copies of all notices given to the claimant. (e)      The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing.  If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied. (f)       Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant=s representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Employer and its Affiliates. 10.6   Errors in Computations.  The Committee shall not be liable or responsible for any error in the computation of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any Beneficiary to whom such benefit shall be payable, directly or indirectly, to the Committee, and used by the Committee in determining the benefit.  The Committee shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant.  However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment).   SECTION 11 PLAN ADMINISTRATION 11.1   Principal Sponsor.           11.1.1          Officers.  Except as hereinafter provided, functions generally assigned to the Principal Sponsor shall be discharged by its Compensation and Organization Committee of the Board of Directors of ADC Telecommunications, Inc. or delegated and allocated as provided herein.           11.1.2          Compensation and Organization Committee.  Except as hereinafter provided, the Compensation and Organization Committee of the Board of Directors of ADC Telecommunications, Inc. may delegate and redelegate and allocate and reallocate to one or more persons or to an Employer of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to the Principal Sponsor hereunder as the Compensation and Organization Committee of the Board of Directors of ADC Telecommunications, Inc. may from time to time deem advisable.           11.1.3          Board of Directors.  Notwithstanding the foregoing, the Compensation and Organization Committee of the Board of Directors of ADC Telecommunications, Inc. shall have exclusive authority, which may not be delegated, to act for the Principal Sponsor to terminate this Plan.           11.1.4          Amendment.  The Principal Sponsor reserves the power to amend this Plan Statement in any respect and either prospectively or retroactively or both: (a)      in any respect by resolution of its Compensation and Organization Committee of the Board of Directors of ADC Telecommunications, Inc.; and (b)      in any respect that does not materially increase the cost of the Plan by action of the Retirement Committee. 11.2   Conflict of Interest.  If any officer or employee of the Employer or any member of the board of directors of the Employer to whom authority has been delegated or redelegated hereunder shall also be a Participant in the Plan, the Participant shall have no authority as such officer, employee or member with respect to any matter specially affecting the Participant’s individual interest hereunder (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to the other officers, employees or members as the case may be, to the exclusion of the Participant and the Participant shall act only in the Participant’s individual capacity in connection with any such material. 11.3   Administrator.  The Principal Sponsor shall be the administrator for purposes of Section 3(16)(A) of ERISA.   11.4   Service of Process.  In the absence of any designation to the contrary by the Principal Sponsor, the Secretary of the Principal Sponsor is designated as the appropriate and exclusive agent for the receipt of service of process directed to the Plan in any legal proceeding, including arbitration, involving the Plan. SECTION 12 DISCLAIMERS 12.1   Term of Employment.  Neither the terms of the Plan Statement nor the benefits hereunder nor the continuance thereof shall be a term of the employment of any employee.  The Employer shall not be obliged to continue the Plan. 12.2   Employment.  The terms of the Plan Statement shall not give any employee the right to be retained in the employment of the Employer. 12.3   Source of Payment.  Neither the Employer nor any of its officers nor any member of its board of directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Participant or to any Beneficiary or to any creditor of a Participant or a Beneficiary.  Each Participant, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of the Employer for such payments or to the Accounts distributed to any Participant or Beneficiary, as the case may be, for such payments.  In each case where Accounts shall have been distributed to a former Participant or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Participant or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of the Employer. 12.4   Guaranty.  Neither the Employer nor any of its officers nor any member of its board of directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of the Employer. 12.5   Delegation.  The Employer and its officers and the members of its board of directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.

EXHIBIT 10.40   MANAGEMENT CONTRACT   entered into by and between   SPEECH DESIGN Gesellschaft für elektronische Sprachverarbeitung mbH Industriestraße 1, 82110 Germering   – hereinafter referred to as „the Company“ and   Mr. Kasimir Arciszewski Schellingstraße 78, 80799 München   – hereinafter referred to as „the Managing Director“   § 1 Sphere of Activities   1.          The Managing Director (Geschäftsführer) was appointed by the Company. This appointment shall not exclude the additional appointment of Mr. Hans Meiler. It is agreed, that the Managing Director and Mr. Hans Meiler will be the sole managing directors of the Company during the Contract Term. However, it is agreed by the parties that the Company shall be entitled to appoint another Managing Director in any case of termination of the Management Contract of Mr. Hans Meiler for whatever reason, such Managing Director’s sphere of activities to be limited to the sphere of activities of Mr. Hans Meiler.   2.          It shall be incumbent on the Managing Director to scrupulously conduct the business of the Company and to perform the obligations assigned to him by law, by the Company statutes as in effect from time to time and the present contract with the appropriate responsibility.   3.          The Managing Director’s principal function shall consist in the management and supervision of the fields of sales and marketing, product planning, finances as well as it includes the taking, coordination and execution of all measures.   4.          The Managing Director’s activities shall be subject to the reciprocal coordination with the other Managing Director.   5.          The Managing Director will freely organize his sphere of activities and is not bound by the observance of specific working hours or a specific place of office.   § 2 Power of Representation   1.          The Managing Director shall represent the company jointly with Mr. Hans Meiler in and out of court as defined by his appointment and the actual company statutes.   2.          The Managing Director is released from the restrictions of section 181 German Civil Code („prohibition of self contracting“) for all transactions between the Company on the one hand and majority-owned enterprises of the Company on the other hand, namely at present SATELCO AG, Switzerland, SPEECH DESIGN ISRAEL, Ltd., Israel and SPEECH DESIGN CARRIER SYSTEMS GmbH, Germany. Such release from the restrictions of section 181 German Civil Code applies also to the legal transactions undertaken in the past by the Managing Director acting as representative of the Company on the one hand and as representative of the abovelisted enterprises on the other hand. This consent does not include any other consent or approval that might be necessary in relation with such transactions for whatever other legal reason.   3.          The Managing Director shall be bound to the resolutions and instructions of the Shareholders’ Meeting. The Shareholders’ Meeting may in particular establish general policies with regard to the way the business is to be conducted.   § 3 Contract Term, Termination   1.          This agreement enters into force on July 1st, 2001 (hereinafter referred to as „Effective Date“) and will end after three years on June 30th, 2004 (hereinafter referred to as „Contract Term“) without notice. During the Contract Term the right to terminate this agreement without cause is excluded. At the latest six months before the end of contract the parties may enter into negotiations on the renewal of this contract.   2.          Either party shall have the right to terminate this agreement with cause for important reasons by written notice effective immediately. Important reasons in the meaning of the sentence above are in particular   2.1.   for the Company, if the Managing Director:   2.1.1.       is convicted of any relevant crime or felony, or   2.1.2.       refuses to comply with material oral or written decisions or instructions of the Company’s shareholders, provided the Managing Director is given written notice and an adequate cure period of at least ten days, and such failure is not cured within such cure period, or   2.1.3.       is grossly negligent or dishonest in connection with the performance of his duties hereunder, or   2.1.4.       materially breaches affirmative or negative covenants or undertakings hereunder.   2.2.   for the Managing Director, if   2.2.1.       the appointment of the Managing Director as  Managing Director of the Company is revoked without cause,   2.2.2.       contrary to Section 1 hereunder an additional Managing Director or a permanent representative is appointed by the shareholders of the Company with the right to instruct the Managing Director in the normal course of business,   2.2.3.       the sphere of activities or the power to represent the Company is materially restricted.   3.          In addition the Managing Director shall have the right to terminate this agreement with six months prior written notice, which notice will be effective by the end of the calendar month in which it is given, in the event that   3.1.          the shareholders of the Company sell all or substantially all of the tangible or intangible assets or properties of the Company,   3.2.          the shareholders of the Company sell a majority participation in the Company.   Exceptions: The Managing Director  will not have the termination rights pursuant to section 3.1. or 3.2. above in the following cases: a)     the sale or transfer of the Company´s assets / participation is either to the existing shareholders of the Company´s current sole shareholder, Bogen Communications International, Inc. or to a majority-owned subsidiary of Bogen Communications International, Inc. b)    the sale occurs in form of a public listing of the Company´s securities on a U.S. or European stock exchange   Notwithstanding § 1 section 1 above the Company shall be entitled to appoint additional managing directors if the Managing Director terminates the Management Contract pursuant to section 3.1. or 3.2. above.   § 4 Compensation   1.          The Managing Director shall receive for his services a yearly gross salary amounting to 240.000,-- Deutsch Marks, payable in twelve equal monthly installments of 20.000,-- Deutsch Marks each at the end of each calendar month reduced by the statutory deductions. At the latest three months prior to the end of every contract year, the aforesaid remuneration will be subject to an upward revision, as may be agreed by the parties.   2.          In addition the Managing Director shall receive an annual performance-based bonus (hereinafter referred to as „the Bonus“). The Bonus is targeted at DM 60.000,-- if the trend of business meets the expectations reflected in the Company´s budget for the respective calendar year. Specifically, the above target  Bonus is paid if the Company´s consolidated (US-GAAP) EBIT reaches the budgeted amount, no Bonus is paid if EBIT is under 50% of the budgeted amount and a maximum Bonus of DM 90.000,-- is paid if EBIT reaches 150% or more of the budgeted amount.   Within the range of 50% to 100% of budgeted EBIT, the Bonus is calculated as follows:   Bonus = DM 60.000 * (actual EBIT – (budget EBIT / 2)) / (budget EBIT / 2)   Examples: a)     budget EBIT = 100, act. EBIT = 50   à Bonus  = 0 b)     budget EBIT = 100, act. EBIT = 75   à Bonus  = DM  30.000 c)     budget EBIT = 100, act. EBIT = 100  à Bonus = DM  60.000   Within the range of 100% to 150% of budgeted EBIT, the Bonus is calculated as follows:   Bonus = DM 60.000 * (1 + (actual EBIT – budget EBIT) / budget EBIT)   Examples: a)     budget EBIT = 100, act. EBIT = 100  à Bonus  = DM  60.000 b)     budget EBIT = 100, act. EBIT = 125  à Bonus  = DM  75.000 c)     budget EBIT = 100, act. EBIT = 150  à Bonus  = DM  90.000   The annual Bonus is payable on or before the later of a) March 31 of the following fiscal year, or b) ten days after the audited financial statements for the prior fiscal year of the Company have been finalized.   This agreement replaces all other arrangements on bonuses to be paid to the Managing Director for the year 2001.   3.          In addition the Managing Director is entitled to participate in the Stock option plan of Bogen Communications International, Inc., as defined in Exhibit A.   4.          In addition to the social security contributions payable by employer by act of law the Company will also bear the employee’s contributions to the statutory unemployment insurance and to the statutory social security pension insurance and will therefore pay the Managing Director a monthly amount corresponding to the employee’s contributions.   § 5 Fringe Benefits   1.          During the contract term the Company shall provide the Managing Director with a Company car of the upper middle class, the leasing rates for which shall not exceed DM 21.000,-- p.a., which the Managing Director may also use for private travel. Possibly accruing wage tax shall be borne by the Managing Director.   2.          Contingent existing personal accident insurances and direct life insurances remain maintained during the Contract Term at current premium levels subject to ordinary premium increases.   § 6 Expenses   The Company is under the obligation to reimburse the Managing Director for the expenses incurred by him to the extent that such expenses are necessary and appropriate. These expenses shall in the individual case be documented in compliance with the applicable tax regulations unless these expenses are accounted for at a flat rate in accordance with the said tax regulations.   § 7 Vacation   1.          The Managing Director shall be entitled to a vacation of six weeks per annum.   2.          Safeguarding the interests of the Company, the proposed time of the vacation shall be subject to the coordination with the other Managing Director and with the shareholders.   § 8 Continued payment of Salary in the Event of Illness   1.          If the Managing Director is prevented from performing his duties by illness or by other circumstances beyond his control, he shall receive the remuneration as set out in § 4 and § 5 up to a period of 6 (six) months beginning with the month succeeding the month in which the prevention begins.   2.          Any compensation for wages paid by third parties, e.g. arising from disability income insurance or otherwise in respect of salary, shall be deducted from the continued payment of the salary owed by the Company in such a way that the amount of the aforesaid compensation together with the Company’s continued payment of the salary amounts to the net base salary the Managing Director would receive if he were able to work.   § 9 Non-Competition Clause   1.          During the Contract Term and for three years after the expiration of the Management Contract  (hereinafter referred to as „the Non-Competition period“) the Managing Director shall not whether directly or indirectly   1.1.          hire, solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Buyer or any of its affiliates, or   1.2.          hire, solicit or encourage any consultant under contract with the Company or any of its affiliates to cease to work with the Company or any of its affiliates, or   1.3.          actively engage in competing business transactions, by way of employment or self-employment, occasionally or commercially, or own an interest in any such business as a partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any other relationship or capacity, other than owning shares of the Company, Bogen Communications International, Inc., any majority-owned subsidiary of Bogen Communications International, Inc. or shareholders of the Company or less than 1 % of the outstanding stock of any publicly traded company.   Competing business transactions in terms of section 1.3. shall be considered a) the development, production and/or distribution of supplementary electronical equipment for telephone facilities and/or services, such as PABX peripherals and unified messaging systems, including, without limitation, any voicemail via voice or e-mail, computer telephony integration and the like b) and any other business in which the Company significantly participates during the Contract Term by development, production and/or distribution. The geographic scope of application is limited to Europe and any other area in which the Company or its affiliates do business during the Contract Term.   2.          During the Non-Competition Period a compensation for the abstention from acts of competition is to be paid by the Company. The yearly compensation will amount to 50 % of the average fixed remuneration of the Managing Director paid to the Managing Director in the last twelve months before the expiration of the Management Contract (DM 120.000,-- p.a.). The compensation is payable in equal monthly installments at the end of each calendar month.   3.          The Company may waive the prohibition of competition in whole or for individual transactions at any time during the Contract Term or during the Non-Competition Period with six months prior written notice. The obligation to pay the compensation to the Managing Director remains in full force if the waiver relates only to individual transactions and expires upon the expiration of such notice period if the Company fully waives its prohibition rights hereunder.   4.          In each case of violation of his obligations under this § 9, the Managing Director shall pay a penalty of DM 50.000,--. In case of permanent violation of his obligations hereunder such penalty is to be paid for each month during such violation period. The right of the Company to claim for damages and/or injunctive relief remains unaffected.   § 10 Business and Trade Secrets   The Managing Director shall be under the obligation to observe unrestricted and complete secrecy of any and all Business and Trade Secrets as well as of all other confidential information or details regarding the Company or its business enterprise. The foregoing secrecy obligations will be effective even after termination of this contract.   § 11 Delivery of Documents   Upon termination of this contract the Managing Director shall be under the obligation to return all documents, records, all existing electronic files and other material relating to his activities as Managing Director to the Company without being asked.   § 12 Inventions, Copyright   1.          Any rights in inventions or technical improvements made or worked out by the Managing Director in the course of his service for the Company, in relation with his activities for the Company, owing to his experience resulting from his service for the Company or owing to works carried out by the latter, may be exclusively used by the Company. Already at the present time, the Managing Director shall assign all respective rights to the Company. Regarding this matter the Company shall be under no obligation to pay any additional remuneration. For lack of the Managing Director’s status as employee, the Act on Employee Inventions shall not apply.   2.          Where, related to any of his duties or to the experience resulting from his service for the Company or to the performance rendered by the Company, copyrights for works are vested in the person of the Managing Director, it is agreed herewith that he shall already at the present time assign the exclusive and gratuitous right of use therein to the Company.   § 13 Absence of Subsidiary Oral Agreements, Amendments, Written Form   1.          There are no subsidiary oral agreements. Any contractual amendments require written form.   2.          The former contract of employment as Managing Director, including all amendments and possible provisions as to the payment of bonuses, shall cease to be in force upon the Effective Date.   § 14 Severability Clause   Should any provision of this contract be or become invalid or unenforceable, this shall not affect the validity of the remaining provisions. The invalid or unenforceable provision shall be replaced by a regulation which comes closest to the economic purpose of the invalid provision. The same shall apply in the event that this contract is incomplete. This provision applies also if the invalidity or unenforceability of a provision is due to the extent of a time limit or period or of a geographic area. In this case the legally permitted time limit or period or geographic area shall be applicable.   § 15 Place of Performance and Legal Venue   Place of performance and legal venue for all legal disputes possibly arising out of this contract shall be the legal seat of the Company.   § 16 Declaration of Intention   All declarations of intention made by the Managing Director concerning the present contract shall be addressed to the CEO (Chief Executive Officer) or the President of the sole shareholder.   This agreement is made in duplicate each copy being original, this 29th day of June, 2001.   /s/ Jonathan Guss   /s/ Kasimir Arciszewski – the company –   – the Managing Director – represented by the shareholders        

Exhibit 10.20(t) Supplemental Agreement No. 19 to Purchase Agreement No. 1951 between The Boeing Company and Continental Airlines, Inc. Relating to Boeing Model 737 Aircraft     THIS SUPPLEMENTAL AGREEMENT, entered into as of October 31, 2000, by and between THE BOEING COMPANY, a Delaware corporation with its principal office in Seattle, Washington, (Boeing) and Continental Airlines, Inc., a Delaware corporation with its principal office in Houston, Texas (Buyer); WHEREAS, the parties hereto entered into Purchase Agreement No. 1951 dated July 23, 1996 (the Agreement), as amended and supplemented, relating to Boeing Model 737-500, 737-600, 737-700, 737-800, and 737-900 aircraft (the Aircraft); and WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Buyer have mutually agreed that the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Buyer have mutually agreed to amend the Agreement to incorporate the effect of these and certain other changes; NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties agree to amend the Agreement as follows:   1. Table of Contents and Tables: 1.1 Remove and replace, in its entirety, the "Table of Contents", with the Table of Contents attached hereto, to reflect the changes made by this Supplemental Agreement No. 19. 1.2 Remove and replace, in its entirely, page T-3 of Table 1 entitled "Aircraft Deliveries and Descriptions" that relates to Model 737-800 Aircraft with new pages T-3-1 and T-3-2 attached hereto for the Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].   Letter Agreements : Remove and replace, in its entirety, Letter Agreement 1951-3R11, "Option Aircraft - Model 737-824 Aircraft", with Letter Agreement 1951-3R12, "Option Aircraft - Model 737-824 Aircraft", attached hereto to reflect the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].   The Agreement will be deemed to be supplemented to the extent herein provided as of the date hereof and as so supplemented will continue in full force and effect.   EXECUTED IN DUPLICATE as of the day and year first written above.   THE BOEING COMPANY Continental Airlines, Inc.       By: /s/ Henry H. Hart   By: /s/ Gerald Laderman Its: Attorney-In-Fact   Its: Senior Vice President-Finance TABLE OF CONTENTS Page SA Number Number ARTICLES 1. Subject Matter of Sale 1-1 SA 5 2. Delivery, Title and Risk of Loss 2-1 3. Price of Aircraft 3-1 SA 5 4. Taxes 4-1 5. Payment 5-1 6. Excusable Delay 6-1 7. Changes to the Detail Specification 7-1 SA 5 8. Federal Aviation Requirements and Certificates and Export License 8-1 SA 5 9. Representatives, Inspection, Flights and Test Data 9-1 10. Assignment, Resale or Lease 10-1 11. Termination for Certain Events 11-1 12. Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance 12-1 13. Buyer Furnished Equipment and Spare Parts 13-1 14. Contractual Notices and Requests 14-1 SA 17 15. Miscellaneous 15-1   TABLE OF CONTENTS Page SA Number Number TABLES 1. Aircraft Deliveries and Descriptions - 737-500 T-1 SA 3 Aircraft Deliveries and Descriptions - 737-700 T-2 SA 13 Aircraft Deliveries and Descriptions - 737-800 T-3 SA 19 Aircraft Deliveries and Descriptions - 737-600 T-4 SA 4 Aircraft Deliveries and Descriptions - 737-900 T-5 SA 5   EXHIBITS A-1 Aircraft Configuration - Model 737-724 SA 2 A-2 Aircraft Configuration - Model 737-824 SA 2 A-3 Aircraft Configuration - Model 737-624 SA 1 A-4 Aircraft Configuration - Model 737-524 SA 3 A-5 Aircraft Configuration - Model 737-924 SA 5 B Product Assurance Document SA 1 C Customer Support Document - Code Two - Major Model Differences SA 1 C1 Customer Support Document - Code Three - Minor Model Differences SA 1 D Aircraft Price Adjustments - New Generation Aircraft (1995 Base Price) SA 1 D1 Airframe and Engine Price Adjustments - Current Generation Aircraft SA 1 D2 Aircraft Price Adjustments - New Generation Aircraft (1997 Base Price) SA 5 E Buyer Furnished Equipment Provisions Document SA 5 F Defined Terms Document SA 5   TABLE OF CONTENTS SA Number LETTER AGREEMENTS 1951-1 Not Used 1951-2R3 Seller Purchased Equipment SA 5 1951-3R12 Option Aircraft-Model 737-824 Aircraft SA 19 1951-4R1 Waiver of Aircraft Demonstration SA 1 1951-5R2 Promotional Support - New Generation SA 5 Aircraft 1951-6 Configuration Matters 1951-7R1 Spares Initial Provisioning SA 1 1951-8R2 Escalation Sharing - New Generation Aircraft SA 4 1951-9R8 Option Aircraft-Model 737-724 Aircraft SA 17 1951-11R1 Escalation Sharing-Current Generation Aircraft SA 4 1951-12R1 Option Aircraft - Model 737-924 Aircraft SA 17 1951-13 Configuration Matters - Model 737-924 SA 5 TABLE OF CONTENTS   SA Number RESTRICTED LETTER AGREEMENTS   6-1162-MMF-295 Performance Guarantees - Model 737-724 Aircraft 6-1162-MMF-296 Performance Guarantees - Model 737-824 Aircraft 6-1162-MMF-308R3 Disclosure of Confidential SA 5 Information 6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED SA 1 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED SA 5 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-312R1 Special Purchase Agreement Provisions SA 1 6-1162-MMF-319 Special Provisions Relating to the Rescheduled Aircraft 6-1162-MMF-378R1 Performance Guarantees - Model 737-524 Aircraft SA 3 6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED SA 2 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-GOC-131R2 Special Matters SA 5 6-1162-DMH-365 Performance Guarantees - Model 737-924 Aircraft SA 5 6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED SA 8 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-680 Delivery Delay Resolution Program SA 9 6-1162-DMH-1020 [CONFIDENTIAL MATERIAL OMITTED SA 14 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1035 [CONFIDENTIAL MATERIAL OMITTED SA 15 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1054 [CONFIDENTIAL MATERIAL OMITTED SA 1 AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   TABLE OF CONTENTS   SUPPLEMENTAL AGREEMENTS DATED AS OF: Supplemental Agreement No. 1 October 10,1996 Supplemental Agreement No. 2 March 5, 1997 Supplemental Agreement No. 3 July 17, 1997 Supplemental Agreement No. 4 October 10,1997 Supplemental Agreement No. 5 May 21,1998 Supplemental Agreement No. 6 July 30,1998 Supplemental Agreement No. 7 November 12,1998 Supplemental Agreement No. 8 December 7,1998 Supplemental Agreement No. 9 February 18,1999 Supplemental Agreement No. 10 March 19,1999 Supplemental Agreement No. 11 May 14,1999 Supplemental Agreement No. 12 July 2,1999 Supplemental Agreement No. 13 October 13,1999 Supplemental Agreement No. 14 December 13,1999 Supplemental Agreement No. 15 January 13,2000 Supplemental Agreement No. 16 March 17,2000 Supplemental Agreement No. 17 May 16,2000 Supplemental Agreement No. 18 September 11,2000 Supplemental Agreement No. 19 October 31, 2000 Table 1 to Purchase Agreement 1951 Aircraft Deliveries and Descriptions Model 737-800 Aircraft CFM56-7B26 Engines Detail Specification No. D6-38808-43 Exhibit A-2   [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 1951-3R12 October 31, 2000   Continental Airlines, Inc. 1600 Smith Street Houston, Texas 77002   Subject: Letter Agreement No. 1951-3R12 to Purchase Agreement No. 1951 - Option Aircraft - Model 737-824 Aircraft   Ladies and Gentlemen: This Letter Agreement amends Purchase Agreement No. 1951 dated July 23, 1996(the Agreement) between The Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer) relating to Model 737-824 aircraft (the Aircraft). This Letter Agreement supersedes and replaces in its entirety Letter Agreement 1951-3R11 dated September 11, 2000. All terms used and not defined herein shall have the same meaning as in the Agreement. In consideration of Buyer's purchase of the Aircraft, Boeing hereby agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model 737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms and conditions set forth in the Agreement, except as otherwise described in Attachment A hereto, and subject to the terms and conditions set forth below. 1. Delivery. The Option Aircraft will be delivered to Buyer during or before the months set forth in the following schedule:   Month and Year Number of of Delivery   Option Aircraft [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 3. Option Aircraft Deposit. In consideration of Boeing's grant to Buyer of options to purchase the Option Aircraft as set forth herein, Buyer has paid a deposit to Boeing of [ CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option Aircraft (the Option Deposit) prior to the date of this Letter Agreement. In the event Buyer exercises an option herein for an Option Aircraft, the amount of the Option Deposit for such Option Aircraft will be credited against the first advance payment due for such Option Aircraft pursuant to the advance payment schedule set forth in Article 5 of the Agreement. In the event that Buyer does not exercise its option to purchase a particular Option Aircraft pursuant to the terms and conditions set forth herein, Boeing shall be entitled to retain the Option Deposit for such Option Aircraft. 4. Option Exercise. To exercise its option to purchase the Option Aircraft, Buyer shall give written notice thereof to Boeing on or before the first business day of the month in each Option Exercise Date shown below: Option Aircraft Option Exercise Date [ CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 5. Contract Terms. Within thirty (30) days after Buyer exercises an option to purchase Option Aircraft pursuant to paragraph 4 above, Boeing and Buyer will use their best reasonable efforts to enter into a supplemental agreement amending the Agreement to add the applicable Option Aircraft to the Agreement as a firm Aircraft (the Option Aircraft Supplemental Agreement). In the event the parties have not entered into such an Option Aircraft Supplemental Agreement within the time period contemplated herein, either party shall have the right, exercisable by written or telegraphic notice given to the other within ten (10) days after such period, to cancel the purchase of such Option Aircraft. 6. Cancellation of Option to Purchase. Either Boeing or Buyer may cancel the option to purchase an Option Aircraft if any of the following events are not accomplished by the respective dates contemplated in this Letter Agreement, or in the Agreement, as the case may be: (i) purchase of the Aircraft under the Agreement for any reason not attributable to the canceling party; (ii) payment by Buyer of the Option Deposit with respect to such Option Aircraft pursuant to paragraph 3 herein; or (iii) exercise of the option to purchase such Option Aircraft pursuant to the terms hereof. Any cancellation of an option to purchase by Boeing which is based on the termination of the purchase of an Aircraft under the Agreement shall be on a one-for-one basis, for each Aircraft so terminated. Cancellation of an option to purchase provided by this letter agreement shall be caused by either party giving written notice to the other within ten (10) days after the respective date in question. Upon receipt of such notice, all rights and obligations of the parties with respect to an Option Aircraft for which the option to purchase has been cancelled shall thereupon terminate. Boeing shall promptly refund to Buyer, without interest, any payments received from Buyer with respect to the affected Option Aircraft. Boeing shall be entitled to retain the Option Deposit unless cancellation is attributable to Boeing's fault, in which case the Option Deposit shall also be returned to Buyer without interest.       7. Applicability. Except as otherwise specifically provided, limited or excluded herein, all Option Aircraft that are added to the Agreement by an Option Aircraft Supplemental Agreement as firm Aircraft shall benefit from all the applicable terms, conditions and provisions of the Agreement.   If the foregoing accurately reflects your understanding of the matters treated herein, please so indicate by signature below. Very truly yours, THE BOEING COMPANY     By   /s/ Henry H. Hart      Its     Attorney In Fact      ACCEPTED AND AGREED TO this Date: October 31, 2000 CONTINENTAL AIRLINES, INC.,     By    /s/ Gerald Laderman   Its   Senior Vice President - Finance            Attachment Model 737-824 Aircraft 1. Option Aircraft Description and Changes. 1.1 Aircraft Description. The Option Aircraft are described by Boeing Detail Specification D6-38808-43, Revision B, dated April 30,2000, as amended and revised pursuant to the Agreement. 1.2 Changes. The Option Aircraft Detail Specification shall be revised to include: (1) Changes applicable to the basic Model 737-800 aircraft which are developed by Boeing between the date of the Detail Specification and the signing of an Option Aircraft Supplemental Agreement. (2) Changes mutually agreed upon. (3) Changes required to obtain a Standard Certificate of Airworthiness. 1.3 Effect of Changes. Changes to the Detail Specification pursuant to the provisions of the clauses above shall include the effects of such changes upon Option Aircraft weight, balance, design and performance. 2. Price Description. 2.1 Price Adjustments. 2.1.1 Base Price Adjustments. The base aircraft price (pursuant to Article 3 of the Agreement) of the Option Aircraft will be adjusted to Boeing's and the engine manufacturer's then-current prices as of the date of execution of the Option Aircraft Supplemental Agreement. 2.1.2 Special Features. The price for special features incorporated in the Option Aircraft Detail Specification will be adjusted to Boeing's then-current prices for such features as of the date of execution of the Option Aircraft Supplemental Agreement [ CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].   2.1.3 Escalation Adjustments. The base airframe and special features price will be escalated according to the applicable airframe and engine manufacturer escalation provisions contained in Exhibit D of the Agreement. Buyer agrees that the engine escalation provisions will be adjusted if they are changed by the engine manufacturer prior to signing the Option Aircraft Supplemental Agreement. In such case, the then-current engine escalation provisions in effect at the time of execution of the Option Aircraft Supplemental Agreement will be incorporated into such agreement. 2.1.4 Price Adjustments for Changes. Boeing may adjust the basic price and the advance payment base prices for any changes mutually agreed upon by Buyer and Boeing subsequent to the date that Buyer and Boeing enter into the Option Aircraft Supplemental Agreement. 2.1.5 BFE to SPE. An estimate of the total price for items of Buyer Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE) pursuant to the Detail Specification is included in the Option Aircraft price build-up. The purchase price of the Option Aircraft will be adjusted by the price charged to Boeing for such items plus 10% of such price. 3. Advance Payments. 3.1 Buyer shall pay to Boeing advance payments for the Option Aircraft pursuant to the schedule for payment of advance payments provided in the Purchase Agreement.  

Exhibit 10.15 INDEMNIFICATION AGREEMENT   This Indemnification Agreement (the "Agreement") is entered into as of the 27th day of March, 2001, by and among AMERICAN COMMUNITY PROPERTIES TRUST, INC., a Maryland business trust (the "Company"), and T. MICHAEL SCOTT (the "Indemnitee"). WHEREAS, existing statutes, regulations, trust documents and bylaws regarding indemnification of trustees and officers and limitation of liability of trustees and officers are often not adequate to provide them with protection against risks to which they may be exposed by virtue of serving as trustees and officers of a business trust, WHEREAS, damages sought by class action plaintiffs in some cases amount to substantial dollar amounts and, whether or not the case is meritorious, the cost of defending these suits can be enormous with few individual trustees and officers having the resources to sustain such legal costs or a judgment in favor of the plaintiffs even in cases where the defendant was neither culpable nor profited personally to the detriment of the corporation; WHEREAS, it is generally recognized that the issues in controversy in such litigation are usually related to the knowledge, motives and intent of the trustee or officer and that he is usually the only witness with firsthand knowledge of the essential facts or of exculpating circumstances who is qualified to testify in his defense regarding matters of such subjective nature, and that the long period of time which normally and usually elapses before such suits can be disposed of can extend beyond the normal time for retirement for a trustee or officer, with the result that he, after retirement, or in the event of his death, his spouse, heirs, executors, administrators, as the case may be, may be faced with limited ability, undue hardship and an intolerable burden in launching and maintaining a proper and adequate defense of such party or his estate against claims for damages; WHEREAS, the trust instrument and bylaws of the Company and the rules and regulations governing the Company allow it to indemnify and hold harmless their management personnel and their affiliates and each of their respective trustees and officers for losses, claims, damages, expenses or liabilities incurred by such persons by reason of any action, omission to act or decision made by any such persons in connection with the business of the Company; WHEREAS the Board of Trustees (as defined in Article I hereto) has concluded that it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify the Indemnitees in reasonable and adequate manner to the fullest extent permitted by applicable law, to assume for itself maximum liability for expenses and damages in connection with claims lodged against them for their decisions and actions and to provide for the advancement of expenses incurred by the Indemnitees; and WHEREAS, the Indemnitees are willing to serve, for or on behalf of the Company on the condition that they be so indemnified. NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: WITNESSETH I. DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings set forth below: A. "Board of Trustees" shall mean the board of trustees of the Company. B. "Change in Control" shall mean: (i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x) the then-outstanding Common Shares of the Company (the "Outstanding Company Common Shares") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of trustees (the "Outstanding Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for Common Shares or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any company controlled by the Company, or (C) any acquisition by any company pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (ii) of this definition; or (ii) the consummation of an amalgamation, merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a " Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of Common Shares and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring company in such Business Combination (which shall include, without limitation, a company which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring company is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Shares and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination, and (y) no Person (excluding the Acquiring Corporation, any Exempt Persons or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then-outstanding Common Shares of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such company entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination). C. "Disinterested Trustee" shall mean a trustee of the Company who neither is nor was a party to the Proceeding in respect of which indemnification or advance of expenses is being sought by an Indemnitee. D. "Expenses" shall mean, without limitation, expenses of Proceedings including all attorneys' fees, retainers, court costs, transcript costs, fees of experts, accounting and witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness or party in a Proceeding. E. "Bad Faith" shall mean with respect to a particular Indemnitee, such Indemnitee not having acted in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding such Indemnitee having acted in a certain manner without reasonable cause to believe his conduct was lawful. F. "Liabilities" shall mean liabilities of any type whatsoever, including without limitation, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties, or amounts paid in settlement) in connection with the investigation, defense, settlement or appeal of any Proceeding or any claim, issue or matter therein. G. "Official Status" describes the status of a person who is or was a trustee or officer of the Company, or a member of any committee of the Board of Trustees, and the status of a person who, while a trustee or officer of the Company, is or was serving at the request of the Company as a trustee or officer of an employee benefit plan. H. "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other actual, threatened or completed proceeding whether civil, criminal, administrative or investigative, including, without limitation, any proceeding arising out of or relating to acts or omissions with respect to any and all related transactions, filings and other actions, whether or not such acts or omissions occurred prior to or subsequent to the date of this Agreement; provided, however, that the term Proceeding shall not include a Proceeding initiated by any of the Indemnitees against the Company or any trustee, officer, employee or agent of the Company unless (i) the Company has joined in or the Board of Trustees has consented to the initiation of such Proceeding, or (ii) the Proceeding is instituted after a Change in Control. I. "Voting Securities" shall mean any securities of an entity whose holder or holders are entitled to vote generally in the election of the Board of Trustees. II. TERM OF AGREEMENT This Agreement shall continue until and terminate with respect to any Indemnitee upon the later of: 1. 10 years after the date that such Indemnitee shall have ceased to serve as a trustee or officer of the Company or of any other corporation, partnership, limited liability company or partnership, joint venture, trust, employee benefit plan or other entity which such Indemnitee served at the request of the Company, or 2. The final termination of any Proceeding then pending in respect of which such Indemnitee is granted rights of indemnification of Liabilities or advancement of Expenses hereunder and of any Proceeding commenced by the Company pursuant to Section IV.E of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Indemnitees and their heirs, executors and administrators. III. SERVICES BY INDEMNITEE, NOTICE OF PROCEEDINGS AND DEFENSE OF CLAIM A. Agreement to Serve. Each Indemnitee shall serve and/or continue to serve, at the will of the Company or under separate contract, if such exists, as a trustee or officer of the Company. This Agreement does not create any additional right for any of the Indemnitees to serve as directors or officers other than at the will of the Company or as otherwise provided by separate contract. Indemnitee's resignation as a trustee shall not constitute a breach of this Agreement. B. Notice of Proceedings. Each Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification of Liabilities or advancement of Expenses covered hereunder, but the Indemnitee's omission to so notify the Company shall not relieve the Company from any liability which it may have to the Indemnitees under this Agreement unless such omission materially prejudices the rights of the Company (including, without limitation, the Company having lost any substantive or procedural rights with respect to the defense of any Proceeding). If such omission does materially prejudice the rights of the Company, the Company shall be relieved from liability under this Agreement to the extent of such prejudice; but such omission will not relieve the Company from any liability which it may owe to an Indemnitee otherwise than under this Agreement. C. Defense of Claims. The Company will be entitled to participate at its own expense in any Proceeding of which it has notice. The Company, jointly with any other indemnifying party similarly notified of any Proceeding, will be entitled to assume the defense of any Indemnitee therein, with counsel reasonably satisfactory to such Indemnitee; provided, however, that the prior written consent of the Indemnitee shall be required for the Company to assume the defense of an Indemnitee in a Proceeding (i) if there has been a Change in Control of the Company, or (ii) if the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and such Indemnitee, or between one Indemnitee and another, with respect to any Proceeding and has provided written notice thereof to the Company setting forth in reasonable detail the basis for the determination of such conflict of interest. After receipt of written notice from the Company to an Indemnitee of the Company's election to assume the defense of such Indemnitee in any Proceeding, the Company will not be liable to such Indemnitee under this Agreement for any Expenses subsequently incurred by such Indemnitee in connection with the defense thereof. An Indemnitee shall have the right to employ his own counsel in any such Proceeding, but the fees and expenses of such counsel incurred after receipt of written notice from the Company of its assumption of the defense thereof shall be at the expense of such Indemnitee unless: 1. The employment of counsel by such Indemnitee has been authorized in writing by the Company; 2. There is a conflict of interest between the Company and such Indemnitee with respect to such Proceeding and the Company has not employed separate counsel for such Indemnitee; or 3. The Company shall not in fact have employed counsel to assume the defense of such Indemnitee in such Proceeding or such counsel has not in fact assumed such defense or such counsel is not acting in connection therewith with reasonable diligence and Indemnitee has so notified the Company and the Company has not taken corrective action by causing such counsel to act thereafter with reasonable diligence or by substituting counsel; and in each such case the fees and expenses of such Indemnitee's counsel shall be paid as incurred, but in any event no later than 30 days within receipt of notice of such fees and expenses, by the Company pursuant to Article V. D. Settlement of Claims. The Company shall not settle any Proceeding in any manner which would impose any liability, penalty or limitation on any of the Indemnitees without the written consent of such Indemnitee; provided, however, that such Indemnitee shall not unreasonably withhold, delay or condition consent to any proposed settlement. The Company shall not be liable to indemnify any of the Indemnitees under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected by such Indemnitee without the Company's written consent. The Company shall not unreasonably withhold, delay or condition its consent to any proposed settlement. IV. INDEMNIFICATION A. In General. The Company shall indemnify any Indemnitees against any and all Expenses and Liabilities: (i) as provided in this Agreement, (ii) to the fullest extent consistent with applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, (iii) for any acts or omissions which occurred prior to each Indemnitee becoming a trustee of the Company, or establishing any formal relationship with the Company. The rights of the Indemnitees provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in this Article IV. It is expressly agreed and understood that the Company's indemnification to Indemnitee shall be absolute, total and unconditional with respect to any activity or event, including without limitation the preparation or distribution of any proxy statement, which occurs prior to the date of commencement of Indemnitee's service as a trustee of the Company and no process or procedure shall be needed to establish or confirm such indemnification, except as may be required by applicable law (provided Indemnitee is notified appropriately by the Company). B. Indemnification of a Party to a Proceeding. An Indemnitee shall be entitled to the rights of indemnification provided in this Section IV.B if, by reason of his Official Status, he is, or is threatened to be made, a party to any Proceeding. In accordance with this Section IV.B, an Indemnitee shall be indemnified against all Expenses and Liabilities actually incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, unless the acts or omissions of such Indemnitee are material to the matter giving rise to the Proceeding, and (a) were committed in Bad Faith (as determined pursuant to either Section IV.D.2 or Section IV.E below), or (b) were the result of active and deliberate dishonesty, or (c) for which the Indemnitee actually received an improper personal benefit in money, property or services; provided, however, that, if applicable law so provides, no indemnification against such Expenses and Liabilities shall be made in respect of any claim, issue or matter in a Proceeding brought by or on behalf of the Company as to which a final nonappealable judgment has been issued by a court of competent jurisdiction that the Indemnitee is liable to the Company, unless and to the extent that such court shall determine that such indemnification may be made. C. Indemnification for Expenses of Witness. Notwithstanding any other provision of this Agreement, to the extent that an Indemnitee, by reason of such Indemnitee's Official Status, has prepared to serve or has served as a witness in any Proceeding, such Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by or for him in connection therewith and that are not otherwise reimbursed. D. Specific Limitations on Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated under this agreement to make any payment to any Indemnitee for indemnification with respect to any Proceeding: 1. To the extent that payment is actually made to such Indemnitee under any insurance policy or is made to such Indemnitee by the Company otherwise than pursuant to this Agreement. 2. If a court in such Proceeding has entered a judgment or other adjudication which is final and has become nonappealable and established that a claim of such Indemnitee for such indemnification arose from acts or omissions of such Indemnitee which are material to the matter giving rise to the Proceeding and (a) which were committed in bad faith, or (b) which were the result of active and deliberate dishonesty, or (c) for which the Indemnitee actually received an improper personal benefit in money, property or services. 3. For Liabilities in connection with Proceedings settled without the consent of the Company. 4. For an accounting of profits made from the purchase or sale by such Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934 or similar provisions of any federal, state or local statute or regulation. 5. For any liability of an Indemnitee in connection with insider trading as defined under the United States securities laws or similar provisions of any state or local statute or regulation. E. Determination of Bad Faith. 1. An Indemnitee will be deemed to have acted in Bad Faith if such is proven by a preponderance of the evidence by the Company in one of the forums listed below. Such Indemnitee subject to a claim by the Company that he acted in Bad Faith shall be entitled to select from among the following forums in which the validity of the Company's claim will be heard: (a) A court of competent jurisdiction, or (b) a panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by such Indemnitee and the last of whom is selected by the first two arbitrators so selected, the arbitration to be conducted under the Commercial Arbitration Rules of the American Arbitration Association. 2. As soon as practicable, and in no event later than thirty (30) days after written notice of such Indemnitee's choice of forum pursuant to this Section IV.E, the Company shall at its own expense, submit to the selected forum in such manner as is set forth above its claim that such Indemnitee is not entitled to indemnification. The fees and expenses of the selected forum in connection with making the determination contemplated hereunder shall be paid by the losing party. If the Company shall fail to submit the matter to the selected forum within thirty (30) days after such Indemnitee's written notice, the requisite determination that such Indemnitee has the right to indemnification shall be deemed to have been made. F. Directors' and Officers' Liability Insurance. In addition to the indemnification protection provided to the Indemnitee by the other sections of this Agreement, the Company shall also purchase and maintain Directors' and Officers' Liability Insurance, at its expense and in amounts that are subject to such terms as shall be determined by the Board of Trustees of the Company, to protect the Indemnitee against any expense, liability or loss incurred by it or him in any such capacity, or arising out of his status as such. V. ADVANCEMENT OF EXPENSES A. Advancement of Expenses. The Company shall advance to an Indemnitee all Expenses incurred by him in connection with any Proceeding for which such Indemnitee is entitled to indemnification pursuant to Article IV above, provided that such Indemnitee executes and submits an undertaking to repay Expenses advanced in the form of Exhibit A attached hereto (the "Undertaking"). B. Procedure for Advancement. The Company shall advance Expenses pursuant to subsection A above within ten (10) business days after the receipt by the Company of an Undertaking. Each Indemnitee hereby agrees to repay any Expenses advanced hereunder if it shall be determined that such Indemnitee is not entitled to be indemnified against such Expenses. Any advances and the undertaking to repay pursuant to this Article V shall bear interest at the prime rate for commercial loans as reported from time to time in The Wall Street Journal. VI. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS A. Burden of Proof. In making a determination with respect to entitlement to indemnification of Liabilities and advancement of Expenses hereunder, including a determination pursuant to Section IV.E, the tribunal making such determination shall consider the Indemnitee's right to such entitlement de novo. B. Effect of Other Proceedings. The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order or settlement or conviction, or upon a plea of nolo contendere or its equivalent shall not of itself affect the right of an Indemnitee to indemnification or create a presumption that such Indemnitee acted in Bad Faith but may be considered along with any other admissible evidence. C. Actions of Others. The knowledge and/or actions, or failure to act, of any trustee, officer, agent or employee of the Company shall not be imputed to the Indemnitees for purposes of determining the right to indemnification under this Agreement. VII. NON-EXCLUSIVITY AND MISCELLANEOUS A. Non-Exclusivity. The rights of such Indemnitee hereunder shall not be deemed exclusive of any other rights to which such Indemnitee may at any time be entitled under any provision of law, regulation, the Company's charter, bylaws, vote of shareholders, resolution of trustees or otherwise, and to the extent that during the term of this Agreement the rights of the then existing trustees and officers are more favorable to such trustees and officers than the rights currently provided to the Indemnitees under this Agreement, the Indemnitees shall be entitled to the full benefits of such more favorable rights. B. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, when received, or (ii) mailed by certified or registered mail with postage prepaid, on the date of receipt. If to an Indemnitee, addressed to the Indemnitee at the following addresses: Mr. T. Michael Scott c/o Cambridge 560 Herndon Parkway Suite 210 Herndon, Virginia 20170 With a copy to: Steven S. Snider, Esq. Hale and Dorr LLP 1455 Pennsylvania Avenue, N.W. Suite 1000 Washington, D.C. 20004 202-942-8484 (fax) If to the Company, addressed to the Company at the following address: American Community Properties Trust c/o Edwin L. Kelly 222 Smallwood Village Center St. Charles, Maryland 20602 With a copy to: Alfred H. Moses, Esq. Covington & Burling 1201 Pennsylvania Avenue, N.W. Washington, D.C. 20004 C. GOVERNING LAW. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO ITS CHOICE OF LAW RULES. D. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to the subject matter hereof, provided, however, that the parties acknowledge and agree that the trust documents and bylaws of the Company may contain provisions on the subject matter hereof and that this Agreement is not intended to, and does not, limit the rights or obligations of the parties hereto pursuant to such instruments. E. Successors and Assigns. The rights, benefits, responsibilities and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, assigns, successors, affiliates, agents and representatives. F. Amendment of Agreement and Schedules. No amendment, alteration, rescission or replacement of this Agreement or any provision hereof shall (i) be effective as to any Indemnitee or the Company unless executed in writing by the Indemnitee(s) affected thereby and the Company if affected thereby, or (ii) be effective as to any Indemnitee with respect to any action or inaction by such Indemnitee in the Indemnitee's Official Status prior to such amendment, alteration, rescission or replacement. G. Titles. The titles to the articles and sections of this Agreement are inserted for convenience or reference only and should not be deemed a part hereof or affect the construction or interpretation of any provisions hereof. H. Invalidity of Provisions. Every provision of this Agreement is severable, and the invalidity or unenforceability of any term or provision shall not affect the validity or enforceability of the remainder of this Agreement. I. Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. J. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: 1. The validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Article of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and 2. to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Article of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. K. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together constitute one agreement binding on all the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. The Company: AMERICAN COMMUNITY PROPERTIES TRUST     By: /s/ J. Michael Wilson _____________________________________ Name: J. Michael Wilson Title: Chairman     Indemnitee: /s/ T. Michael Scott ___________________________________________ T. Michael Scott EXHIBIT A FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED   Re: Undertaking to Repay Expenses Advanced Board of Trustees American Community Properties Trust (the Company): Pursuant to the Indemnification Agreement dated as of the ____ day of _____________, 2001, by and among the Company and the Indemnitees (the "Agreement"), the undersigned is an Indemnitee and is thereby entitled to advancement of expenses in connection with [DESCRIPTION OF PROCEEDING] (the "Proceeding"). Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement. I am subject to the Proceeding by reason of my Official Status or by reason of actions allegedly taken or omitted by me in such capacity. During the period of time to which the Proceeding relates I was [NAME OF POSITION HELD] of __ ______________________________ (the "_______"). Pursuant to Section V of the Indemnification Agreement, the Company is obligated to advance to me Expenses that are reasonably incurred by or for me in connection with the Proceeding, provided that I execute and submit to the Company an Undertaking in which I undertake to repay the Company for any Expenses paid by it on my behalf together with interest thereon at the prime rate for commercial loans as reported from time to time in The Wall Street Journal if it shall be determined that I am not entitled to be indemnified by the Company against such Expenses. I hereby affirm my good faith belief that I have met the standard of conduct necessary for indemnification by the Company and under the Agreement, and that as a condition to indemnification I shall evidence in writing reasonably satisfactory to the Company the Expenses incurred by me or on my behalf. [DESCRIPTION FO EXPENSES INCURRED OR TO BE INCURRED BY OR FOR INDEMNITEE] This letter shall constitute my undertaking to repay to the Company any Expenses paid by it on my behalf in connection with the Proceeding if it is determined that I am not entitled to be indemnified by the Company with respect to such Expenses as set forth in the Agreement. I hereby affirm my good faith belief that I have met the standard of conduct necessary for indemnification by the Company and that I am entitled to such indemnification.   __________________________________ Signature __________________________________ Name __________________________________ Date

Exhibit 10.34(a)       AMENDMENT NUMBER 1 TO LETTER OF AGREEMENT GPJ-004/1996       With reference to the Letter of Agreement (the "LOA") GPJ-004/1996 dated August 5, 1996 between Embraer-Empresa Brasileira Aeronautica S.A. and Continental Express, Inc. (the "Parties"), the Parties hereby amend on the date set forth below the provision of Article 9.B thereof by substituting "September 3, 1996" for the September 1, 1996 date set forth in the LOA.         Dated as of August 31, 1996   CONTINENTAL EXPRESS, INC. EMBRAER-EMPRESA BRASILEIRA DE AERONAUTICA S.A.     By: /s/ David Siegel By: /s/ Mauricio Botelho Name: David Siegel Name: Mauricio Botelho Title: President Title: President & CEO      

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.17 PerfectData Corporation 110 West Easy Street Simi Valley, CA 93065     October 27, 2000 Mr. Dimitri Simonenko Business Solutions Group, Inc. 45723 Paddington Station Terrace Sterling, VA 20166 Re: $60,000 Loan to Business Solutions Group, Inc. Gentleman:     This letter shall confirm our agreement with respect to the above referenced loan. Upon the execution hereof, PerfectData Corporation (the "Lender") shall loan (the "Loan") Sixty Thousand ($60,000) Dollars to Business Solutions Group, Inc. (the "Borrower"), a Virginia corporation, which loan shall bear interest at a rate of seven (7%) percent per annum and shall be repayable on December 15, 2000, and shall be mandatorily prepayable out of the proceeds of the Comp USA Receivables (herein defined). The Loan shall be evidenced by a promissory note (the "Note"). The payment of the Loan shall be secured by a first priority security interest in all of the Borrower's accounts receivable from Comp USA (the "Comp USA Receivables"). All invoices relating to the Comp USA accounts receivable shall reflect the Lender's security interest therein and shall instruct that the Comp USA receivables shall be paid to an account designated and controlled by the Lender. The lender shall apply the proceeds of the Comp USA Receivables to the payment of all amounts due under the Note and shall remit the balance to the Borrower. The Borrower and Dimitri Simonenko represent and warrant to the lender that as of the date hereof the outstanding balance of the Comp USA Receivables are $99,456 which are represented by the invoices attached hereto as Exhibit "A".     This Agreement shall be enforced, governed by, and construed in accordance with the laws of the State of New York, regardless of the choice of law or conflict of law provisions of or any other jurisdiction. The parties agree that any suit brought in connection with this Agreement shall be brought in the state or federal courts located in the in the State of New York county of New York. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO VENUE, INCLUDING AN OBJECTION BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT SUCH PARTY NOW HAS OR HEREAFTER MAY HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION.     Lender may assign this Agreement at any time without the consent of Borrower. All stipulations, promises and agreements herein by or on behalf of Borrower or Lender shall bind the successors and assigns of such party, whether so expressed or not, and shall inure to the benefit of the successors and assigns of Borrower Lender.     If any provision hereof shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this E–18 -------------------------------------------------------------------------------- Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.         Very truly yours, PERFECTDATA CORPORATION         By:   /s/ HARRIS SHAPIRO    -------------------------------------------------------------------------------- Acknowledged and Agreed to This 27th day of October, 2000:         BUSINESS SOLUTIONS GROUP, INC.         BY:   /s/ DMITRI SIMONENKO    --------------------------------------------------------------------------------         Title: President         E–19 -------------------------------------------------------------------------------- SECURITY AGREEMENT     SECURITY AGREEMENT, dated October 27, 2000 made by and among Business Solutions Group, Inc., a Virginia corporation, having an address at 45723 Paddington Station Terrace (the "Grantor") in favor of Perfectdata Corporation, a California corporation, having an address at 110 West Easy Street, Simi Valley, California 93065 (the "Secured Party"). W I T N E S S E T H:     WHEREAS, the Grantor has requested that the Secured Party loan to the Grantor Sixty Thousand ($60,000) Dollars (the "Loan") which Loan will be evidenced by a promissory note of even date hereof (the "Note");     WHEREAS, the Secured Party is willing to make the Loan to the Grantor only if the Grantor grants to the Secured Party a first priority security interest in certain of the Grantor's assets to secure the payment of the Loan.     NOW, THEREFORE, in consideration of the making of the Loan and the premises and the agreements herein, the Grantor hereby agrees with the Secured Party as follows:     SECTION 1.  Definitions.  All terms used in this Agreement which are defined in the Note or in Article 9 of the Uniform Commercial Code currently in effect in the State of New York (the "Code") and which are not otherwise defined herein shall have the same meanings herein as set forth therein.     SECTION 2.  Grant of Security Interest.  As collateral security for all of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges, assigns and grants to the Secured Party a continuing security interest in the following assets of the Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, (collectively, the "Collateral"):     (a) all of the Grantor's right, title and interest in and to all present and future accounts, contract rights, chattel paper, documents and instruments resulting from the sale of inventory to CompUSA (any and all such accounts, contract rights, chattel paper, instruments documents and rights and obligations being hereinafter referred to as the "Receivables");     (b) all proceeds and products of any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not the Secured Party is the loss payee thereof), and any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral); in each case, howsoever the Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).     SECTION 3.  Security for Obligations.  The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): the prompt and timely payment by the Grantor, as and when due and payable, of all amounts and liabilities of any kind or nature due under the Loan, the Note and under this Agreement and any future advances from time to time owing by the Grantor to the Secured Party which may arise in the future.     SECTION 4.  Representations and Warranties.  Grantor represents and warrants to the Secured Party as follows:     (a) The Grantor is and will be at all times the owner of the Collateral free and clear of any lien, security interest or other charge or encumbrance, except for the security interest created by this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office, except such as may have been filed in favor of the Secured Party relating to this Agreement. E–20 --------------------------------------------------------------------------------     SECTION 5.  Covenants as to the Collateral.  So long as any of the Obligations shall remain outstanding, unless the Secured Party shall otherwise consent in writing:     (a) The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Secured Party may request in order (i) to perfect and protect the security interest purported to be created hereby, (ii) to enable the Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Collateral, or (iii) to effect otherwise the purposes of this Agreement, including without limitation, (A) marking conspicuously each chattel paper included in the Receivables and, at the request of the Secured Party, each of their records pertaining to the Collateral with a legend, in form and substance satisfactory to the Secured Party, indicating that such chattel paper or Collateral is subject to the security interest created hereby, (B) if any Receivable shall be evidenced by a promissory note or other instrument or chattel paper, delivering and pledging to the Secured Party hereunder such note, instrument or chattel paper duly indorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Secured Party, as may be necessary or desirable or that the Secured Party may request in order to perfect and preserve the security interest purported to be created hereby, and (C) furnishing to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail.     (b) The Secured Party shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, or an event which the giving of notice or the lapse of time or both would constitute an Event of Default, to notify the account debtors or obligors under any Receivables and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Secured Party and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After an Event of Default, or an event which the giving of notice or the lapse of time or both would constitute an Event of Default, (A) all amounts and proceeds (including instruments) received by the Grantor in respect of the Receivables shall be received in trust for the benefit of the Secured Party hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Secured Party in the same form as so received (with any necessary endorsement) to be held as cash collateral and either (1) released to the Grantor so long as no Event of Default shall have occurred and be continuing or (2) if any Event of Default shall have occurred and be continuing, applied as specified in Section 7(b) hereof, and (B) the Grantor will not adjust, settle or compromise the amount or payment of any Receivable or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon.     (c) The Grantor will not (i) sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any of the Collateral, or (ii) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any Collateral, except for the security interest created hereby     SECTION 6.  Additional Provisions Concerning the Collateral.       (a) The Grantor hereby authorizes the Secured Party to file, without the signature of the Grantor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral which the Secured Party may deem necessary or desirable.     (b) The Grantor hereby irrevocably appoints the Secured Party the Grantor's attorney-in-fact and proxy, with full authority in the place and stead of the Grantor and in the name of the E–21 -------------------------------------------------------------------------------- Grantor or otherwise, upon the occurrence of an Event of Default, to take any action and to execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, (i) to ask, demand, collect, sue for, recover, compound, receive and give acquitence and receipts for moneys due and to become due under or in respect of any Collateral; (ii) to receive, indorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) of this subsection (b); and (iii) to file any claims or take any action or institute any proceedings which the Secured Party may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Secured Party with respect to any Collateral.     (c) If the Grantor fails to perform any agreement contained herein, the Secured Party may perform, or cause performance of, such agreement or obligation, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Grantor pursuant to Section 8 hereof.     (d) The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior Party or any other rights pertaining to any Collateral.     SECTION 7.  Remedies Upon Default.  If any Event of Default shall have occurred and be continuing:     (a) The Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral), and may also without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party's offices or elsewhere, for cash, on credit or for future deliver, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.     (b) Any cash held by the Secured Party as Collateral and all cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Secured Party pursuant to Section 8 hereof) in whole or in part by the Secured Party against, all or any part of the Obligations in such order as the Secured Party and remaining after payment in full of all of the Obligations shall be paid over to the Grantor or to such person as may be lawfully entitled to receive such surplus.     (c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the highest rate permitted by applicable law, together with the costs of collection and the reasonable fees and expenses of any attorneys employed by the Secured Party to collect such deficiency. E–22 --------------------------------------------------------------------------------     SECTION 8.  Indemnity and Expenses.       (a) The Grantor agrees to indemnify the Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Secured Party's gross negligence or willful misconduct.     (b) The Grantor will, upon demand, pay to the Secured Party the amount of any and all costs and expenses, including the reasonable fees and disbursements of the Secured Party's counsel and of any experts and agents, which the Secured Party may incur in connection with (i) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iii) the failure by the Grantor to perform or observe any of the provisions hereof.     SECTION 9.  Notices, Etc.  All notices permitted or required by any provision of this Agreement shall be made in writing and sent via hand delivery or recognized overnight courier or by certified U.S. Mail, return receipt requested, addressed to the address of the receiving party or parties, or to such other address as may be designated by written notice. In the event there is a change in the address of any of the parties, such party shall inform the remaining parties within twenty (20) days of such change. Notice sent by certified U.S. Mail, return receipt requested, shall be deemed to have been given on the date which falls two (2) days after the date postmarked by the United States Postal Service. In all other cases, notice shall be deemed to have been given upon delivery. For purposes of this Agreement, notice to each of the parties shall given as follows:     a.  If to Grantor: Business Solutions Group, Inc. 45723 Paddington Station Terrace Sterling, VA 20166     b.  If to Secured Party; 110 West Easy Street Simi Valley, CA 93065 With a copy to: Wachtel & Masyr, LLP 110 East 59th Street New York, N.Y. 10022 Attn: Scott J. Lesser, Esq.     SECTION 10.  Miscellaneous.       (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Secured Party, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.     (b) No failure on the part of the Secured Party to exercise, and no delay in exercising, any right hereunder or under the Loan Agreement or Note shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right. The rights and remedies of the Secured Party provided herein, in the Loan Agreement and in the Note are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Secured Party under this Agreement, the Loan Agreement and the Note are not conditional or contingent on any attempt by the Secured Party to exercise any of its rights against any other E–23 -------------------------------------------------------------------------------- person. This Agreement does not in any way amend, limit, modify, waive, the Secured Party's rights under the Loan Agreement Note.     (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.     (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full of the Obligations, (ii) be binding on the Grantors and its successors and assigns and shall inure, together with all rights and remedies of the Secured Party and its successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, the Secured Party may assign or otherwise transfer its rights under the Note, and its rights under this Agreement, to any other person, and such other person shall thereupon become vested with all of the benefits in respect thereof granted to the Secured Party herein or otherwise. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Secured Party.     (e) Upon the satisfaction in full of the Obligations: (i) this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to the Grantor, and (ii) the Secured Party will, upon the Grantor's request and at the Grantor's expense, (A) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.     (f)  This Agreement shall be enforced, governed by, and construed in accordance with the laws of the State of New York, regardless of the choice of law or conflict of law provisions of or any other jurisdiction. The parties agrees that any suit brought in connection with this Agreement shall be brought in the state or federal courts located in the in the State of New York, County of New York. The parties consent to the personal jurisdiction of such courts. THE PARTIES HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO VENUE, INCLUDING AN OBJECTION BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT THE PARTIES NOW HAVE OR HEREAFTER MAY HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION.     (g) All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the antecedent person or persons or entity or entities may require. The headings preceding the text of the Sections included in this Agreement and the headings to Exhibits attached to this Agreement are for convenience only and shall not be deemed part of this Agreement be given any effect in interpreting this Agreement. The use of the terms "including or "include" shall in all cases herein mean "including, without limitation" or "Include, without limitation", respectively. Underscored references to Section, subsections or exhibits shall refer to those portions of this Agreement. Consummation of the transactions contemplated herein shall not be deemed a waiver of a breach of or inaccuracy in any representation, warranty or covenant or of any party's rights and remedies with regard thereto. No specific representation, warranty or covenant contained herein shall limit the generality or applicability of a more general representation, warranty or covenant was not also breached or inaccurate. E–24 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.     GRANTOR     By:   /s/ DMITRI V. SIMONENKO    --------------------------------------------------------------------------------     SECURED PARTY     By:   /s/ HARRIS SHAPIRO    -------------------------------------------------------------------------------- E–25 -------------------------------------------------------------------------------- PROMISSORY NOTE $60,000   Date: October 27, 2000     FOR VALUE RECEIVED, the undersigned, Business Solutions Group, Inc. a Virginia corporation (the "Maker"), hereby promises to pay to the order of Perfectdata Corporation a California (the "Holder"), at the Maker's offices located at 110 West Easy Street, Simi Valley, CA 93065 (or at such other place as the Holder of this Note designates in writing to the Maker), in lawful money of the United States of America, the principal sum of Sixty Thousand ($60,000) Dollars, plus all accrued and unpaid interest thereon as provided below, on December 15, 2000. The outstanding principal balance of this Note shall bear simple interest from the date hereof until repaid in full, at the rate of seven (7%) percent per annum.     This Note is being given pursuant to a Loan Agreement, dated October 27, 2000, between the Maker and the Holder (the "Loan Agreement") and is secured by a lien on certain of the assets of the Maker pursuant to a Security Agreement, dated October 27, 2000, between the Maker and the Holder, (the "Security Agreement").     1.  Prepayment.       The unpaid principal amount of this Note may be prepaid at any time in whole, or in part, by the Maker without penalty. Any such prepayment shall first be applied to accrued interest and then to principal. The unpaid principal amount of this Note shall be prepaid from the proceeds of the collateral. Any such prepayment shall first be applied to accrued interest and then to principal.     2.  Default.       (a)  Definition.  For purposes of this Note, an Event of Default shall be deemed to have occurred if: (i)the Maker fails to pay when due any payable (whether at maturity or otherwise) the full amount of interest then accrued on this Note or the full amount of any principal payment on this Note; or (ii)the Maker fails to perform or observe any provision contained in the Security Agreement, and such failure is not cured within 5 days after the occurrence thereof,; or (iii)any representation, warranty or information contained in the Security Agreement, is false or misleading in any material respect on the date made; or (iv)there is entered any order, judgment or decree by a court of competent jurisdiction for relief in respect of the Maker, under any applicable federal or state bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or other similar law, whether now or hereafter in effect, or appointing a receiver, assignee or trustee of all or a substantial part of the Maker's property, assets or revenues and that order, judgment or decree shall have continued unstayed, unbonded and in effect for a period of 30 days; or (v)the filing by the Maker of a petition seeking relief under Title 11 of the United States Code, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or other similar law, or the consent by the Maker to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession by a receiver, liquidator, assignee, trustee or custodian of any substantial part of the properties, assets or revenues of the Maker or the making by the Maker of a general assignment for the benefit of its creditors; or E–26 -------------------------------------------------------------------------------- (vi)the Maker shall admit in writing its inability to pay its debts as they mature or if the Maker becomes insolvent;     The foregoing shall constitute Events of Default whatever the reason or cause for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.     (b)  Consequences of Event of Default.   (i)If any Event of Default has occurred, the interest rate on this Note shall increase immediately by an increment of five (5) percentage point(s) to the extent permitted by law thereafter, until such time as the Note is paid in full. (ii)If an Event of Default has occurred, the aggregate principal amount of the Note (together with all accrued interest thereof and all other amounts due and payable with respect thereto) shall become immediately due and payable without any action on the part of the Holder, and the Maker shall immediately pay to the Holder all amounts due and payable with respect to the Note. (iii)The Holder shall also have any other rights which the Holder may have been afforded under any contract or agreement at any time and any other rights which the Holder may have pursuant to applicable law.     3.  Waiver.       The Maker hereby waives diligence, presentment, protest and demand and notice of protest and demand, dishonor, nonpayment of this Note, and any statutory or other right of redemption, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time and that the Holder may accept security for this Note or release security of this Note, all without in any way affecting the liability of the Maker hereunder.     4.  Collection.       The Maker shall pay to the Holder, upon demand, all reasonable out of pocket expenses (including, without limitation, reasonable fees and disbursements of counsel) incurred by the Holder in connection with the collection of any amounts due under this Note.     5.  Miscellaneous.       (a) No amendment, modification or waiver of any provision of this Note shall be effective unless the same shall be in writing and signed by the Maker and the Holder. The provisions of this Note shall be binding upon the successors and assigns of the Maker.     (b) This Note shall be enforced, governed by, and construed in accordance with the laws of the State of New York, regardless of the choice of law or conflict of law provisions of or any other jurisdiction. The Maker agrees that any suit brought in connection with this Agreement shall be brought in the state or federal courts located in the in the State of New York, County of New York. The Maker consents to the personal jurisdiction of such courts. THE MAKER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO VENUE, INCLUDING AN OBJECTION BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT THE MAKER NOW HAS OR HEREAFTER MAY HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION.     (c) This Note shall be paid without claim of set-off or deduction of any nature or for any cause whatsoever. E–27 --------------------------------------------------------------------------------     (d) Upon receipt of evidence reasonably satisfactory to the Maker of the loss, theft, destruction or mutilation of this Note, and of indemnity reasonably satisfactory to the Maker, if lost, stolen, destroyed or mutilated, the Maker shall execute and deliver to the Holder a new note identical in all respects to this Note.     (e) No failure on the part of the Holder to exercise, and no delay in exercising, any right, power or privilege under this Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under this Note preclude any other or further exercise thereof or the exercise of any right, power or privilege. The remedies herein provided are cumulative and not exclusive of any and all other remedies provided by law.     BUSINESS SOLUTIONS GROUP, INC     By:   /s/ DMITRI V. SIMONENKO    -------------------------------------------------------------------------------- E–28 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.17 SECURITY AGREEMENT PROMISSORY NOTE

QuickLinks -- Click here to rapidly navigate through this document [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.39 AMENDMENT NO. 2 TO COLLABORATION AGREEMENT BETWEEN TULARIK INC. AND JAPAN TOBACCO INC.     THIS AMENDMENT NO. 2 (this "Amendment") to the Collaboration Agreement dated as of June 1, 2000 (the "Agreement") by and between Japan Tobacco Inc., a Japanese corporation, having offices at JT Building, 2-1 Toranomon, 2-chome, Minato-ku, Tokyo 105, Japan ("JT"), and Tularik Inc., a Delaware corporation having offices at Two Corporate Drive, South San Francisco, California 94080 ("Tularik"), is entered into as of May 31, 2001. JT and Tularik may be referred to herein as a "Party" or, collectively, as "Parties".     WHEREAS, the Parties previously entered into the Agreement, which provided for a collaborative program between JT and Tularik to research, discover, develop, manufacture and market products that agonize or antagonize various Program Targets for the treatment of disease in humans;     WHEREAS, Tularik has established the Subsidiary to conduct a portion of such collaborative program;     WHEREAS, the Parties desire to modify the Agreement to clarify certain provision of the Agreement relating to the support for the Research Program;     WHEREAS, in order to accomplish the foregoing, the Parties have agreed to amend the Agreement in part;     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements expressed herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, Tularik and JT hereby agree as follows:     1.  Section 6.1(b) of the Agreement is hereby amended by deleting the last sentence of Section 6.1(b).     2.  For the purpose of clarification of Section 6.1(b)(B), Section 6.1 of the Agreement is hereby further amended by inserting the following as Section 6.1(g) and (h): (g) JT shall pay to Tularik [*] to support the Research Program during the period from [*]. Tularik represents that the attached Exhibit A reflects: (i) [*] the conduct of the Research Program during the period from [*]; and (ii) [*] the conduct of the Research Program [*] during the period from [*]. (h) Tularik covenants and agrees to provide to [*] on or before [*] a revised version of Exhibit A (the "Revised Exhibit") reflecting: (i) [*] the conduct of the Research Program during the period from [*]; and (ii) the [*] during the period from [*]. The [*] shall advise Tularik and JT on or before [*] whether such [*] reasonably believes that the [*]. Then, by [*], the Parties shall mutually discuss in good faith by taking into consideration [*] and [*], and either agree upon (i) the [*]; or (ii) a [*] during the period from [*]; provided, however, that the  [*] shall in no event be less than [*]. If the sum of the [*], and the [*] from [*] is greater than or equal to [*], JT shall pay to Tularik [*] to support the Research Program during the period from [*] on or before [*]. If the sum of the [*], and the [*] from [*] is less than   [*], JT shall [*] amount equal to (i) [*]; multiplied by (ii) [*]. JT shall pay to Tularik [*], to support the Research Program during the period from [*] on or before [*]. In the event that the [*] from [*], Tularik shall [*] an amount equal to (i) [*]; multiplied by (ii) [*]. At the option of JT, any [*] calculated pursuant to the immediately preceding sentence: (i) shall be [*]; or (ii) shall be [*] support 1 -------------------------------------------------------------------------------- for the Research Program [*] due to Tularik by JT for the period from [*], unless otherwise agreed by the Parties. If the attested report of each year pursuant to [*] shows any [*] from each of [*] report provided by Tularik without such attest, such [*], in a reasonable time frame.     3.  Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Agreement.     4.  Except as expressly modified by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect.     5.  This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall be considered one and the same instrument.     IN WITNESS WHEREOF, the parties have executed, or caused their duly authorized officer or representative to execute, this Amendment as of May 31, 2001. TULARIK INC.     By:   /s/ David V. Goeddel --------------------------------------------------------------------------------     Name: David V. Goeddel, Ph.D. Title: Chief Executive Officer     JAPAN TOBACCO INC.     By:   /s/ Takashi Kato --------------------------------------------------------------------------------     Name: Takashi Kato Title: Managing Director, Pharmaceutical Division     2 -------------------------------------------------------------------------------- Exhibit A     [*] [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.39 AMENDMENT NO. 2 TO COLLABORATION AGREEMENT BETWEEN TULARIK INC. AND JAPAN TOBACCO INC. Exhibit A

GREEN MOUNTAIN COFFEE, INC. STOCK OPTION AGREEMENT UNDER STOCK OPTION PLAN INCENTIVE STOCK OPTION [date of grant]   AGREEMENT entered into by and between Green Mountain Coffee, Inc., a Delaware corporation with its principal place of business in Waterbury, Vermont (together with its subsidiaries, the "Company"), and the undersigned employee of the Company (the "Optionee"). The Company desires to grant the Optionee an incentive stock option under the Company's 2000 Stock Option Plan, as amended (the "Plan") to acquire shares of the Company's Common Stock, par value $.10 per share (the "Shares"). The Plan provides that each option is to be evidenced by an option agreement, setting forth the terms and conditions of the option. ACCORDINGLY , in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Optionee hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee incentive stock options (collectively, the "Option") to purchase all or any part of the number of Shares shown at the end of this Agreement on the terms and conditions hereinafter set forth. This Option is intended to be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Purchase Price. The purchase price ("Purchase Price") for the Shares covered by the Option shall be the dollar amount per Share set forth at the end of this Agreement. 3. Time of Exercise of Option. [INSERT VESTING SCHEDULE] To the extent the Option is not exercised by the Optionee when it becomes exercisable, it shall not expire, but shall be carried forward and shall be exercisable, on a cumulative basis, until the Expiration Date, as hereinafter defined. 4. Term of Options; Exercisability. (a) Term. (i) Each Option shall expire on the date shown at the end of this Agreement (the "Expiration Date"), as determined by the Board of Directors of the Company (the "Board"). (ii) Except as otherwise provided in this Section 4, if the Optionee's employment by the Company is terminated, the Option granted to the Optionee hereunder shall terminate on the earlier of ninety days after the date the Optionee's employment by the Company is terminated, or (ii) the date on which the Option expires by its terms. (iii) If the Optionee's employment is terminated by the Company for cause or because the Optionee is in breach of any employment agreement, such Option will terminate on the date the Optionee's employment is terminated by the Company. (iv) If the Optionee's employment is terminated by the Company because the Optionee has become permanently disabled (within the meaning of Section 22(e)(3) of the Code), such Option shall terminate on the earlier of (i) one year after the date such Optionee's employment by the Company is terminated, or (ii) the date on which the option expires by its terms. (v) In the event of the death of the Optionee, the Option granted to such Optionee shall terminate on the earlier of (i) one year after the date such optionee's employment by the Company is terminated; or (ii) the date on which the option expires by its terms. (b) Exercisability. (i) Except as provided below, if the Optionee's employment by the Company is terminated, the Option granted to the Optionee hereunder shall be exercisable only to the extent that the right to purchase shares under such Option has accrued and is in effect on the date the Optionee's employment by the Company is terminated. (ii) If the Optionee's employment is terminated by the Company because he or she has become permanently disabled, as defined above, the option granted to the Optionee hereunder shall be immediately exercisable as to the full number of Shares covered by such Option, whether or not under the provisions of Section 3 hereof such Option was otherwise exercisable as of the date of disability. (iii) In the event of the death of the Optionee, the Option granted to such Optionee may be exercised to the full number of Shares covered thereby, whether or not under the provisions of Section 3 hereof the Optionee was entitled to do so at the date of his or her death, by the executor, administrator or personal representative of such Optionee, or by any person or persons who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of such Optionee. 5. Manner of Exercise of Option. (a) To the extent that the right to exercise the Option has accrued and is in effect, the option may be exercised in full or in part by giving written notice to the Company stating the number of Shares exercised and accompanied by payment in full for such Shares. No partial exercise may be made for less than one hundred (100) full shares of Common Stock. Payment may be either wholly in cash or in whole or in part in Shares already owned by the person exercising the Option, valued at fair market value as of the date of exercise; provided, however, that payment of the exercise price by delivery of Shares already owned by the person exercising the Option may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Board. Upon such exercise, delivery of a certificate for paid-up, non-assessable Shares shall be made at the principal office of the Company to the person exercising the option, not less than thirty (30) and not more than ninety (90) days from the date of receipt of the notice by the Company. (b) The Company shall at all times during the term of the Option reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Option. 6. Non-Transferability. The right of the Optionee to exercise the option shall not be assignable or transferable by the Optionee otherwise than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of the Optionee only by him or her. The Option shall be null and void and without effect upon the bankruptcy of the Optionee or upon any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, or levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option. 7. Representation Letter and Investment Legend. (a) In the event that for any reason the Shares to be issued upon exercise of the Option shall not be effectively registered under the Securities Act of 1933, as amended (the "1933 Act"), upon any date on which the option is exercised in whole or in part, the person exercising the Option shall give a written representation to the Company in the form attached hereto as Exhibit 1 and the Company shall place an "investment legend", so-called, as described in Exhibit 1, upon any certificate for the Shares issued by reason of such exercise. (b) The Company shall be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purposes of covering the issue of Shares. 8. Adjustments on Changes in Capitalization. Adjustments on changes in capitalization and the like shall be made in accordance with the Plan, as in effect on the date of this Agreement. 9. No Special Employment Rights. Nothing contained in the Plan or this Agreement shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment of the Optionee for the period within which this Option may be exercised. However, during the period of the Optionee's employment, the Optionee shall render diligently and faithfully the services which are assigned to the Optionee from time to time by the Board or by the executive officers of the Company and shall at no time take any action which directly or indirectly would be inconsistent with the best interests of the Company. 10. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any Shares which may be purchased by exercise of this option unless and until a certificate or certificates representing such Shares are duly issued and delivered to the Optionee. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 11. Withholding Taxes. Whenever Shares are to be issued upon exercise of this Option, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy all Federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. The Company may agree to permit the Optionee to withhold Shares purchased upon exercise of this Option to satisfy the above-mentioned withholding requirement. IN WITNESS HEREOF , the Company has caused this Agreement to be executed, and the Optionee has hereunto set his or her hand and seal, all as of the day and year first above written. OPTIONEE                                          [name of optionee]                                        Number of Shares                                       Purchase Price Per Share [date of grant + 10 years] Expiration Date   GREEN MOUNTAIN COFFEE, INC. By                                             Robert P. Stiller      President   EXHIBIT 1 TO STOCK OPTION AGREEMENT Ladies and Gentlemen: In connection with the exercise by me as to __________ shares of Common Stock, $.10 per share par value, of Green Mountain Coffee, Inc. (the "Company") under the incentive stock option agreement dated as of [date of grant], granted to me under the 2000 Stock Option Plan, I hereby acknowledge that I have been informed as follows: 1. The shares of common stock of the Company to be issued to me pursuant to the exercise of said option have not been registered under the Securities Act of 1933 (the "1933 Act"), and accordingly, must be held indefinitely unless such shares are subsequently registered under the 1933 Act, or an exemption from such registration is available. 2. Routine sales of securities made in reliance upon Rule 144 under the 1933 Act can be made only after the holding period and in limited amounts in accordance with the terms and conditions provided by that Rule, and in any sale to which that Rule is not applicable, registration or compliance with some other exemption under the 1933 Act will be required. 3. The Company is under no obligation to me to register the shares or to comply with any such exemptions under the 1933 Act. 4. The availability of Rule 144 is dependent upon adequate current public information with respect to the Company being available and, at the time that I may desire to make a sale pursuant to the Rule, the Company may neither wish nor be able to comply with such requirement. In consideration of the issuance of certificates for the shares to me, I hereby represent and warrant that I am acquiring such shares for my own account for investment, and that I will not sell, pledge or transfer such shares in the absence of an effective registration statement covering the same, except as permitted by the provisions of Rule 144, if applicable, or some other applicable exemption under the 1933 Act. In view of this representation and warranty, I agree that there may be affixed to the certificates for the shares to be issued to me, and to all certificates issued hereafter representing such shares (until in the opinion of counsel, which opinion must be reasonably satisfactory in form and substance to counsel for the Company, it is no longer necessary or required) a legend as follows: "The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and were acquired by the registered holder, pursuant to a representation and warranty that such holder was acquiring such shares for his own account and for investment, with no intention to transfer or dispose of the same, in violation of the registration requirements of the Act. These shares may not be sold, pledged, or transferred in the absence of an effective registration statement under the Act, or an opinion of counsel, which opinion is reasonably satisfactory to counsel to the Company, to the effect that registration is not required under the Act." I further agree that the Company may place a stop order with its Transfer Agent, prohibiting the transfer of such shares, so long as the legend remains on the certificates representing the shares. Very truly yours, [name of optionee]   H:\GRECOF\STOCK OPTION AGREEMENT TEMPLATE 2000.DOC

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.7 EMPLOYMENT AGREEMENT     THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between Daniel R. Goodman ("Employee") and Ticketmaster Corporation, an Illinois corporation (the "Company"), and is effective as of October 1, 1998 (the "Effective Date").     WHEREAS, the Company presently employs Employee as Vice President and Assistant General Counsel pursuant to an employment agreement dated as of January 13, 1997, and desires to establish its right to the services of Employee, in the capacity described below, on the terms and conditions hereinafter set forth, and Employee is willing to accept such employment on such terms and conditions.     NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, Employee and the Company have agreed and do hereby agree as follows: lA.  EMPLOYMENT.  The Company agrees to employ Employee as Executive Vice President and General Counsel, and Employee accepts and agrees to such employment. During Employee's employment with the Company, Employee shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with Employee's position and shall render such services on the terms set forth herein. During Employee's employment with the Company, Employee shall report directly to the Chief Executive Officer and the Chief Operating Officer or such other person(s) as from time to time may be designated by the Company (hereinafter referred to as the "Reporting Officers"). Employee shall have such powers and duties with respect to the Company as may reasonably be assigned to Employee by the Reporting Officer, to the extent consistent with Employee's position and status. Employee agrees to devote all of Employee's working time, attention and efforts to the Company and to perform the duties of Employee's position in accordance with the Company's policies as in effect from time to time. Employee's principal place of employment shall be the Company's offices located in Los Angeles, California. 2A.  TERM OF AGREEMENT.  The term ("Term") of this Agreement shall commence on the Effective Date and shall continue for a period of 4 years, unless sooner terminated in accordance with the provisions of Section 1 of the Terms and Conditions attached hereto. 3A.  COMPENSATION.       (a)  BASE SALARY.  During the Term, the Company shall pay Employee an annual base salary of $350,000 (the "Base Salary"), payable in equal biweekly installments or in accordance with the Company's payroll practice as in effect from time to time. For all purposes under this Agreement, the term "Base Salary" shall refer to Base Salary as in effect from time to time.     (b)  DISCRETIONARY BONUS.  During the Term, Employee shall be eligible to receive discretionary annual bonuses.     (c)  STOCK OPTION.  In consideration of Employee's entering into this Agreement, Employee shall be granted under USA Networks, Inc.'s 1997 Stock and Annual Incentive Plan (the "Plan") a non-qualified stock option (the "Option") to purchase 25,000 shares of USA Networks, Inc. ("USAi") common stock, par value $.01 per share (the "Common Stock"), subject to the approval of the Compensation Committee of the Board of Directors of USAi. The date of grant of the Option shall be the later of (x) the Effective Date and (y) the date on which the grant is approved by such Compensation Committee. The exercise price of the Option shall equal the last reported sales price of the Common Stock in the over-the-counter market (or such other market on which the Common Stock is then traded) on the date preceding the date of grant. Such Option shall vest and become exercisable in four equal installments on each of the first, second, third and fourth anniversaries of the Effective Date; provided that the Option shall become 100% vested and exercisable upon a Change in Control (as such term is defined in the Plan). Other than acceleration of the Option upon a Change in Control, the Option shall not otherwise become vested and exercisable as a result of the termination or non-renewal of this Agreement (or the termination of Employee's employment with the Company) for any reason. The Option shall expire upon the earlier to occur of (i) ten years from the date of grant or -------------------------------------------------------------------------------- (ii) except as otherwise provided in the Option award agreement, 90 days following the termination of Employee's employment with the Company for any reason.     (d)  BENEFITS.  During the Term, Employee shall be entitled to participate in any welfare, health and life insurance and pension benefit and incentive programs as may be adopted from time to time by the Company on the same basis as that provided to similarly situated employees of the Company. Without limiting the generality of the foregoing, Employee shall be entitled to the following benefits:     (i)  Reimbursement for Business Expenses.  (A) During the Term, the Company shall reimburse Employee for all reasonable and necessary expenses incurred by Employee in performing Employee's duties for the Company, on the same basis as similarly situated employees and in accordance with the Company's policies as in effect from time to time.     (B) In addition, the Company shall reimburse Employee for the following costs and expenses relating to the temporary and permanent relocation of Employee and his family to the Los Angeles, California area: (i) reasonable temporary housing expenses and automobile expenses in an amount of $3,200 per month during the period from the Effective Date through August 31, 1999, (ii) all reasonable expenses related to Employee's travel to and from New York and Los Angeles, California during the period from the Effective Date to August 31, 1999 and (iii) all reasonable moving expenses relating to the permanent relocation of Employee's family to the Los Angeles, California area.     (C) In connection with Employee's relocation to the Los Angeles, California area, the Company agrees to make a loan to Employee in the principal amount of $200,000 for the purpose of purchasing and, if applicable, making improvements upon, a residence in the area. The other material terms of the loan shall be as follows:     (1) The loan shall be evidenced by a note executed by Employee and secured by a mortgage upon such residence.     (2) The loan shall be interest free.     (3) The principal amount of such loan shall become due and payable on the earlier of (x) December 31, 1999; and (y) the date on which the sale or transfer of Employee's New York residence is consummated.     (ii)  Vacation.  During the Term, Employee shall be entitled to 3 weeks of paid vacation per year and paid holidays and sick leave as presently provided by the Company, in accordance with the plans, policies, programs and practices of the Company applicable to similarly situated employees of the Company generally.     (iii)  Automobile Allowance.  Employee shall be entitled to receive an automobile allowance (i) in the amount of $700 per month for the period from the Effective Date through December 31, 1998 and (ii) in the amount of $350 per month for the period from January 1, 1999 through December 31, 1999. Employee shall not be entitled to receive an automobile allowance for any period beginning after December 31, 1999. 4A.  NOTICES.  All notices and other communications under this Agreement shall be in writing and shall be given by first-class mail, certified or registered with return receipt requested or hand delivery acknowledged in writing by the recipient personally, and shall be deemed to have been duly given three 2 -------------------------------------------------------------------------------- days after mailing or immediately upon duly acknowledged hand delivery to the respective persons named below: If to the Company:   Ticketmaster Corporation 8800 Sunset Boulevard West Hollywood, California 90069 Attention: Chief Operating Officer Telecopy No.: (310) 360-0701 If to Employee:   Daniel R. Goodman 37 Belmont Drive Roslyn Heights, New York 11577 Telephone No.: (516) 484-9629 Telecopy No.: (516) 484-8233 Either party may change such party's address for notices by notice duly given pursuant hereto. 5A.  GOVERNING LAW: JURISDICTION.  This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the internal laws of the State of California without reference to the principles of conflicts of laws. Any and all disputes between the parties which may arise pursuant to this Agreement will be heard and determined before an appropriate federal court in California or, if not maintainable therein, then in an appropriate California state court. The parties acknowledge that such courts have jurisdiction to interpret and enforce the provisions of this Agreement, and the parties consent to, and waive any and all objections that they may have as to, personal jurisdiction and/or venue in such courts. 6A.  COUNTERPARTS.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Employee expressly understands and acknowledges that the Terms and Conditions attached hereto are incorporated herein by reference, deemed a part of this Agreement and are binding and enforceable provisions of this Agreement. References to "this Agreement" or the use of the term "hereof" shall refer to this Agreement and the Terms and Conditions attached hereto, taken as a whole.     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Employee has executed and delivered this Agreement on December 10, 1998.     TICKETMASTER CORPORATION               By:   /s/ ILLEGIBLE    -------------------------------------------------------------------------------- Name: Title:           /s/ DANIEL R. GOODMAN    -------------------------------------------------------------------------------- DANIEL R. GOODMAN         3 -------------------------------------------------------------------------------- TERMS AND CONDITIONS 1.  TERMINATION OF EMPLOYEE'S EMPLOYMENT.       (a)  DEATH.  In the event Employee's employment hereunder is terminated by reason of Employee's death, the Company shall pay Employee's designated beneficiary or beneficiaries, within 30 days of Employee's death in a lump sum in cash, Employee's Base Salary through the end of the month in which death occurs and any Accrued Obligations (as defined in paragraph 1(f) below).     (b)  DISABILITY.  If, as a result of Employee's incapacity due to physical or mental illness ("Disability"), Employee shall have been absent from the full-time performance of Employee's duties with the Company for a period of four consecutive months and, within 30 days after written notice is provided to Employee by the Company (in accordance with Section 6 hereof), he shall not have returned to the full-time performance of Employee's duties, Employee's employment under this Agreement may be terminated by the Company for Disability. During any period prior to such termination during which Employee is absent from the full-time performance of Employee's duties with the Company due to Disability, the Company shall continue to pay Employee's Base Salary at the rate in effect at the commencement of such period of Disability, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company. Upon termination of Employee's employment due to Disability, the Company shall pay Employee within 30 days of such termination (i) Employee's Base Salary through the end of the month in which termination occurs in a lump sum in cash, offset by any amounts payable to Employee under any disability insurance plan or policy provided by the Company; and (ii) any Accrued Obligations (as defined in paragraph 1(f) below). The right to receive any payments for insurance policies in effect at the time of termination, if applicable, shall survive termination of employment due to Disability pursuant to section l(c).     (c)  TERMINATION FOR CAUSE.  The Company may terminate Employee's employment under this Agreement for Cause at any time prior to the expiration of the Term. As used herein, "Cause" shall mean: (i) the plea of guilty or nolo contendere to, or conviction for, the commission of a felony offense by Employee; provided, however, that after indictment, the Company may suspend Employee from the rendition of services, but without limiting or modifying in any other way the Company's obligations under this Agreement; (ii) a material breach by Employee of a fiduciary duty owed to the Company; (iii) a material breach by Employee of any of the covenants made by Employee in Section 2 hereof; or (iv) the willful or gross neglect by Employee of the material duties required by this Agreement. In the event of Employee's termination for Cause, this Agreement shall terminate without further obligation by the Company, except for the payment of any Accrued Obligations (as defined in paragraph 1(f) below).     (d)  TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR CAUSE.  If Employee's employment is terminated by the Company for any reason other than Employee's death or Disability or for Cause, then (i) the Company shall pay Employee the Base Salary through the end of the Term over the course of the then remaining Term; and (ii) the Company shall pay Employee within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations (as defined in paragraph 1(f) below).     (e)  MITIGATION; OFFSET.  In the event of termination of Employee's employment prior to the end of the Term, Employee shall use reasonable best efforts to seek other comparable employment and to take other reasonable actions to mitigate the amounts payable under Section 1 hereof. If Employee obtains other employment during the Term, the amount of any payment or benefit provided for under Section 1 hereof which has been paid to Employee shall be refunded to the Company by Employee in an amount equal to any compensation earned by Employee as a result of employment with or services provided to another employer after the date of Employee's termination of employment and prior to the 4 -------------------------------------------------------------------------------- otherwise applicable expiration of the Term, and all future amounts payable by the Company to Employee during the remainder of the Term shall be offset by the amount earned by Employee from another employer. For purposes of this Section l(e), Employee shall have an obligation to inform the Company regarding Employee's employment status following termination and during the period encompassing the Term.     (f)  ACCRUED OBLIGATIONS.  As used in this Agreement, "Accrued Obligations" shall mean the sum of (i) any portion of Employee's Base Salary through the date of death or termination of employment for any reason, as the case may be, which has not yet been paid; and (ii) any compensation previously earned but deferred by Employee (together with any interest or earnings thereon) that has not yet been paid. 2.  CONFIDENTIAL INFORMATION; NON-SOLICITATION; AND PROPRIETARY RIGHTS.       (a)  CONFIDENTIALITY.  Employee acknowledges that while employed by the Company Employee will occupy a position of trust and confidence. Employee shall not, except as may be required to perform Employee's duties hereunder or as required by applicable law, without limitation in time or until such information shall have become public other than by Employee's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company or any of its subsidiaries or affiliates. "Confidential Information" shall mean information about the Company or any of its subsidiaries or affiliates, and their clients and customers that is not disclosed by the Company or any of its subsidiaries or affiliates for financial reporting purposes and that was learned by Employee in the course of employment by the Company or any of its subsidiaries or affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. Employee acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company and its subsidiaries or affiliates, and that such information gives the Company and its subsidiaries or affiliates a competitive advantage. Employee agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of Employee's employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company and its subsidiaries or affiliates or prepared by Employee in the course of Employee's employment by the Company and its subsidiaries or affiliates. As used in this Agreement, "subsidiaries" and "affiliates" shall mean any company controlled by, controlling or under common control with the Company.     (b)  NON-SOLICITATION OF EMPLOYEES.  Employee recognizes that he will possess confidential information about other employees of the Company and its subsidiaries or affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of the Company and its subsidiaries or affiliates. Employee recognizes that the information he will possess about these other employees is not generally known, is of substantial value to the Company and its subsidiaries or affiliates in developing their respective businesses and in securing and retaining customers, and will be acquired by Employee because of Employee's business position with the Company. Employee agrees that, during the Term (and for a period of 12 months beyond the expiration of the Term), Employee will not, directly or indirectly, solicit or recruit any employee of the Company or any of its subsidiaries or affiliates for the purpose of being employed by Employee or by any business, individual, partnership, firm, corporation or other entity on whose behalf he is acting as an agent, representative or employee and that Employee will not convey any such confidential information or trade secrets about other employees of the Company or any of its subsidiaries or affiliates to any other person except within the scope of Employee's duties hereunder. 5 --------------------------------------------------------------------------------     (c)  PROPRIETARY RIGHTS; ASSIGNMENT.  All Employee Developments shall be made for hire by Employee for the Company or any of its subsidiaries or affiliates. "Employee Developments" means any idea, discovery, invention, design, method, technique, improvement, enhancement, development or other work of authorship that (i) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (ii) results from or is suggested by any undertaking assigned to Employee or work performed by Employee for or on behalf of the Company or any of its subsidiaries or affiliates, whether created alone or with others, during or after working hours. All Confidential Information and all Employee Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. Employee shall acquire no proprietary interest in any Confidential Information or Employee Developments developed or acquired during the Term. To the extent Employee may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Employee Development, Employee hereby assigns to the Company all such proprietary rights. Employee shall, both during and after the Term, upon the Company's request, promptly execute and deliver to the Company all such assignments, certificates and instruments, and shall promptly perform such other acts, as the Company may from time to time in its discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company's rights in Confidential Information and Employee Developments.     (d)  COMPLIANCE WITH CODE OF CONDUCT.  During the Term, Employee shall adhere to the policies and standards of professionalism set forth in the Company's Code of Conduct as it may exist from time to time.     (e)  REMEDIES FOR BREACH.  Employee expressly agrees and understands that the remedy at law for any breach by Employee of this Section 2 will be inadequate and that damages flowing from such breach are not usually susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon Employee's violation of any provision of this Section 2 the Company shall be entitled to obtain from any court of competent jurisdiction immediate injunctive relief and obtain a temporary order restraining any threatened or further breach as well as an equitable accounting of all profits or benefits arising out of such violation. Nothing in this Section 2 shall be deemed to limit the Company's remedies at law or in equity for any breach by Employee of any of the provisions of this Section 2, which may be pursued by or available to the Company.     (f)  SURVIVAL OF PROVISIONS.  The obligations contained in this Section 2 shall, to the extent provided in this Section 2, survive the termination or expiration of Employee's employment with the Company and, as applicable, shall be fully enforceable thereafter in accordance with the terms of this Agreement. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 2 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. 3.  TERMINATION OF PRIOR AGREEMENTS.  This Agreement constitutes the entire agreement between the parties and terminates and supersedes any and all prior agreements and understandings (whether written or oral) between the parties with respect to the subject matter of this Agreement, including, without limitation, the Employment Agreement, dated as of January 13, 1997, between the Company and Employee; provided, that Employee retains all granted and vested stock options granted under the January 13, 1997 employment contract, and all accrued benefits, including, but not limited to, accrued and unused vacation days. Employee acknowledges and agrees that neither the Company nor anyone acting on its behalf has made, and is not making, and in executing this Agreement, Employee has not relied upon, any representations, promises or inducements except to the extent the same is expressly set forth in this Agreement. 4.  ASSIGNMENT; SUCCESSORS.  This Agreement is personal in its nature and none of the parties hereto shall, without the consent of the others, assign or transfer this Agreement or any rights or 6 -------------------------------------------------------------------------------- obligations hereunder, provided that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. 5.  WITHHOLDING.  The Company shall make such deductions and withhold such amounts from each payment and benefit made or provided to Employee hereunder, as may be required from time to time by applicable law, governmental regulation or order. 6.  HEADING REFERENCES.  Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. References to "this Agreement" or the use of the term "hereof" shall refer to these Terms and Conditions and the Employment Agreement attached hereto, taken as a whole. 7.  WAIVER; MODIFICATION.  Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto. Notwithstanding anything to the contrary herein, neither the assignment of Employee to a different Reporting Officer due to a reorganization or an internal restructuring of the Company or its affiliated companies nor a change in the title of the Reporting Officer shall constitute a modification or a breach of this Agreement. 8.  SEVERABILITY.  In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any law or public policy, only the portions of this Agreement that violate such law or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 9.  INDEMNIFICATION.  The Company shall indemnify and hold Employee harmless for acts and omissions in Employee's capacity as an officer, director or employee of the Company to the maximum extent permitted under applicable law; provided, however, that neither the Company, nor any of its subsidiaries or affiliates shall indemnify Employee for any losses incurred by Employee as a result of acts described in Section 1 (c) of this Agreement. 7 -------------------------------------------------------------------------------- ACKNOWLEDGED AND AGREED: Date: December 10, 1998             TICKETMASTER CORPORATION               By:   /s/ [ILLEGIBLE]    -------------------------------------------------------------------------------- Name: Title:               /s/ DANIEL R. GOODMAN    -------------------------------------------------------------------------------- DANIEL R. GOODMAN 8 -------------------------------------------------------------------------------- QuickLinks EMPLOYMENT AGREEMENT TERMS AND CONDITIONS

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.3.6 EMPLOYMENT AGREEMENT     This Employment Agreement ("Agreement"), effective May 1, 2001, is among Westaff Support, Inc., a California corporation ("Westaff"), Westaff,  Inc., a Delaware corporation (the "Company"), and TOM D. SEIP (the "Executive"). Westaff, the Company and the Executive agree to the following terms and conditions of employment.     1.  Employment. Westaff hereby employs the Executive, and the Executive hereby accepts employment, upon the terms and subject to the conditions hereinafter set forth. 2.  Duties.     (a) Position and Responsibilities. The Executive shall be employed as the President and Chief Executive Officer of Westaff and the Company, which is the ultimate parent company of Westaff. The Executive shall have such executive responsibilities and duties as are consistent with his position. The Executive agrees to devote his full working time, attention and energies to the performance of his duties for Westaff or the Company. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees or (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions so long as such activities do not significantly interfere with the performance of the Executive's responsibilities to Westaff or the Company in accordance with this Agreement and provided that the Executive otherwise complies with Westaff's Conflict of Interest Policy.     (b) Election to Chairman of the Board. It is the intention of the Board of Directors of the Company (the "Board") that on the date of the Company's annual stockholders' meeting in calendar year 2001, which is presently scheduled for May 23, 2001 and will be held no later than June 30, 2001, the Board shall appoint the Executive to succeed to and replace W. Robert Stover as Chairman of the Board, effective at the annual stockholders' meeting in calendar year 2002. It is the intention of the Board that following the annual stockholders' meeting in calendar year 2002, W. Robert Stover will remain a director with the title of Chairman-Emeritus. This planned leadership change will be announced coincident with the public announcement of the Executive joining Westaff and the Company as President and Chief Executive Officer and such change shall be contingent upon satisfactory performance hereunder in the discretion of the Board.     (c) Term. The Executive's employment shall commence on May 1, 2001, and shall be for a term of five (5) years, subject to termination under Section 4 of this Agreement.     3.  Compensation and Benefits. In consideration for the services of the Executive, Westaff shall compensate the Executive as follows:     (a) Base Salary. Westaff shall pay the Executive, in accordance with Westaff's then current payroll practices and schedule, a base salary ("Base Salary"). The Base Salary to be paid Executive shall be Five Hundred Thousand Dollars ($500,000), less income and employment tax withholding or other withholdings required by law, and such Base Salary may be increased, but not decreased, from time to time.     (b) Benefits.      (i) Vacation. The Executive shall be entitled to vacation leave of four (4) weeks per year or more as reasonably needed, subject to Westaff's policies with respect to maximum annual accruals.     (ii) Benefit Plans. The Executive shall be eligible to participate in and to receive benefits from all present and future benefit plans specified in Westaff's policies and generally made 1 -------------------------------------------------------------------------------- available to similarly situated employees of Westaff. The amount and extent of benefits to which the Executive is entitled shall be governed by the specific benefit plan, as amended. The Executive shall also be entitled to any benefits or compensation tied to termination as described in Section 4.     (c) Expenses. Westaff shall reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties in accordance with Westaff's policies, as they may be amended in Westaff's sole discretion.     (d) Annual Incentive Compensation. The Executive shall receive a cash incentive bonus for improving the Company's annual corporate pre-tax net income from continuing operations, under the following terms:      (i) Fiscal Year. The period for measuring improvement in the Company's annual corporate pre-tax net income from continuing operations shall be the Company's fiscal year, which ends on the last Saturday nearest the end of October each year and begins on the Sunday immediately following.     (ii) Measurement of Improvement to Annual Corporate Pre-Tax Net Income. The base of comparison for the first year of the award shall be the improvement from fiscal year 2000 (October 31, 1999 to October 28, 2000) to fiscal year 2001 (October 29, 2000 to November 3, 2001). In calculating the improvement in annual corporate pre-tax net income from continuing operations from fiscal year 2000 to fiscal year 2001, pre-tax net income from fiscal year 2000 shall be normalized, so that the 1everaged buy-out expenses of approximately Two Million Dollars ($2,000,000), and the discontinued operations and costs of the medical business shall be excluded. The award shall be one-tenth (1/10) of the amount of improvement in annual corporate pre-tax net income from continuing operations, measured as the increase in the Company's annual corporate pre-tax net income from continuing operations from the previous fiscal year to the current fiscal year. The expense of the award shall be included in calculating the pre-tax net income from continuing operations for the purpose of determining the amount of the award.    (iii) Basis for Calculation of Annual Corporate Pre-Tax Net Income. For purposes of determining the amount of the award, the Company's annual corporate pre-tax net income from continuing operations shall be calculated based on the Company's consolidated fiscal year and financial statements, as audited by the Company's independent public accountant.     (iv) Termination or Resignation. Except as provided in Section 4(b) of this Agreement, if the Executive is not employed by Westaff or the Company on the last day of a given fiscal year, he shall not receive any award for improvement in corporate pre-tax net income from continuing operations for that fiscal year.     (v) Timing and Form. The award shall be paid after January 1 each year and not later than January 15 of the same year, whether or not the Executive is employed on the date of payment. The award shall be paid in a lump sum, and Westaff shall deduct amounts required to be withheld by law for income and employment taxes or other legally required withholdings.     (e) Stock Options. The Executive shall be granted stock options to purchase an aggregate of one million (1,000,000) shares of the Company's common stock on the date his employment begins. Five hundred thousand (500,000) shares shall be granted as incentive stock options (the "Initial Grant") to the extent permitted by law and, to the extent not an incentive stock option, shall be transferable by the executive for estate planning purposes. The terms of the Initial Grant shall be stated in two separate stock option agreements (one an incentive stock option and the other a non-qualified stock option, the "Initial Grant Stock Option Agreements"), which both parties 2 -------------------------------------------------------------------------------- shall sign in accordance with the Company's 1996 Stock Option/Stock Issuance Plan, as amended and restated as of April 30, 2001 (the "Plan"). The exercise price per share shall be equal to the fair market value per share, as defined by the Plan, on the date these options are granted to the Executive. The shares subject to the Initial Grant shall vest in the following five (5) installments, with vesting of the first installment to occur upon the hire date (the "Vesting Commencement Date") and continued vesting annually thereafter upon the Executive's completion of each additional year of service measured from the first anniversary of the Vesting Commencement Date through the fourth anniversary of the Vesting Commencement Date: Date --------------------------------------------------------------------------------   Vested Option Shares -------------------------------------------------------------------------------- Vesting Commencement Date   150,000 First Anniversary of the Vesting Commencement Date   125,000 Second Anniversary of the Vesting Commencement Date   100,000 Third Anniversary of the Vesting Commencement Date   75,000 Fourth Anniversary of the Vesting Commencement Date   50,000     Five hundred thousand (500,000) shares shall be granted as nonqualified stock options (the "Rescindable Grant") and shall be transferable by the executive for estate planning purposes; provided, however, that the Rescindable Grant shall be rescinded if a majority of the stockholders of the Company vote against the amendment and restatement of the Plan to increase the maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to an individual in any calendar year from five hundred thousand (500,000) shares of Company common stock to one million (1,000,000) shares of Company common stock. The Company agrees that it shall submit such amendment and restatement of the Plan for approval of its stockholders at the earliest opportunity, but not later than June 30, 2001, and that the Board shall recommend such approval to the stockholders of the Company. The terms of the Rescindable Grant shall be stated in a stock option agreement (the "Rescindable Grant Stock Option Agreement"), which both parties shall sign in accordance with the Plan. The exercise price per share shall be equal to the fair market value per share, as defined by the Plan, on the date this option is granted to the Executive. The shares subject to the Rescindable Grant shall vest in the following five (5) installments, with vesting of the first installment to occur upon the Vesting Commencement Date and continued vesting annually thereafter upon the Executive's completion of each additional year of service measured from the first anniversary of the Vesting Commencement Date through the fourth anniversary of the Vesting Commencement Date; provided, however, that, except as provided below, vested shares subject to the Rescindable Grant may only be exercised after June 15, 2002. Date --------------------------------------------------------------------------------   Vested Option Shares -------------------------------------------------------------------------------- Vesting Commencement Date   150,000 First Anniversary of the Vesting Commencement Date   125,000 Second Anniversary of the Vesting Commencement Date   100,000 Third Anniversary of the Vesting Commencement Date   75,000 Fourth Anniversary of the Vesting Commencement Date   50,000     Notwithstanding the foregoing, vested shares subject to the Rescindable Grant may be exercised on or before June 15, 2002, but only following stockholder approval of the amendment and restatement of the Plan to increase the maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to an individual in any calendar year to one million (1,000,000) shares of common stock.     Notwithstanding the foregoing vesting schedules, both the Initial Grant and the Rescindable Grant shall become fully vested and exercisable upon the effective date of a "Change in Control," a "Corporate Transaction," or a "Hostile Take-Over," as such terms are defined in the Plan, whichever 3 -------------------------------------------------------------------------------- event shall first occur while the Executive is employed by the Company or Westaff and notwithstanding any assumption, substitution or replacement of such Grants in connection with such event.     At termination of the employment relationship by either party, both the Initial Grant and the Rescindable Grant must be exercised within three (3) months from the date of termination; provided, however, that (i) should termination of the Executive's employment be for Cause, as defined herein, such Grants shall be cancelled upon the date of such termination, and (ii) should termination of Executive's employment be on account of death or disability or without Cause, such Grants shall remain exercisable for twelve (12) months from the date of such termination.     The Company agrees to register the shares of Company common stock subject to the Initial Grant and the Rescindable Grant under the Securities Act of 1933 so that such shares will be publicly tradable. 4.  Termination of Employment.     (a) Definition of Cause. For purposes of this Agreement, "Cause" means the occurrence of any one or more of the following:      (i) the Executive's conviction of, or plea of no contest with respect to, any crime involving fraud, dishonesty or moral turpitude;     (ii) the Executive's fraud, embezzlement, misappropriation or dishonesty which has or could reasonably be expected to materially and adversely affect the Company or its reputation; or    (iii) the Executive's intentional and material breach of this Agreement, violation of any lawful, written directive of the Board of the Company, intentional and material breach of any lawful written policy of Westaff that has been communicated to or made available to the Executive, or intentional and material breach of any statutory or fiduciary duty owed to Westaff that has or could reasonably be expected to materially and adversely affect the Company or its reputation; provided that the foregoing breach or violation is not corrected within fifteen (15) days after written notice thereof has been provided by the Board to the Executive;     (b) Termination by Westaff without Cause. At any time, Westaff may terminate the Executive's employment for any reason, without Cause, by providing the Executive ninety (90) days' advance written notice. If the Executive's employment is terminated without Cause, Westaff shall pay the Executive his earned but unpaid Base Salary, accrued vacation pay through the date of termination and, in addition, severance pay equal to one (1) year of his Base Salary. Such earned but unpaid Base Salary and accrued vacation pay shall be paid immediately upon the Executive's termination of employment. If Executive's termination occurred after more than six months of employment in the fiscal year, he shall also receive a pro rata payment of the cash incentive bonus provided in Section 3(d). The cash incentive bonus shall be paid in accordance with Section 3(d)(v). Severance pay shall be paid in accordance with Westaff's standard payroll schedule and not as a lump sum. Following termination of employment, the Executive shall continue to participate in Westaff's employee benefit plans in accordance with the terms of such plans.     (c) Termination by Westaff for Cause. At any time, and without prior notice, Westaff may terminate the Executive for Cause. If employment shall be terminated by Westaff for Cause, Westaff shall pay the Executive his earned but unpaid Base Salary and accrued vacation pay through the date of termination. Such earned but unpaid Base Salary and accrued vacation pay shall be paid immediately upon the Executive's termination. Following termination of employment, 4 -------------------------------------------------------------------------------- the Executive shall continue to participate in Westaff's employee benefit plans in accordance with the terms of such plans.     (d) Resignation by Executive. At any time, the Executive may terminate his employment for any reason by providing Westaff ninety (90) days' advance written notice. Westaff shall pay the Executive his earned but unpaid Base Salary and accrued vacation pay through the date of termination immediately upon the Executive's termination of employment. Following termination of employment, the Executive shall continue to participate in Westaff's employee benefit plans in accordance with the terms of such plans.     (e) Termination by Disability. In the event of termination for reason of disability, Westaff shall pay the Executive his accrued but unpaid Base Salary and accrued vacation pay through the date of termination and, in addition, severance pay equal to three (3) months of his Base Salary. Such earned but unpaid Base Salary and accrued vacation pay shall be paid immediately upon the Executive's termination. Severance pay shall be paid in accordance with Westaff's standard payroll schedule and not as a lump sum, and it shall be reduced by any payments received by the Executive under Westaff's Long Term Disability Plan during the three (3) month severance payment period. Following termination of employment, the Executive shall continue to participate in Westaff's employee benefit plans in accordance with the terms of such plans. 5.  Termination Obligations.     (a) Representations and Warranties. The representations and warranties contained in this Agreement and the Executive's obligations under Section 5 and Section 6 on Proprietary Information and Non-Solicitation shall survive the termination of employment.     (b) Cooperation in Pending Work. Following any termination of employment, the Executive shall fully cooperate with Westaff in all matters relating to the winding up of pending work on behalf of Westaff and the orderly transfer of work to other employees of Westaff.     (c) Return of Company Property. All property, including, without limitation, all equipment, tangible Proprietary Information as defined in Section 6(a), documents, books, records, reports, notes, contracts, lists, computer disks (and other computer-generated files and data), and copies thereof, created on any medium and furnished to, obtained by, or prepared by the Executive in the course of or incident to his employment, belongs to Westaff and shall be returned promptly to Westaff upon termination of employment. 6.  Proprietary Information and Non-Solicitation.     (a) Proprietary Information. The Executive recognizes and acknowledges that certain assets of Westaff and the Company constitute Proprietary Information, including all information that is known only to the Executive or Westaff or the Company, and relating to the business of Westaff or the Company (including, without limitation, information regarding employees, clients, customers, pricing policies, methods of operation, sales, products, costs, markets, key personnel, formulae, product applications, technical processes, confidential data, and trade secrets), and that protection of such information is essential to the interests of Westaff and the Company. The Executive will be required to sign, as a condition of employment, Westaff's Confidential Information and Invention Agreement.     (b) Non-Solicitation of Employees and Clients. The Executive acknowledges and agrees that the pursuit of activities forbidden by this subsection would necessarily involve the use or disclosure of Proprietary Information in breach of Westaff's Confidential Information and Invention Agreement. To forestall this disclosure, use, and breach, and in consideration of the employment under this Agreement, the Executive agrees that for a period of one (1) year after termination of 5 -------------------------------------------------------------------------------- his employment, he shall not, directly or indirectly, (i) solicit, induce, or influence any employee, consultant or independent contractor of Westaff or the Company to terminate his or her employment or relationship with Westaff or the Company or to work for any other business entity or person; or (ii) solicit (other than on behalf of Westaff or the Company), divert, or attempt to divert, the business of any client or customer of Westaff or the Company in any district, territory, state or country where Westaff or the Company conducts business.     (c) Non-Competition During Severance Period. If the Executive engages in any business activity that is or may be competitive with Westaff in any district, territory, state or country where Westaff conducts business during the severance period, then the Executive's right to receive severance payments shall cease immediately upon his engaging in any such competition. The period of non-competition shall not exceed one (1) year following the date of employment termination.     7.  Arbitration. Any controversy or claim arising out of or relating to the Executive's employment and its termination, including, but not limited to, claims of employment discrimination, this Agreement, the Stock Option Agreement, the Confidential Information and Invention Agreement, or the breach thereof, (except for injunctive relief as provided for below) shall be subject to binding, mandatory arbitration under the auspices of the American Arbitration Association ("AAA") in San Francisco, California conducted by a single, neutral arbitrator in accordance with the AAA National Rules for the Resolution of Employment Disputes.     To the extent permitted by law, each party will pay one half (1/2) of the costs of the arbitration, and the parties shall bear their own attorneys' fees and costs except as otherwise required by law. The parties shall have the right to conduct discovery which provides them with access to documents and witnesses that are essential to the dispute, as determined, by the arbitrator. The arbitrator's written award shall include the essential findings and conclusions upon which the award is based.     This mutual agreement to arbitrate disputes does not prohibit or limit either the Executive's or Westaff's or the Company's right to seek equitable relief from a court for claims involving a violation of the Confidential Information and Invention Assignment Agreement, including, but not limited to, injunctive relief, pending the resolution of a dispute by arbitration or during limited judicial review. Except for such injunctive relief, claims under the Confidential Information and Invention Agreement are subject to arbitration under this Agreement. 8.  General.     (a) Severability. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired.     (b) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.     (c) Entire Agreement. This Agreement, the Stock Option Agreement, the Confidential Information and Invention Agreement, and Westaff's employment policies to the extent not inconsistent with the provisions of this Agreement contain the entire understanding of the parties, supersede all prior agreements and relating to the subject matter and shall not be amended except by a written instrument hereafter signed by each of the parties.     (d) Amendments; Waivers. This Agreement may not be amended except by an instrument in writing, signed by each of the parties. No failure to exercise and no delay in exercising any right, remedy, or power under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power under this Agreement preclude any other or further 6 -------------------------------------------------------------------------------- exercise thereof, or the exercise of any other right, remedy, or power provided herein or by law or in equity.     (e) Assignment; Successors and Assigns. The Executive agrees that he will not assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement. Any such purported assignment, transfer, or delegation shall be void. Nothing in this Agreement shall prevent the consolidation of Westaff or the Company with, or its merger into, any other entity, or the sale by Westaff or the Company of all or substantially all of its assets, or the otherwise lawful assignment by Westaff or the Company of any rights or obligations under this Agreement. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, legal representatives, successors, and permitted assigns, and shall not benefit any person or entity other than those specifically enumerated in this Agreement.     (f)  Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of California, without regard to that State's principles of conflict of laws.     (g) Beneficiaries. This agreement is intended to benefit both the Company and Westaff such that any references herein to either corporation shall apply interchangeably to both corporations, particularly with respect to the termination provisions of Section 4, and this Agreement shall inure to the benefit of any present or future subsidiary of the Company that may become the Executive's employer due to a corporate restructuring. Notwithstanding the foregoing, the references to the Company in the following Sections of this Agreement shall pertain solely to Westaff, Inc. (the "Company") and not to Westaff Support, Inc. ("Westaff): Section 3(d) and each of its subparts, relating to the Annual Incentive Compensation; Section 3(e) relating to Stock Options; and the reference to the Board of the Company in Section 4(a)(iii), relating to the definition of Cause.     The parties have duly executed this Agreement as of the date and year first above written.     /s/ Tom D. Seip                                 5/1/01 -------------------------------------------------------------------------------- TOM D. SEIP     WESTAFF, INC.     By:   /s/ W. Robert Stover -------------------------------------------------------------------------------- W. Robert Stover Chairman of the Board, interim President and Chief Executive Officer     WESTAFF SUPPORT, INC.     By:   /s/ W. Robert Stover --------------------------------------------------------------------------------     Its:   W. Robert Stover Chairman of the Board, interim President and Chief Executive Officer 7 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.3.6 EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT THIS AGREEMENT is made between Farmland Industries, Inc. (“Farmland”), with its principal place of business at 3315 North Oak Trafficway, Kansas City, Missouri 64116, and John F. Berardi, (“Executive”). WHEREAS, Executive and Farmland desire and agree to govern their employment relationship by means of this Employment Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and between the parties as follows: 1. Position and Term. Farmland hereby employs Executive to serve as Executive Vice President and Chief Financial Officer and in such other senior management positions as may be assigned from time to time. The period of employment under this Agreement shall commence on September 1, 2000 and continue for a rolling two (2) year period and shall be referred to as the “Employment Period.” In no event, will such Employment Period be automatically extended beyond Executive’s 65th birthday. Executive’s employment may be earlier terminated by either party subject to the rights and obligations of the parties set forth herein. While employed hereunder, Executive will devote his best efforts to Farmland and shall perform the duties of the position outlined herein and such other duties as may be reasonably assigned by Farmland. While it is understood and agreed that Executive’s job capacities may change at Farmland’s discretion, Executive’s level of responsibility shall not be substantially reduced at any time. Executive shall not, without the prior written consent of Farmland, render services of a business, professional, or commercial nature to any other person or firm, whether for compensation or otherwise during the Employment Period. 2. Employment at Will. The parties acknowledge this Employment Agreement does not create any obligation on Executive’s part to work for Farmland nor on Farmland’s part to employ Executive for any fixed period of time and that this Employment Agreement may be terminated at any time with or without cause, subject only to the rights and obligations set forth herein. 3. Termination of Employment. (a) Death. Executive’s employment shall terminate upon his death. (b) Termination by the Company (i) Without Cause. Farmland may terminate Executive’s employment, at any time and for any reason whatsoever, without cause, effective upon delivery of written notice of termination to Executive. (ii) For Cause. Farmland may terminate Executive’s employment at any time for Cause, effective upon delivery of written notice of termination to Executive. If such termination by Farmland is asserted to be for Cause, such termination notice shall state the grounds constituting Cause. As used herein, “Cause” shall mean: (a) willful misconduct by Executive which is damaging or detrimental to the business and affairs of Farmland, monetarily or otherwise, as determined by the Chief Executive Officer in the exercise of good faith business judgment; (b) a material breach of this Employment Agreement by Executive which is not “cured” by Executive following at least thirty (30) days’ written notice of such breach; (c)gross negligence in the execution of his material assigned duties; (d) the commission by Executive of any act involving fraud, dishonesty or moral turpitude; (e) the indictment for, being bound over for trial following preliminary hearing, or the conviction of Executive of any felony in either a state or federal court proceeding; or (f) failure to reasonably perform his duties and obligations or to implement policies and directions promulgated by Farmland following at least thirty (30) days’ written notice of such failure. (iii) Disability. Farmland may terminate Executive’s employment if Executive sustains a disability which is serious enough that Executive is not able to perform the essential functions of his position, with or without reasonable accommodations, as defined and if required by applicable state and federal disability laws. Executive shall be presumed to have such a disability if he qualifies to begin receiving disability income insurance payments under any applicable Long Term Disability Income plan. Further, Executive shall be presumed to have such a disability if he is substantially incapable of performing his duties for a period of more than twelve (12) weeks. (c) Termination by Executive (i) Voluntary Resignation. Executive may terminate his employment at any time and for any reason whatsoever, effective upon delivery of written notice of termination to Farmland. (ii) “Good Reason” Resignation. Executive may terminate this contract and his employment for “Good Reason” following at least thirty (30) days’ written notice of the asserted “Good Reason” to Farmland, if such “Good Reason” is not then “cured” by Farmland. If such termination by Executive is asserted to be for “Good Reason”, such termination shall state the grounds that Executive claims constitutes Good Reason. As used herein, “Good Reason” shall mean a material breach of this Employment Agreement by Farmland, or a demotion such that Executive does not serve in substantially the capacity described herein or a position of comparable responsibility. 4. Compensation. (a) Base Salary. During his employment, Farmland shall pay Executive an initial“Base Salary” at the rate of Four Hundred Twelve Thousand Eighty Dollars ($412,080) per year, commencing on the effective date of this Employment Agreement, payable in accordance with Farmland’s regular payroll practices and policies. Farmland shall annually review the amount of Base Salary. Any upward adjustment shall not require a written amendment to this Employment Agreement. (b) Other Compensation and Employee Benefits. During the Employment Period, Executive shall be eligible to participate in the Company’s variable pay and long-term incentive compensation programs. Executive shall be entitled to participate in any additional executive compensation programs and employee benefit plans generally applicable to senior management employees of the Company pursuant to the terms and conditions of such programs and plans. Nothing contained herein shall preclude Farmland from terminating or amending any such plan or program in its sole discretion. 5. Post-Termination Payments by Farmland. (a) Terminations without Cause or Resignation for Good Reason. In the event that Executive’s employment is terminated by Farmland without Cause or by Executive for Good Reason, and Executive signs (and does not rescind, as allowed by law) a Release of Claims in a form satisfactory to Farmland which assures, among other things, that Executive will not commence any litigation or other claims as a result of his employment or termination, and agrees to honor all of Executive’s other obligations as required by this Agreement, Farmland will provide Executive a severance payment equal to two years Base Salary and Executive will be entitled to a pro-rata payment under any then existing annual or long-term variable pay or incentive plans or other bonus arrangements then in effect, if applicable objectives are achieved. (b) Termination for Cause, or Voluntary Resignation. If Executive’s employment is terminated by Farmland for Cause or by Executive as a Voluntary Resignation, Executive shall be entitled only to his rights (a) to receive the unpaid portion of his Base Salary, prorated to the date of termination, (b) to receive reimbursement for any ordinary and reasonable business expenses for which he had not yet been reimbursed, (c) to receive payment for accrued and unused vacation days, (d) to receive payments under Farmland’s pension, deferred compensation or other benefit plans in accordance with the terms of such plans, and (e) to continue certain health insurance at his expense pursuant to COBRA. 6. Other Executive Obligations. Executive agrees that the following provisions will apply throughout Executive’s Employment Period and for the specified post-employment period, regardless of the reason for termination or resignation; (a) Nondisclosure of Confidential Information. Except to the extent required in furtherance of Farmland’s business in connection with matters as to which Executive is involved as an employee, Executive will not, during the term of his employment and for an unlimited period thereafter, directly or indirectly: (1) disclose or furnish to, or discuss with, any other person or entity any confidential information concerning Farmland or its business or employees, acquired during the period of his employment by Farmland; (2) individually or in conjunction with any other person or entity, employ or cause to be employed, any such confidential information in any way whatsoever or (3) without the written consent of Farmland, publish or deliver any copies, abstracts or summaries of any papers, documents, lists, plans, specifications or drawings containing any such confidential information. (b) Non-Interference. Executive will not, during the Employment Period and for an unlimited period thereafter, directly or indirectly attempt to encourage, induce or otherwise solicit any employee or other person or entity to breach any agreement with the Company or otherwise interfere with the advantageous business relationship of the Company with any person or entity. Executive specifically agrees not to solicit, on Executive’s own behalf or on behalf of another, any of the Company’s employees to resign from their employment with the Company in order to go to work elsewhere. Executive further specifically agrees not to make any disparaging remarks of any sort or otherwise communicate any disparaging remarks about the Company or any of its members, equity holders, directors, officers or employees, directly or indirectly, to any of the Company’s employees, members, equity holders, directors, customers, vendors, competitors, or other people or entities with whom the Company has a business or employment relationship. (c) Non-Competition. Executive agrees that during the term of his employment and thereafter for a period of one (1) year, Executive will not directly or indirectly engage in or carry on a business that is in direct competition with any significant business unit of Farmland as conclusively determined by the President and Chief Executive Officer. Further, Executive agrees that during this same period of time he will not act as an agent, representative, consultant, officer, director, independent contractor or employee of any entity or enterprise that is in direct competition with any significant business unit of Farmland as conclusively determined by the President and Chief Executive Officer. (d) Cooperation in Claims. For an unlimited period following his period of employment, at the request of Farmland, Executive will cooperate with Farmland with respect to any claims or lawsuits by or against Farmland where Executive has knowledge of the facts involved in such claims or lawsuits. Executive shall be entitled to reasonable compensation for Executive’s time and expense in rendering such cooperation. Further, Executive will decline to voluntarily aid, assist or cooperate with any party who has claims or lawsuits against Farmland, or with their attorneys or agents. Farmland and Executive both acknowledge, however, that nothing in this paragraph shall prevent Executive from honestly testifying at an administrative hearing, arbitration, deposition or in court, in response to a lawful and properly served subpoena in a proceeding involving Farmland. (e) Remedies. The parties recognize and agree that, because any breach by Executive of the provisions of this Paragraph 6 would result in damages difficult to ascertain, Farmland shall be entitled to injunctive and other equitable relief to prevent a breach or threatened breach of the provisions of this Paragraph 6. Accordingly, the parties specifically agree that Farmland shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Paragraph 6 and that such relief may be granted without the necessity of proving actual damages or irreparable harm. (f) Enforceability. Executive agrees that considering Executive’s relationship with Farmland, and given the terms of this Agreement, the restrictions and remedies set forth in Paragraph 6 are reasonable. Notwithstanding the foregoing, if any of the covenants set forth above shall be held to be invalid or unenforceable, the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts have not been included therein. In the event the provisions relating to time periods and/or areas of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time periods or areas of restriction permitted by law, then such time periods and areas of restriction shall be amended to become and shall thereafter be the maximum periods and/or areas of restriction which said court deems reasonable and enforceable. Executive also agrees that Farmland’s action in not enforcing a particular breach of any part of Paragraph 6 will not prevent Farmland from enforcing any other breaches that Farmland discovers, and shall not operate as a waiver by Farmland against any future enforcement of a breach. 7. Notices. Notices hereunder shall be in writing and shall be delivered personally or sent return receipt requested and postage prepaid, addressed as follows: If to Executive: John F. Berardi c/o Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 If to Farmland: Robert W. Honse President and Chief Executive Officer Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 with a copy to: Executive Vice President Administrative Group and General Counsel Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 8. Binding Agreement. The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 9. Missouri Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri, unless otherwise pre-empted by federal law. 10. Captions and Section Headings. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. 11. Invalid Provisions. If any provision of this Agreement shall be unlawful, void, or for any reason unenforceable, it shall be deemed severable from, and shall in no way affect the validity or enforceability of, the remaining provisions of this Agreement. 12. Waiver of Breach. The failure to enforce at any time any of the provisions of this Agreement, or to require at any time performance by the other party of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part hereof or the right of either party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 13. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations and understandings of the parties with respect thereto. No modification or amendment of any of the provisions of this Agreement shall be effective unless in writing specifically referring hereto and signed by Executive and the Chief Executive Officer. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date set forth above. EXECUTIVE FARMLAND INDUSTRIES, INC. By: JOHN F. BERARDI By: ROBERT W. HONSE --------------------------------- ------------------------------------------- John F. Berardi Robert W. Honse Executive Vice President and President and Chief Executive Officer Chief Financial Officer

TERMINATION AGREEMENT                THIS TERMINATION AGREEMENT (“Agreement”) is effective June 30, 2001, by and between Venture One Real Estate, LLC, an Illinois limited liability company (“Venture”) and RESoft, Inc., a Delaware corporation (“RESoft”). WITNESSETH:              WHEREAS, Venture and RESoft entered into a certain exclusive agency and representation agreement dated September 1, 2000, a copy of which is attached hereto as Exhibit A (“Agency Agreement”); and              WHEREAS, Venture and RESoft desire to terminate the Agency Agreement.  This is Subject to the completion of the Asset Purchase Agreement between Resoft Inc and IntraNet Solutions, Inc. dated July 2, 2001.              NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for one dollar and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto hereby agree as follows:              1.          The recitals set forth above are true and correct in all material respects and are incorporated herein by reference.              2.          Venture and RESoft agree the Agency Agreement is terminated in all respects, with neither party having any rights or obligations thereunder.              3.          In consideration for such termination, and in full satisfaction of and claims of Venture pursuant to the Agency Agreement, RESoft agrees to pay to Venture the sum of a) direct expenses incurred totaling $43,964 no later than August 15, 2001 without interest; and, b) $262,500 no later than October 15, 2001 without interest; and, c) direct expenses incurred between July 1, 2001 and August 31, 2001 related to Tanya Splan, as mutually agreed between the parties.  Such amount shall be evidenced by a promissory note between the parties.              4.          Venture, its successors, subsidiaries, affiliates, assigns, officers, shareholders, directors, partners, agents, and their respective heirs and legal representatives do hereby release and discharge RESoft and its successors, subsidiaries, parent company (specifically including Stonehaven), affiliates, assigns, officers, shareholders, directors, partners, agents, and their respective heirs and legal representatives from all claims which they now have, ever had, or may hereinafter have in any way related to the Agency Agreement and any other document, agreement or thing whatsoever between Venture and RESoft; provided, however, that the release provisions of this paragraph shall not apply to claims for breach of the terms and conditions of this Agreement.              5.          RESoft, its successors, subsidiaries, affiliates, assigns, officers, shareholders, directors, partners, agents, and their respective heirs and legal representatives do hereby release and discharge Venture and its successors, subsidiaries, affiliates, assigns, officers, shareholders, directors, partners, agents, and their respective heirs and legal representatives from all claims which they now have, ever had, or may hereinafter have in any way related to the Agency Agreement and any other document, agreement or thing whatsoever between RESoft and Venture; provided, however, that the release provisions of this paragraph shall not apply to claims for breach of the terms and conditions of this Agreement.              6.          The parties agree to execute Cancellation of Exclusive Agency and Representation Agreement as attached (“Cancellation”).  In the event of a conflict between the terms and conditions of this Agreement and the Notice of Cancellation, the terms and conditions of this Agreement shall control.              IN WITNESS WHEREOF, the undersigned have executed this Termination Agreement as of the day and year first above written.   Venture One Real Estate, LLC     RESoft, Inc.         Stonehaven Realty Trust, Inc.             --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   By: Mark B. Goode   By: Duane H. Lund   Its:     Partner     Its:     Chief Executive Officer  

SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT AND SECOND AMENDMENT TO GUARANTY AND FIRST AMENDMENT TO CLAWBACK AGREEMENT       This Second Amendment to Revolving Credit Agreement and Second Amendment to Guaranty and First Amendment to Clawback Agreement (“this Amendment”), dated as of June 20, 2001, is entered into by (1) FRONTIER OIL AND REFINING COMPANY (the “Borrower”), (2) each of FRONTIER HOLDINGS INC., FRONTIER REFINING & MARKETING INC., FRONTIER REFINING INC., FRONTIER EL DORADO REFINING COMPANY and FRONTIER PIPELINE INC. (the “Guarantors”), (3) FRONTIER OIL CORPORATION (“FOC”), (4) each of the lenders parties to the Credit Agreement referred to below (the “Lenders”) and (5) UNION BANK OF CALIFORNIA, N.A., as administrative agent for the Lenders (the "“Agent”). Recitals       A.      The Borrower, the Lenders and the Agent are parties to a Revolving Credit Agreement dated as of November 16, 1999, as amended by a First Amendment to Revolving Credit Agreement and First Amendment to Guaranty dated September 20, 2000 (said Revolving Credit Agreement, as so amended, herein called the “Credit Agreement”). Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein.       B.      The Guarantors are parties to a Guaranty dated as of November 16, 1999, as amended by a First Amendment to Revolving Credit Agreement and First Amendment to Guaranty dated September 20, 2000 (said Guaranty, as so amended, herein called the “Guaranty”), made thereby in favor of the Lenders and the Agent.       C.      FOC is a party to a Clawback Agreement dated as of November 16, 1999 (the “Clawback Agreement”) made thereby in favor of the Lenders and the Agent.       D.      The Borrower and the Lenders wish to amend the Credit Agreement to extend the Commitment Termination Date to June 15, 2004. The Guarantors, the Lenders and the Agent wish to amend the Guaranty to revise certain of the covenants contained therein. FOC, the Lenders and the Agent wish to amend the Clawback Agreement to revise certain of the covenants contained therein. Accordingly, the Borrower, the Guarantors, FOC, the Lenders and the Agent, as applicable, hereby agree as set forth below.      SECTION 1.  Amendments to Credit Agreement.  Effective as of the date hereof but subject to satisfaction of the conditions precedent set forth in Section 4, the Borrower, the Lenders and the Agent hereby agree that the Credit Agreement is amended as set forth below.          (a)     The definition of “Commitment Termination Date” in Section 1.1 of the Credit Agreement is amended by deleting the date “November 16, 2002” and substituting the date “June 15, 2004.”          (b)    The definition of “Investible Cash” in Section 1.1 of the Credit Agreement is amended in full to read as follows:          “‘Investible Cash’ means, at any time, the aggregate amount of cash and Cash Equivalents held by FOC on the last day of the most recently completed fiscal quarter with respect to which FOC has delivered financial statements to the Lenders pursuant to Section 7(j)(i) or (ii) of the Clawback Agreement.”      SECTION 2.  Amendments to Guaranty.  Effective as of the date hereof but subject to satisfaction of the conditions precedent set forth in Section 4, the Guarantors, the Lenders and the Agent hereby agree that the Guaranty is amended as set forth below.       (a)    Section 8(j) of the Guaranty is amended in full to read as follows:          “(j)    Capital Expenditures. Such Guarantor will not make, or permit any of its Subsidiaries to make, any expenditure for fixed or capital assets, except that FRMI and its Subsidiaries shall be permitted to make such expenditures not exceeding (i) $35,000,000 in the aggregate in calendar year 2003 and (ii) $25,000,000 in the aggregate in each other calendar year.”       (b)     Section 8(l) of the Guaranty is amended in full to read as follows:          “(l)    Maintenance of Tangible Net Worth. Such Guarantor will not permit the consolidated Tangible Net Worth of FRMI and its Subsidiaries at any time to be less than the lesser of (a) $240,000,000 and (b) the sum of (i) $234,000,000, plus (ii) 50% of the aggregate of all positive net income of FRMI and its Subsidiaries on a consolidated basis after November 16, 1999, determined on a quarterly basis, plus (iii) 50% of all cash or cash-equivalent equity contributions made to FRMI and its Subsidiaries on a consolidated basis after November 16, 1999, plus (iv) 100% of all noncash equity contributions made to FRMI and its Subsidiaries on a consolidated basis after November 16, 1999.”      SECTION 3.  Amendments to Clawback Agreement.  Effective as of the date hereof but subject to satisfaction of the conditions precedent set forth in Section 4, FOC, the Lenders and the Agent hereby agree that the Clawback Agreement is amended as set forth below.       (a)     Section 7(j)(i) of the Clawback Agreement is amended by amending clause (A) in full to read as follows:   “(A)  a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that FOC proposes to take with respect thereto and.”       (b)     Section 7(j)(ii) of the Clawback Agreement is amended by deleting clause (B) (except for the word "and" at the end thereof) and re-lettering clause (C) as clause (B).      SECTION 4.  Conditions Precedent.  This Amendment shall become effective as of the date first set forth above when the Agent receives a fee of $306,250, for the ratable benefit of the Lenders, and all of the following, each dated the date hereof, in form and substance satisfactory to the Agent and in the number of originals requested by the Agent:       (a)     this Amendment, duly executed by the Borrower, the Guarantors, FOC and the Lenders; and       (b)     such other approvals, opinions, evidence and documents as any Lender, through the Agent, may reasonably request.       SECTION 5.   Representations and Warranties.   Each Credit Party represents and warrants to the Lenders and the Agent as set forth below.       (a)     The execution, delivery and performance by such Credit Party of this Amendment and the Credit Documents, as amended hereby, to which such Credit Party is a party are within such Credit Party’s corporate powers, have been duly authorized by all necessary corporate action and do not (i) contravene the articles of incorporation or bylaws of such Credit Party, (ii) contravene any Governmental Rule or contractual restriction binding on or affecting such Credit Party or (iii) result in or require the creation or imposition of any Lien (other than any created by the Credit Documents) upon or with respect to any of the properties of such Credit Party.       (b)     No Governmental Action is required for the due execution, delivery or performance by such Credit Party of this Amendment or any of the Credit Documents, as amended hereby, to which such Credit Party is a party.       (c)     This Amendment and each of the Credit Documents, as amended hereby, to which such Credit Party is a party constitute legal, valid and binding obligations of such Credit Party, enforceable against such Credit Party in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors’ rights generally.       (d)     Each of the Security Agreement and the Stock Pledge Agreement constitutes a valid and perfected first-priority Lien on the Collateral purported to be encumbered thereby, enforceable against all third parties in all jurisdictions, and secures the payment of all obligations of the Borrower or FRMI, as applicable, under the Credit Documents, as amended hereby, to which such Credit Party is a party, and the execution, delivery and performance of this Amendment do not adversely affect the Lien of the Security Agreement or the Stock Pledge Agreement.       (e)     The unaudited consolidated balance sheet of FOC and its Subsidiaries as of March 31, 2001 and the related unaudited consolidated statements of income, retained earnings and cash flows of FOC and its Subsidiaries for the fiscal quarter then ended, certified by the chief financial officer or chief accounting officer of FOC, fairly present the consolidated financial condition of FOC and its Subsidiaries as of such date and the consolidated results of the operations of FOC and its Subsidiaries for the fiscal quarter ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis (subject to normal year-end audit adjustments). Since March 31, 2001 there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of FOC or any of its Subsidiaries. FOC and its Subsidiaries have no material contingent liabilities except as disclosed in such financial statements or the notes thereto.       (f)     The unaudited consolidating balance sheet of FHI and its Subsidiaries as of March 31, 2001 and the related unaudited consolidating statements of income, retained earnings and cash flows of FHI and its Subsidiaries for the fiscal quarter then ended, certified by the chief financial officer or chief accounting officer of FHI, fairly present the [consolidating] financial condition of FHI and its Subsidiaries as of such date and the [consolidating] results of the operations of FHI and its Subsidiaries for the fiscal quarter ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis (subject to normal year-end audit adjustments). Since March 31, 2001 there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of FHI or any of its Subsidiaries. FHI and its Subsidiaries have no material contingent liabilities except as disclosed in such financial statements or the notes thereto.       (g)     The unaudited consolidated and consolidating balance sheet of FRMI and its Subsidiaries as of March 31, 2001 and the related unaudited consolidated and consolidating statements of income, retained earnings and cash flows of FRMI and its Subsidiaries for the fiscal quarter then ended, certified by the chief financial officer or chief accounting officer of FRMI, fairly present the consolidated [and consolidating] financial condition of FRMI and its Subsidiaries as of such date and the consolidated [and consolidating] results of the operations of FRMI and its Subsidiaries for the fiscal quarter ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis (subject to normal year-end audit adjustments). Since March 31, 2001 there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of FRMI or any of its Subsidiaries. FRMI and its Subsidiaries have no material contingent liabilities except as disclosed in such financial statements or the notes thereto.       (h)    There is no pending or, to the knowledge of such Credit Party, threatened action or proceeding affecting such Credit Party or any Subsidiary thereof before any Governmental Person, referee or arbitrator that could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of such Credit Party or any Subsidiary thereof or that purports to affect the legality, validity or enforceability of this Amendment or any of the Credit Documents, as amended hereby.       SECTION 6.     Reference to and Effect on Credit Documents.       (a)     On and after the effective date of this Amendment, (i) each reference in the Credit Agreement to “this Agreement," “hereunder,” “hereof,” “herein” or words of like import referring to the Credit Agreement, and each reference in the other Credit Documents to “the Credit Agreement,” “thereunder,” “thereof,” “therein” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by this Amendment, (ii) each reference in the Guaranty to “this Guaranty,” “hereunder,” “hereof,” “herein” or words of like import referring to the Guaranty, and each reference in the other Credit Documents to “the Guaranty,” “thereunder,” “thereof,” “therein” or words of like import referring to the Guaranty, shall mean and be a reference to the Guaranty as amended by this Amendment, and (iii) each reference in the Clawback Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Clawback Agreement, and each reference in the other Credit Documents to “the Clawback Agreement,” “thereunder,” “thereof,” “therein” or words of like import referring to the Clawback Agreement, shall mean and be a reference to the Clawback Agreement as amended by this Amendment.       (b)     Except as specifically amended above, the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, the Security Agreement and the Stock Pledge Agreement and all of the Collateral described therein do and shall continue to secure the payment of all obligations stated to be secured thereby under the Credit Documents, as amended hereby.       (c)     Except as expressly set forth herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under any of the Credit Documents or constitute a waiver of any provision of any of the Credit Documents.      SECTION 7.  Costs and Expenses.  The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities hereunder and thereunder.      SECTION 8.  Execution in Counterparts.  This Amendment may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a originally executed counterpart of this Amendment. [THIS SPACE INTENTIONALLY LEFT BLANK.]      SECTION 9.  Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF CALIFORNIA. FRONTIER OIL AND REFINING COMPANY By:    /s/  Leo J. Hoonakker          Leo J. Hoonakker          Treasurer FRONTIER OIL CORPORATION By:    /s/  Julie H. Edwards          Julie H. Edwards          Executive Vice President,            Finance & Administration FRONTIER HOLDINGS INC. By:    /s/  Julie H. Edwards          Julie H. Edwards          Executive Vice President,             Finance & Administration FRONTIER REFINING & MARKETING INC. By:    /s/  Leo J. Hoonakker          Leo J. Hoonakker          Treasurer FRONTIER REFINING INC. By:    /s/  Leo J. Hoonakker          Leo J. Hoonakker          Treasurer FRONTIER EL DORADO REFINING COMPANY By:    /s/  Leo J. Hoonakker          Leo J. Hoonakker          Treasurer FRONTIER PIPELINE INC. By:    /s/  Leo J. Hoonakker          Leo J. Hoonakker          Treasurer UNION BANK OF CALIFORNIA, N.A.,     as Administrative Agent and a Lender By:    /s/  Randall L. Osterberg          Randall L. Osterberg          Senior Vice President BNP PARIBAS By:    /s/  Douglas R. Liftman Name:   Douglas R. Liftman Title:      Managing Director By:    /s/  Larry Robinson Name:   Larry Robinson Title:      Vice President TORONTO DOMINION (TEXAS), INC. By:    /s/ Carolyn R. Faeth Name:  Carolyn R. Faeth Title:     Vice President THE BANK OF NOVA SCOTIA By:    /s/ F.C.H. Ashby Name:  F.C.H. Ashby Title:     Senior Manager Loan Operations WELLS FARGO BANK, N.A. By:    /s/ Michael M. Logan Name:  Michael M. Logan Title:     Vice President BANK OF SCOTLAND By:    /s/ Annie Glynn Name:  Annie Glynn Title:     Senior Vice President FROST NATIONAL BANK By:    /s/ Thomas H. Dungan Name:  Thomas H. Dungan Title:     Senior Vice President U.S. BANK NATIONAL ASSOCIATION By:    /s/ Mark E. Thompson Name:  Mark E. Thompson Title:     Vice President HIBERNIA NATIONAL BANK By:    /s/ Nancy G. Moragas Name:  Nancy G. Moragas Title:     Vice President

AMENDMENT NO. 6 TO EMPLOYMENT AGREEMENT AND AMENDMENT NO. 6 TO CHANGE OF CONTROL AGREEMENT             This Amendment No. 6 to Employment Agreement and Amendment No. 6 to Change of Control Agreement is made as of the 9th day of April, 2001, by and between Stewart Enterprises, Inc., a Louisiana corporation (the "Company"), and Lawrence B. Hawkins (the "Employee"). W I T N E S S E T H:             WHEREAS, the Company has entered into an Employment Agreement with the Employee dated as of August 1, 1995, which has been previously amended five times (as amended, the "Employment Agreement");             WHEREAS, the Company has entered into a Change of Control Agreement with the Employee dated as of December 5, 1995, which has been previously amended five times (as amended, the "Change of Control Agreement");             WHEREAS, the Employee has agreed to serve as the Company's Executive Vice President; and             WHEREAS, the Company and the Employee have agreed  to a change in the Employee's salary and a change in fringe benefits to which the Employee is entitled effective December 15, 2000 and a change in the bonus for which the Employee is eligible effective November 1, 2000, as set forth herein.             NOW, THEREFORE, for and in consideration of the continued employment of Employee by the Company and the payment of wages, salary and other compensation to Employee by the Company, the parties hereto agree as follows, effective December 15, 2000:             Section 1.    Except as expressly amended herein, all of the terms and provisions of the Employment Agreement and Change of Control Agreement shall remain in full force and effect.             Section 2.    Article I, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: >             Capacity and Duties of Employee. The Employee is employed by the > Company to render services on behalf of the Company as an Executive Vice > President. As Executive Vice President, the Employee shall perform such duties > as are assigned to the individual holding such title by the Company's Bylaws > and such other duties, consistent with the Employee's job title, as may be > prescribed from time to time by the Board of Directors of the Company (the > "Board") and/or the Company's President.             Section 3.     Article II, Section 1 of the Employment Agreement is hereby amended to read in its entirety as follows: >             Salary. Effective December 15, 2000, a salary ("Base Salary") at > the rate of $300,000 per fiscal year of the Company ("Fiscal Year"), payable > to the Employee at such intervals as other salaried employees of the Company > are paid.             Section 4.     Article II, Section 2 of the Employment Agreement is hereby amended to read in its entirety as follows: >             Bonus.     (a) Effective November 1, 2000, the Employee shall be > eligible to receive an annual incentive bonus of up to $300,000 per Fiscal > Year. The bonus will be awarded based on factors to be established annually > and set forth in an annual supplement to this Agreement. > >                             (b) The Bonus shall be paid in cash not later than > 30 days following the filing of the Company's annual report on Form 10-K for > the fiscal year in which the bonus has been earned.             Section 5.     Article II, Section 3, paragraph (a) of the Employment Agreement is hereby amended to read in its entirety as follows: >             (a) Effective December 15, 2000, the Employee will receive an > increase in his automobile allowance from $600 per month to $720 per month. > The Company will reimburse the Employee for all gasoline, maintenance, repairs > and insurance for Employee's personal car, as if it were a Company-owned > vehicle.             Section 6.     Article I, Section 1.1 of the Change of Control Agreement is hereby amended to read in its entirety as follows: >             1.1    Employment Agreement.     After a Change of Control > (defined below), this Agreement supersedes the Employment Agreement dated as > of August 1, 1995 as amended by Amendment No. 1 dated as of January 1, 1997, > as amended by Amendment No. 2 dated as of October 31, 1998, as amended by > Amendment No. 3 dated as of September 21, 1999, as amended by Amendment No. 4 > dated as of July 25, 2000, as amended by Amendment No. 5 dated as of October > 31, 2000, between Employee and the Company (as amended, the "Employment > Agreement") except to the extent that certain provisions of the Employment > Agreement are expressly incorporated by reference herein. After a Change of > Control (defined below), the definitions in this Agreement supersede > definitions in the Employment Agreement, but capitalized terms not defined in > this Agreement have the meanings given to them in the Employment Agreement.             Section 7.     Article II, Section 2.2, paragraphs (a) and (b) of the Change of Control Agreement are hereby amended to read in their entirety as follows: >             (a)     Salary.     A salary ("Base Salary") at the rate of > $300,000 per year, payable to the Employee at such intervals no less frequent > than the most frequent intervals in effect at any time during the 120-day > period immediately preceding the Change of Control or, if more favorable to > the Employee, the intervals in effect at any time after the Change of Control > for other peer employees of the Company and its affiliated companies. > >             (b)     Bonus.     An annual incentive bonus (the "Bonus") of > $300,000, to the extent not already received, shall be paid in cash (1) no > later than November 30 of each year or (2) if the Employee elects to receive > the Bonus in the calendar year following the year in which it was earned, > between January 1 and January 15 of such following year.             Section 8.     Article II, Section 2.4, paragraphs (a) and (e) of the Change of Control Agreement are hereby amended to read in their entirety as follows: >             (a)     Termination by Company for Reasons other than Death, > Disability or Cause; by Employee for Good Reason.     If, after a Change of > Control and during the Employment Term, the Company (or, if applicable the > ultimate parent company), terminates the Employee's employment other than for > Cause, death or Disability, or the Employee terminates employment for Good > Reason, the Company shall pay to the Employee in a lump sum in cash within 30 > days of the Date of Termination an amount equal to three times the sum of (i) > the amount of Base Salary in effect at the Date of Termination, plus (ii) the > Employee's Bonus. > >             (e)     Termination by Employee for Reasons other than Good > Reason.     If, after a Change of Control and during the Employment Term, the > Employee's status as an employee is terminated by the Employee for reasons > other than Good Reason, then the Company shall pay to the Employee an amount > equal to a single year's Base Salary in effect at the Date of Termination, > payable in equal installments over a two-year period at such intervals as > other salaried employees of the Company are paid.             IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and signed as of the date indicated above. STEWART ENTERPRISES, INC. By:          /S/ JAMES W. MCFARLAND                 James W. McFarland             Compensation Committee Chairman EMPLOYEE:            /S/ LAWRENCE B. HAWKINS                          Lawrence B. Hawkins

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.14 SECOND AMENDMENT TO INDENTURE OF LEASE     This SECOND AMENDMENT TO INDENTURE OF LEASE ("Second Amendment") is made and entered into as of this 21st day of September 1998, by and between FKT ASSOCIATES, a California general partnership ("Lessor"), and STAAR SURGICAL COMPANY, a California corporation ("Lessee") with reference to the following recitals of fact: RECITALS     A.  Lessor and Lessee entered into that certain Indenture of Lease dated September 1, 1993 (the "Original Lease"), for the real property and improvements located thereon commonly known as 1900 South Myrtle Avenue, Monrovia, CA ("the Property"), all as more particularly described therein. Also on September 1, 1993, Lessor and Lessee entered into that certain Lease Addition ("First Addition") ratifying and amending the Original Lease. The Original Lease and the First Addition are hereinafter collectively referred to as the "Lease".     B.  The term of the Lease was sixty (60) months commencing on September 1, 1993 and terminating on August 31, 1998.     C.  Lessor and Lessee now desire to modify and amend the Lease as provided in this Second Amendment to, among other things, extend the term of the Lease, change the monthly rent to be paid by Lessee to Lessor and to provide for certain work to be done at the Property.     NOW, THEREFORE, in consideration of the foregoing Recitals, and the mutual covenants contained herein and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:     1.  Incorporation of Recitals.  The above Recitals are hereby incorporated by reference and made a part of this Second Amendment.     2.  Defined Terms.  Capitalized terms not otherwise defined herein shall have the same meaning as ascribed to them in the Lease.     3.  Term of Lease.  The term of the Lease is changed so that the expiration date is 11:59 P.M. on August 31, 2003, unless terminated sooner in accordance with the provisions of the Lease, as amended by this Second Amendment.     4.  Rental.  Monthly installments of rent are paid in advance and will be the sum of Three Thousand Five Hundred and no/100ths Dollars ($3,500.00) commencing on September 1, 1998, and the sum of Three Thousand Eight Hundred and no/100ths Dollars ($3,800.00) commencing on March 1, 2001.     5.  Improvements to the Property.  Within sixty (60) days after written request from Lessee and mutual agreement as to a color, Lessor will cause the exterior walls of the premises to be painted in a color selected by Lessee and reasonably approved by Lessor. Lessor will pay for the painting and will select the painter. Lessor will only be required to have the exterior walls painted one time during the extended term of the Lease. During the extended term of the Lease, Lessor will, at Lessor's expense, cause any low-lying areas of the roof to be corrected to provide for adequate drainage of water off of the roof. A roofer selected by Lessor will perform this work. Lessee will cooperate with the painter and roofer to ensure that the work is performed as quickly as possible.     6.  No Brokers.  Lessor and Lessee warrant and represent to the other that neither has engaged the services of a real estate broker in connection with this Second Amendment and that no real estate broker, finder or other party is entitled to a commission or other compensation as a result of this Second Amendment. Lessor and Lessee agree to defend, indemnity and hold harmless the other from any and all claims, compensation, liabilities, judgments and costs (including without limitation attorneys' -------------------------------------------------------------------------------- fees) arising out of or connected in any way with, directly or indirectly, a breach of the foregoing representations and warranties.     7.  Lessor's Address For Notices.  As provided for in paragraph 39 of the Lease, Lessor's new address for notices is: Mr. Ross Turner, General Partner, FKT Associates, 1225 Descanso Drive, La Canada, CA. 91011.     8.  No Further Modification.  Except as set forth in this Second Amendment, all terms and provisions of the Lease shall continue to apply and remain unmodified and in full force and effect. Should any inconsistency arise between this Second Amendment and the Lease as to the specific matters that are the subject of this Second Amendment, the terms and conditions of this Second Amendment shall control. This Second Amendment shall be considered to be part of the Lease and shall be deemed incorporated in the Lease by this reference.     IN WITNESS WHEREOF, this Second Amendment has been executed as of the date and year first written above. SIGNATURE PAGE FOLLOWS -------------------------------------------------------------------------------- Lessor:     FKT Associates, a California general partnership     By:   /s/ ROSS E. TURNER         --------------------------------------------------------------------------------             Ross E. Turner, General Partner     Lessee:     Staar Surgical Company a California Corporation     By:   /s/ JOHN R. WOLF --------------------------------------------------------------------------------             President     By:   /s/ WILLIAM C. HUDDLESTON --------------------------------------------------------------------------------             Secretary     -------------------------------------------------------------------------------- QuickLinks SECOND AMENDMENT TO INDENTURE OF LEASE RECITALS

EXHIBIT 10.1.3 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT           THIS SECOND AMENDMENT (this "Amendment") to the Second Amended and Restated Loan and Security Agreement is entered into as of the 29 day of December, 2000, by and between PECO II, Inc. (the "Borrower"), and The Huntington National Bank (the "Bank"). RECITALS:                     A.      As of October 22, 1999, the Borrower and the Bank executed a certain Second Amended and Restated Loan and Security Agreement that was amended by a certain First Amendment to Second Amended and Restated Loan and Security Agreement, dated as of April 28, 2000 (as so amended, the "Loan Agreement"), setting forth the terms of certain extensions of credit to the Borrower; and                     B.      As of October 22, 1999, the Borrower executed and delivered to the Bank, inter alia, an amended and restated revolving note in the original principal sum of Ten Million Dollars ($10,000,000.00) that was amended and restated by a certain Second Amended and Restated Revolving Note, dated April 28, 2000, in the original principal amount of up to Twenty Million Dollars ($20,000,000) (hereinafter the "Revolving Note" or the "Note"); and                     C.      In connection with the obligations evidenced by Loan Agreement and the Note, and at various times (prior to, as of the date of, and after the date of, the execution of the Loan Agreement), the Borrower executed and delivered to the Bank certain other loan documents, promissory notes, consents, assignments, agreements and instruments in connection with the indebtedness referred to in the Loan Agreement (all of the foregoing, together with the Note and the Loan Agreement, are hereinafter collectively referred to as the "Loan Documents"); and                     D.      The Borrower has requested that the Bank release all Collateral as security for the Loans and amend and modify certain terms and covenants in the Loan Agreement, and the Bank is willing to do so upon the terms and conditions contained herein.           NOW, THEREFORE, in consideration of the mutual covenants, agreements and promises contained herein, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto for themselves and their successors and assigns do hereby agree, represent and warrant as follows:                     1.      Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.                         2.        Section 1, "The Loan," of the Loan Agreement is hereby amended to recite in its entirety as follows:             1.    The Loans        The Bank, subject to the terms and conditions hereof, will extend credit to the Borrower up to the aggregate principal sum of $20,000,000.00 (the "Loans").                          3.         Section 1.1, "The Revolving Loan and Borrowing Base," of the Loan Agreement is hereby redesignated "The Revolving Loan" and is amended to recite in its entirety as follows:             1.1.  The Revolving Loan.         The Bank will extend a revolving credit facility to the Borrower under which the Bank shall make, subject to the terms and conditions hereof, loans and advances on a revolving basis up to the principal sum of $20,000,000.00 (the "Revolving Loan").                    4.         Sections 1.2, "The Term Loan," 1.3, The Capex Loan," 1.4, "The Draw Loan," 2.1, "Eligible Accounts," 2.2 "Eligible Inventory" and 2.3 "Reserves," of the Loan Agreement are hereby deleted in their entirety. As used in the Loan Agreement, the term "Account Debtor" means a person or entity who is obligated to the Borrower on an account or general intangible.                    5.         Section 3.2, "Collateral Audits," of the Loan Agreement is hereby redesignated "Audits" and is amended to recite in its entirety as follows:             3.2   Audits.         The Bank shall have the right, in the sole discretion of the Bank, to conduct audits of the Borrower, and the Borrower will provide access to all of its books and records and such other information which the Bank deems necessary to evaluate the status of the Loans. In connection with any audits performed after the occurrence, and during the continuance, of a Pending Default, the Borrower will pay to the Bank a fee equal to $650.00 per day per auditor, in addition to all out-of-pocket expenses of such auditors. Such audit fees and expenses shall be payable by the Borrower upon demand.                  6.         Section 3.3, "Prepayment Fee," of the Loan Agreement is hereby amended to recite in its entirety as follows:             3.3     Prepayment Fee. The Borrower shall have the option at all times to permanently cancel or prepay the Revolving Loan, in whole or in part, by providing to the Bank 60 days prior written notice of the effective date and amount of such cancellation or prepayment, subject to the terms and conditions of this paragraph. On the effective date of any such cancellation and/or prepayment of any portion of the Loans prior to April 30, 2002, the Borrower shall pay to the Bank a cancellation/prepayment fee equal to one percent (1%) of the maximum principal balance of the Revolving Loan to be cancelled or prepaid.                          7.          Section 3.4, "Terms of Repayment," of the Loan Agreement is hereby amended to recite in its entirety as follows:             3.4     Terms of Repayment.           The Loans shall be evidenced by a commercial promissory note or by one or more commercial promissory notes subsequently executed in substitution therefor, each in substantially the form set forth in Exhibits A-1 attached hereto. Repayment of the Loans shall be made in accordance with the terms of the commercial promissory notes then outstanding pursuant to this Agreement.                          8.          Section 3.5, "Mandatory Prepayment or Reduction," and Section 3.6, "Maturity of Loans," of the Loan Agreement are hereby deleted in their entirety.                          9.          Section 3.7, "Use of Proceeds," of the Loan Agreement is hereby amended to recite in its entirety as follows:             3.7      Use of Proceeds.            The net proceeds of the Revolving Loan will be used to provide for working capital requirements of the Borrower and for any other lawful business purpose in the Borrower's business.                 10.          Section 3.11, "Mortgages on Real Property," and Section 3.12, "Security Interest and Assets of the Apex Telecommunications Manufacturing, Inc.," of the Loan Agreement are hereby deleted in their entirety.                         11.          Section 4.1, "Grant of Security Interest," Section 4.2, "Representations and Covenants Regarding the Collateral," Section 4.3, "Lockbox and Collection of Accounts," Section 4.4, "Cash Collection Account," Section 4.6, "Collateral Insurance," Section 4.8, "Collateral Administration," Section 4.9, "Preservation and Disposition of Collateral," Section 4.10, "No Duty," Section 4.11, "Financing Statements," Section 4.12, "Bank's Appointment as Attorney-In-Fact," and Section 4.13, "Remedies of Default," are hereby deleted in their entirety.                         12.          Section 4.5, "Application of Proceeds from Collection of Accounts; Setoff; Government Accounts; Perfection; Lien Notation," of the Loan Agreement is hereby redesignated "Setoff" and is amended to recite in its entirety as follows:             4.5    The Borrower authorizes the Bank at any time, without notice, to appropriate and apply any balances, credits, deposits, accounts or money of the Borrower in the Bank's possession, custody or control to the payment of any of the Obligations whether or not the Obligations are due or matured.                         13.          Section 4.7, "Books and Records," of the Loan Agreement is hereby amended to recite in its entirety as follows:             4.7   Books and Records.         The Borrower shall (a) at all times keep accurate and complete records of its personal property in accordance with GAAP, including without limitation, a perpetual inventory and complete and accurate stock records, and at all reasonable times and from time to time, shall allow the Bank, by or through any of its officers, agents, attorneys or accountants, to examine, inspect and make extracts from such books and records and to arrange for verification of the Borrower's accounts directly with Account Debtors or by other methods and to examine and inspect the personal property of the Borrower wherever located, and (b) upon request of the Bank, provide the Bank with copies of agreements with, purchase orders from, and invoices to, the Account Debtors, and copies of all shipping documents, delivery receipts, and such other documentation and information relating to the Borrower's accounts as the Bank may require.                 14.          Section 5.3, "Conditions Precedent to Advance Under the Draw Loan," of the Loan Agreement is hereby deleted in its entirety.                         15.          Section 6.12, "Regarding the Accounts and Inventory," of the Loan Agreement is hereby deleted in its entirety.                         16.          Section 6.14, "Intellectual Property," of the Loan Agreement is hereby deleted in its entirety.                         17.          Section 7.3, "Restriction on Fundamental Changes; Conduct of Business," of the Loan Agreement is hereby amended to recite in its entirety as follows:           7.3         Restriction on Fundamental Changes; Conduct of Business.               The Borrower shall not (a) enter into any merger or consolidation, or liquidate, wind up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of the Borrower's business or property, whether now or hereafter acquired, (b) except with respect to Subsidiaries permitted by the Bank, enter into limited liability companies, partnerships or joint ventures with any other entity, (c) acquire all or substantially all of the assets or business of any other company, person or entity, (d) create or acquire or permit to exist any Subsidiaries, except for Apex Telecommunications Manufacturing, Inc., a wholly-owned subsidiary of the Borrower, and PECO II Texas, L.P., a Delaware limited partnership; (e) conduct business under any other tradenames other than without the prior written consent of the Bank, or (f) engage in any business other than the businesses engaged in by the Borrower on the date hereof and any business or activities which are substantially similar or related thereto.                         18.          Section 7.6, "Indebtedness," of the Loan Agreement is hereby amended to recite in its entirety as follows:             7.6         Indebtedness.               The Borrower will not directly or indirectly create, incur, assume or otherwise become or remain liable with respect to any Indebtedness, except (a) the Loans; (b) secured or unsecured     Purchase Money Indebtedness (including capitalized leases) incurred by the Borrower to finance the acquisition of fixed assets, if (i) such Indebtedness has a scheduled maturity and is not due on demand, (ii) such Indebtedness in the aggregate does not exceed the sum of $1,000,000.00 outstanding at any time, (iii) such Indebtedness does not exceed the purchase price of the items being purchased, and (iv) such Indebtedness is not secured by any property or assets other than the item or items being purchased ("Permitted Purchase Money Indebtedness"); and (c) Indebtedness not to exceed the principal sum of $7,000,000.00 related to industrial development revenue bond financing in connection with the acquisition by the Borrower, after the date of execution of that certain Second Amendment to Second Amended and Restated Loan and Security Agreement between the Borrower and the Bank (the "Second Amendment"), of certain real property located in Colorado. "Indebtedness," as applied to the Borrower or any other entity shall mean, at any time, (a) all indebtedness, obligations or other liabilities (other than accounts payable arising in the ordinary course of the Borrower's business payable on terms customary in the trade) which in accordance with GAAP should be classified upon the Borrower's balance sheet as liabilities, including, without limitation (i) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any securities or to pay dividends in respect of any stock, (iii) with respect to letters of credit issued, (iv) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, or (v) in respect of capital leases; (b) all indebtedness, obligations or other liabilities secured by a lien on any property, whether or not such indebtedness, obligations or liabilities are assumed by the owner of the same; and (c) all indebtedness, obligations or other liabilities in respect of interest rate contracts and currency agreements, net of liabilities owed by the counterparties thereon.                       19.          Section 7.8, "Loans and Advances; Investments," of the Loan Agreement is hereby amended to recite in its entirety as follows:     7.8         Loans and Advances, Investments.               The Borrower shall not directly or indirectly make or own any Investment except: (a) bonds or other obligations of the United States of America, certificates of deposit issued by commercial banks, and commercial paper rated at least A-1 or P-1 and having a maturity of not more than one year; (b) loans or advances to employees of the Borrower, which loans and advances shall not in the aggregate exceed $100,000.00 outstanding at any time, (c) Investments in Subsidiaries, which Investments shall not exceed the amount of such Investments as of the date of execution of the Second Amendment and after giving effect to the initial Investment by the Borrower in PECO II Texas, L.P., a Delaware limited partnership, and (d) any other Investment not to exceed the aggregate amount of $20,000 outstanding at any time. "Investment" means any loan, advance, extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account, contribution of capital or transfer of any assets to any other entity or any investment in, or purchase or other acquisition of, the stock, partnership interests, ownership interests in any limited liability company, notes, debentures, or other securities of any other entity made by the Borrower.                          20.            Section 7.13, "Book Net Worth," of the Loan Agreement is hereby amended to recite in its entirety as follows:             7.13         Book Net Worth.                 The Borrower, on a consolidated basis, shall maintain at all times shareholders' equity, as determined in accordance with GAAP ("Book Net Worth") of not less than $75,000,000.00. For purposes of calculating book net worth in this Section, the inventory of the Borrower and its Subsidiaries shall be valued on a FIFO basis.                          21.            Section 7.14, "Leverage Ratio," of the Loan Agreement is hereby amended to recite in its entirety as follows:     7.14         Leverage Ratio.                 The Borrower, on a consolidated basis, shall maintain at all times a ratio of Consolidated Total Liabilities to Book Net Worth of not greater than (a) 1.50 to 1.00. "Consolidated Total Liabilities" means, at the time of each determination, with respect to the Borrower and all of its Subsidiaries, on a consolidated basis, (a) all indebtedness for borrowed money or for the deferred purchase price of property or services, (b) any other indebtedness which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations with respect to any letter of credit issued for the account of the Borrower or any Subsidiary, (d) all obligations in respect of acceptances issued or created for the account of the Borrower or any Subsidiary, (e) lease obligations which, in accordance with GAAP, should be capitalized, (f) all liabilities (including lease obligations) secured by any lien or encumbrance on any property owned by the Borrower or any Subsidiary even though the Borrower or any such Subsidiary has not assumed or otherwise become liable for the payment thereof, (g) all obligations of the Borrower or any Subsidiary with respect to interest rate protection agreements (valued at the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association), and (h) all other obligations of the Borrower and its Subsidiaries, and each of them, which, in accordance with GAAP, would be classified upon a balance sheet as liabilities (except capital stock and surplus earned). A "Subsidiary" of the Borrower means (i) any corporation more than fifty percent (50%) of the outstanding security having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by the Borrower or by one or more of its subsidiaries or by the Borrower and one or more of its subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than fifty percent (50%) of the ownership interest have ordinary voting power of which shall at the time be so owned or controlled.                          22.         Section 8, "Financial Information and Reporting," of the Loan Agreement is hereby amended to recite in its entirety as follows:     8.           Financial Information and Reporting               The Borrower shall deliver the following to the Bank:                         (a)    within 30 days after the end of each month, consolidated financial statements, including a balance sheet and statements of income and surplus, and statement of cash flows, certified by the president or chief financial officer of the Borrower (a "Financial Officer") as fairly representing the Borrower's consolidated financial condition as of the end of such period;           (b)    within 45 days after the end of each quarter, a statement in form prescribed by the Bank and signed by a Financial Officer of the Borrower certifying the compliance of the Borrower with the terms of this Agreement and the calculation of the financial covenants contained in Section 7 above;                           (c)    within 30 days after the end of each month, an inventory report of the Borrower, signed by a Financial Officer in form satisfactory to the Bank;                           (d)    within 30 days after the end of each month, a report, in form satisfactory to the Bank, certified by a Financial Officer setting forth the number and dollar total of accounts receivable due and payable (i) not more than 30 days, (ii) more than 30 days and not more than 60 days, (iii) more than 60 days and not more than 90 days, (iv) more than 90 and not more than 120 days, and (v) more than 120 days, from the date of the original invoice therefor;                           (e)    within 90 days after the end of each fiscal year, audited, unqualified consolidated financial statements prepared in accordance with GAAP and certified by independent public accountants satisfactory to the Bank, containing a balance sheet, statements of income and surplus, statements of cash flows and reconciliation of capital accounts, along with any management letters written by such accountants;                           (f)    immediately upon becoming aware of the existence of any Pending Default, Event of Default or breach of any term or conditions of this Agreement, a written notice specifying the nature and period of existence thereof and what action the Borrower is taking or proposes to take with respect thereto;                   (g)    immediately upon the filing or release, as the case may be, copies of any Securities and Exchange Commission or State Securities Law disclosures, filings, documents or any press releases; and                        (h)    at the request of the Bank, such other information as the Bank may from time to time reasonably require.                        23.          The Bank hereby releases its security interest in the "Collateral," as that term is defined in the Loan Agreement (prior to giving effect to this Amendment).                        24.          Conditions of Effectiveness. This Amendment shall become effective as of 12/29, 2000, upon satisfaction of all of the following conditions precedent:                  (a)    The Bank shall have received two duly executed originals of this Amendment, and such other certificates, instruments, documents, and agreements as may be required by the Bank, each of which shall be in form and substance satisfactory to the Bank and its counsel; and                    (b)    The representations contained in the immediately following paragraph shall be true and accurate.                          25.            Representations. The Borrower represents and warrants that after giving effect to this Amendment (a) each and every one of the representations and warranties made by or on behalf of the Borrower in the Loan Agreement or the Loan Documents is true and correct in all respects on and as of the date hereof, except to the extent that any of such representations and warranties related, by the expressed terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in the Loan Agreement and Loan Documents; and (c) no event has occurred or is continuing, and no condition exists which would constitute an Event of Default or a Pending Default.                          26.            Amendment to Loan Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "Loan and Security Agreement," "Loan Agreement," "Agreement," the prefix "herein," "hereof," or words of similar import, and each reference in the Loan Documents to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as modified herein, all of the representations, warranties, terms, covenants and conditions of the Loan Agreement, the Loan Documents and all other agreements executed in connection therewith shall remain as written originally and in full force and effect in accordance with their respective terms, and nothing herein shall affect, modify, limit or impair any of the rights and powers which the Bank may have thereunder. The amendment set forth herein shall be limited precisely as provided for herein, and shall not be deemed to be a waiver of, amendment of, consent to or modification of any of the Bank's rights under or of any other term or provisions of the Loan Agreement, any Loan Document, or other agreement executed in connection therewith, or of any term or provision of any other instrument referred to therein or herein or of any transaction or future action on the part of the Borrower which would require the consent of the Bank, including, without limitation, waivers of Events of Default which may exist after giving effect hereto. The Borrower ratifies and confirms each term, provision, condition and covenant set forth in the Loan Agreement and the Loan Documents and acknowledges that the agreement set forth therein continue to be legal, valid and binding agreements, and enforceable in accordance with their respective terms.                    27.            Authority. The Borrower hereby represents and warrants to the Bank that (a) the Borrower has legal power and authority to execute and deliver the within Amendment; (b) the officer executing the within Amendment on behalf of the Borrower has been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions provided for herein; (c) the execution and delivery hereof by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the articles of incorporation, regulations or by-laws of the Borrower or any law applicable to the Borrower or result in the breach of any provision of or constitute a default under any agreement, instrument or document binding upon or enforceable against the Borrower; and (d) this Amendment constitutes a valid and legally binding obligation upon the Borrower in every respect.                        28.            Counterparts. This Amendment may be executed in two or more counterparts, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute one and the same document. Separate counterparts may be executed with the same effect as if all parties had executed the same counterparts.                          29.            Costs and Expenses. The Borrower agrees to pay on demand in accordance with the terms of the Loan Agreement all costs and expenses of the Bank in connection with the preparation, reproduction, execution and delivery of this Amendment and all other loan documents entered into in connection herewith, including the reasonable fees and out-of-pocket expenses of the Bank's counsel with respect thereto.                         30.            Governing Law. This Amendment shall be governed by and construed in accordance with the law of the State of Ohio.   IN WITNESS WHEREOF, the Borrower and the Bank have hereunto set their hands as of the date first set forth above.       THE BORROWER:         PECO II, INC.         BY: /S/ JOHN C. MAAG       Its: CHIEF FINANCIAL OFFICER     --------------------------------------------------------------------------------   BY: /S/ SANDRA A. FRANKHOUSE     --------------------------------------------------------------------------------   Its: SECRETARY AND TREASURER     --------------------------------------------------------------------------------   THE BANK:         THE HUNTINGTON NATIONAL BANK     By: /S/ GLENN W. MCCLELLAND   --------------------------------------------------------------------------------   Its: VICE PRESIDENT     --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.2 April 2, 2001 Robert Edwards     Re: Employment with rStar Corporation Dear Bob:     This letter shall serve to confirm the agreement we reached in connection with your continued employment with rStar Corporation (the "Company") as its Chief Financial Officer and Senior Vice President, Administration. In that position, you will continue to report to the Chief Executive Officer of the Company.     As Chief Financial Officer and Senior Vice President, Administration, an exempt position, you will continue to receive a base salary of $17,500 per month, which will be paid in accordance with the Company's normal payroll procedures ("Annual Base Salary"). You will also be eligible to participate in an executive incentive program for the 2001 calendar year, with a bonus payable upon the meeting of specific performance objectives mutually agreed upon by you and the Company. The maximum sum payable to you under the 2001 executive incentive program shall be 30% of your Annual Base Salary.     In the event the Company terminates your employment with Cause (as defined below), you will not be entitled to receive any compensation or benefits of any type following the effective date of the termination for Cause.     In the event (a) you are terminated by the Company without Cause, or (b) you voluntarily terminate your employment for Good Reason (as defined below) within twelve (12) months following a Change of Control (as defined below), then you shall be entitled to receive: (x) a lump sum cash severance payment in an amount equal to fifty percent (50%) of your Annual Base Salary then in effect, subject to applicable withholdings in accordance with the Company's normal payroll practices; (y) one hundred percent (100%) of the executive incentive bonus that could be earned in that year, and (z) health insurance benefits at the same level of coverage as was provided to you immediately prior to the termination without Cause or the termination for Good Reason ("Health Care Coverage") by electing Federal COBRA continuation coverage, or similar coverage required under state law (collectively, "COBRA"), in which event the Company shall pay one hundred percent (100%) of your Health Care Coverage premiums and those of your dependents under COBRA for six (6) full months following the month in which you were terminated without Cause or you voluntarily terminated your employment for Good Reason.     For purposes of this letter, the following terms shall be defined as follows:     (a) "Cause" is defined as: (i) a material act of dishonesty made by you in connection with your responsibilities as an executive officer of the Company; (ii) conviction of, or plea of nolo contendere to, a felony, or a crime involving moral turpitude; (iii) your gross misconduct in connection with your duties as an executive officer of the Company; or (iv) continued substantial violations of your employment duties after (A) you have received a written demand for performance from the Company's Board of Directors that specifically sets forth the factual basis for the Board's belief that you have not substantially performed your duties, and (B) following a reasonable opportunity, not to be less than thirty (30) days, for you to cure any substantial failure of performance of your duties.     (b) "Change of Control" of the Company is defined as; (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becoming the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, -------------------------------------------------------------------------------- of securities of the Company representing more than 51% of the total voting power represented by the Company's then outstanding voting securities; or (ii) the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders or the Board of the Company; or (iii) the date on which the stockholders or the Board of the Company approve a plan of complete liquidation of the Company; or (iv) the date of the consummation of the sale or disposition by the Company of all or substantially all the Company's assets.     (c) "Good Reason" shall mean your voluntary resignation from the Company within ninety (90) days after the occurrence of any of the following; (i) without your express written consent, a material reduction of the duties, title, authority or responsibilities, relative to your duties, title, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to you of such reduced duties, title, authority or responsibilities; (ii) a reduction by the Company in your annual Base Salary as in effect immediately prior to such reduction; (iii) a material reduction by the Company in the kind or level of employee benefits, including bonuses, to which you were entitled immediately prior to such reduction, with the result that your overall benefits package is materially reduced; (iv) your relocation to a facility or a location more than forty (40) miles from your residence at the time of the relocation without your express written consent; or (v) the failure of the Company to obtain the assumption of this agreement by any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.     The terms of this agreement may not be modified or amended except by a written agreement executed by you and an executive officer of the Company, and shall, together with the Confidential Information, Invention Assignment and Terms of Employment Agreement and such other written agreements you and the Company may enter in connection with your employment, constitute the entire agreement between you and the Company relating to the terms of your employment.     In order to indicate your assent to this agreement, please sign this letter and return it to me at your earliest convenience. Very truly yours, RSTAR CORPORATION /s/ Lance Mortensen Lance Mortensen Chief Executive Officer and President Agreed and Accepted: /s/ Robert Edwards -------------------------------------------------------------------------------- Robert Edwards -------------------------------------------------------------------------------- QuickLinks Exhibit 10.2

SUBLEASE     This Sublease is entered into as of March  , 2001 by and between VOPAK DISTRIBUTION AMERICAS CORPORATION, a Washington corporation formerly known as Univar Corporation ("Sublessor") and NEXTEL WIP LEASE CORP, a Delaware corporation ("Sublessee"). RECITALS     A. Sublessor as tenant has leased space ("Sublessor's Premises") in the Development known as Carillon Point, Kirkland, Washington and legally described on Exhibit A-1 (the "Development") from Carillon Properties, a tenancy in common and now a Washington general partnership ("Prime Landlord"), by Office Lease Agreement dated March 22, 1990 ("Prime Lease") as amended by amendments dated September 11, 1991, July 10, 1995, May 1, 1996, June 20, 1996 and January 27, 1999, relevant portions of which are attached as Exhibit B. Sublessor's Premises are located in Building 4000 of the Development (the "Building"). Skinner Development Company has been appointed as agent for Prime Landlord.     B. Sublessee has agreed to sublet from Sublessor that portion of the Fifth Floor of the Building depicted on Exhibit A-2 attached ("Premises").     C. Capitalized terms used in the Sublease and not otherwise defined shall have the meaning set forth in the Prime Lease. AGREEMENT     NOW, THEREFORE, Sublessor and Sublessee, each with intent to be legally bound, for themselves and their respective successors and assigns, agree to the following:     1.  Sublease. Sublessor subleases the Premises to Sublessee on the terms and conditions contained in this Sublease.     2.  Prime Lease. This Sublease is subject and subordinate to the Prime Lease except as may be inconsistent with the terms hereof. The terms, covenants and conditions contained in Sections 1(a), 5(a), 6(b), 6(c), 6(e), 7, 8, 11(a), 14, 18, 19, 20(a), 20(d), 21(a) through (g), 21(i), 25, 26, 28(a), 30, 34(a), 34(b), 34(d) through (f), 34(h) through 34(m), 34(o), 34(p), and Exhibit D to the extent particular provisions thereof are referred to in the forgoing Sections of the Prime Lease are incorporated in this Sublease with the same force and effect as if Sublessor were the Prime Landlord and Sublessee were the tenant thereunder, and Sublessor shall have all rights against Sublessee as would be available to the Prime Landlord against the tenant under the Prime Lease if such breach were by the tenant thereunder; provided, that incorporating such provisions herein shall not obligate Sublessor or be construed as causing Sublessor to assume or agree to perform any obligations of Prime Landlord under the Prime Lease except with respect to the giving of notice under this Sublease. Sublessee shall not do, omit to do or permit to be done or omitted any act in or related to the Premises which could constitute a breach or default under the terms of the Prime Lease, or result in the termination of the Prime Lease by Prime Landlord. Notwithstanding anything herein contained, the only services or rights to which Sublessee is entitled hereunder are those to which Sublessor is entitled under the Prime Lease, and for all such services and rights Sublessee will look solely to the Prime Landlord. Sublessor will cooperate with the Sublessee to secure the cooperation of the Prime Landlord with respect to any matter arising under the Prime Lease as to which such cooperation is reasonably required. Sublessee acknowledges Prime Landlord's rights with respect to the Premises pursuant to the Prime Lease are superior to Sublessee's and are not affected by this Sublease.     3.  Lease Data and Exhibits.     3.1 Premises. That portion of Floor Five as shown on Exhibit A-2. 1 --------------------------------------------------------------------------------     3.2 Rentable Area. Approximately 13,987 rentable square feet (RSF).     3.3 Usable Area. Approximately 12,600 usable square feet (USF).     3.4 Basic Rent.     Months --------------------------------------------------------------------------------   Annual Rent --------------------------------------------------------------------------------         Year 1   $45.00/RSF or $629,415.00         Year 2   $46.00/RSF or $643,402.00         Year 3   $48.00/RSF or $671,376.00         Year 4   $49.00/RSF or $685,363.00         Year 5   $50.00/RSF or $699,350.00         3.5 Exhibits.     Exhibit A-1   Legal Description of Development         Exhibit A-2   Drawing of Premises         Exhibit B   Prime Lease Provisions         Exhibit C   Form of Guaranty         3.6 Term. The term of this Sublease shall commence on July 26, 2001, (the "Commencement Date") and shall expire on July 25, 2006 (the "Term") unless sooner terminated as provided in this Sublease.     4.  Condition of Premises. The Premises are delivered to Sublessee and Sublessee accepts the Premises in their present condition, "AS IS" with all faults. Sublessee acknowledges that neither Sublessor nor any agent of Sublessor has made any representation as to the condition of the Premises or their suitability for the conduct of Sublessee's business. Sublessee and Sublessor expressly agree that there are and shall be no implied warranties of merchantability, habitability, fitness for a particular purpose or any other kind arising out of this Sublease, and there are no warranties that extend beyond those expressly set forth in this Sublease.     5.  Basic Rent. Sublessee shall pay the Basic Rent set forth in Section 3.4 in monthly installments in advance on the first day of each month, and any other amount due from Sublessee to Sublessor, at such place as Sublessor may designate in writing, in lawful money of the United States of America, without demand and without any deduction, set-off or abatement. Any and all other amounts payable by Sublessee to Sublessor pursuant to the terms of this Sublease in addition to Basic Rent constitute additional rent.     6.  Additional Rent. In addition to the Basic Rent, commencing January 1, 2002 Sublessee shall pay to Sublessor, any increases in the Operating Expenses, Real Property Taxes and Common Area Maintenance per RSF charged to Sublessor for the Premises over the actual Operating Expenses, Real Property Taxes and Common Area Maintenance per RSF incurred during the base year, which shall be 2001 ("Additional Rent").  The calculation, payment and reconciliation of the Additional Rent payments by Sublessee and Sublessor shall be made based on Prime Landlord's estimated expenses where actual figures are not yet available and otherwise in the same manner as between Prime Landlord and tenant under Section 6(d) of the Prime Lease, except that Sublessor shall only be obligated to deliver to Sublessee a copy of Prime Landlord's Statement promptly after the receipt of the Statement from Prime Landlord. In addition, Sublessee shall have no independent right to audit Prime Landlord's accounting of Additional Rent but upon Sublessee's written request received within thirty (30) days after delivery of the Statement to Sublessee, Sublessor at Sublessee's sole expense will exercise such audit rights as it may then be entitled to exercise under the Prime Lease. Sublessor will refund to Sublessee pro rata any overpayments of Additional Rent recovered from Prime Landlord and any expenses of audit recovered from Prime Landlord. 2 --------------------------------------------------------------------------------     7.  Parking. Sublessee shall be entitled to 3.75 spaces of parking per 1,000 USF in the Premises at the market rates from time to time charged by Prime Landlord for monthly parking, the cost of which shall be borne by Sublessee. The parking permits will be obtained directly from Prime Landlord. Sublessee shall abide by all rules and regulations of Prime Landlord and its agents with respect thereto.     8.  Assignment and Subletting. Sublessee shall not, without the prior written consent of Sublessor, which consent shall not be unreasonably withheld or be delayed, assign this Lease or sublet the whole or any part of the Premises, provided that any such assignment or sublease shall be subject to the Prime Landlord's consent pursuant to the Prime Lease. Any assignment or sublease shall be in writing and shall not release Sublessee from any liability hereunder. Any assignment or sublease shall be delivered to Sublessor and shall expressly provide that the assignee assumes all obligations under the Sublease. Consent to any assignment, sublease or other transfer shall not waive the necessity for a consent to any further assignment, sublease or transfer. Any transfer of this Sublease from Sublessee by merger, consolidation or liquidation shall constitute an assignment for purposes of this Section. Notwithstanding the foregoing, a merger or consolidation with or into an entity that after the merger or consolidation has a shareholder's equity that equals or exceeds Sublessee's shareholder's equity shall not require Sublessor's consent.     9.  Indemnity. Sublessee shall indemnify, hold harmless and defend Sublessor from and against all liabilities, damages, obligations, losses, claims, actions, costs or expenses, including attorneys' and other professional fees, in conjunction with loss of life, personal injury and/or property damage arising out of the occupancy or use by Sublessee of any part of the Premises or the Development, occasioned wholly or in part by any act or omission of Sublessee or its officers, contractors, licensees, agents, servants, employees, guests, invitees or visitors. The foregoing provisions shall not be construed to make Sublessee responsible for loss, damage, liability or expense resulting from injuries to third parties caused by the negligence of Sublessor, its agents or employees or other tenants of the Building. Sublessor shall not be liable for any loss or damage to persons or property sustained by Sublessee or other persons, which may be caused by theft, or by any act or neglect of any tenant or occupant of the Building or any other third parties as set forth herein, except arising from the negligent or intentional acts of Sublessor. Sublessor shall indemnify, hold harmless and defend Sublessee from and against all liabilities, damages, obligations, losses, claims, actions, costs or expenses, including attorneys' and other professional fees, in conjunction with loss of life, personal injury and/or property damage arising solely out of the negligent or intentional act or omission of Sublessor or its officers, contractors, agents, servants or employees.     10. Insurance. Sublessee shall maintain the following policies with limits not less than those listed below (subject to increase by Sublessor upon sixty (60) days prior notice based on inflation, the foreseeable risks attendant to Sublessee's business, coverage limits customary for similar property and recommendations of Sublessor's insurance advisors) through an insurer that has an A.M. Best Rating of B+7 or better: (a) commercial general liability in the amount of Five Million Dollars ($5,000,000.00) each occurrence insuring bodily injury/property damage, products liability/completed operations, contractual liability, hazards and operations of independent contractors and naming Sublessor and Prime Landlord as additional insured; (b) comprehensive automobile liability in the amount of One Million Dollars ($1,000,000.00) per occurrence; (c) workers' compensation in statutory limits and employer's liability in the amount of One Million Dollars ($1,000,000.00) per occurrence; and (d) fire and extended coverage insurance (with vandalism, malicious mischief and sprinkler leakage endorsements) covering Sublessee's personal property for full replacement cost with such policy including a bailee or other similar endorsement to cover personal property of others brought onto the Premises at full replacement cost.     The policies in (d) above shall waive all rights of subrogation (including, without limitation, the waiver set forth in the last paragraph of this Section 10) against Sublessor and the policies in (a) and (b) will add Sublessor and Prime Landlord as additional insureds. The policies above shall provide for 3 -------------------------------------------------------------------------------- severability of interests and shall provide that an act or omission of one of the insureds or additional insureds that would void or otherwise reduce coverage, shall not reduce or void the coverage as to the other named and additional insureds. The policy in (a) above shall contain a provision that "the insurance provided Sublessor hereunder shall be primary and non-contributing with any other insurance available to Sublessor." If a policy has a deductible or self-insured retention, Sublessee agrees to be liable for and to assume all obligations as contained in the policy of insurance as if the policy had first dollar coverage. No policy shall contain a deductible or self-insured retention exceeding Five Thousand Dollars ($5,000.00) without Sublessor's prior written consent, which may be withheld or granted in Sublessor's commercially reasonable discretion, provided, however, Sublessor acknowledges that Sublessee's fire and extended coverage insurance policy contains a deductible or self-insured retention of fifty thousand dollars ($50,000.00). If the policy is a "claims made" policy, Sublessee shall extend such policy as necessary to allow coverage of any and all liability claims relating to this Lease. Prior to the Commencement Date, Sublessee shall provide Sublessor (Attn.: Real Estate Department, P.O. Box 34325, Seattle, WA 98124-1325) with a certificate of insurance evidencing such required coverages and endorsements, including the endorsements waiving rights of subrogation and adding Sublessor and Prime Landlord as additional insureds. Such certificate and endorsements shall agree to provide Sublessor with at least thirty (30) days' notice of cancellation, non-renewal or material change. Sublessee shall provide Sublessor with certified copies of such policies at Sublessor's request. At least ten (10) days before expiration of any policy, Sublessee shall furnish Sublessor with a renewal or "binder" for the policy, or Sublessor may procure such insurance at Sublessee's expense payable on demand.     Sublessee waives and releases claims arising in any manner in its favor and against Sublessor for loss or damage to Sublessee's property or the property of others in Sublessee's care, custody or control located at the Premises and for bodily injury to the extent the loss or damage is covered by insurance the Sublessee carries or would be covered by insurance the Sublessee is required to carry under this Section 10 or is within a deductible on insurance carried by Sublessee. This waiver and release extends to anyone claiming through or under a party as a result of a right of subrogation. Sublessee shall obtain from its insurance carrier a waiver of subrogation as a clause or endorsement to its policy.     11. Surrender of Premises. Subject to the terms of this Sublease relating to damage and destruction, upon expiration or termination of the Term of this Sublease, whether by lapse of time or otherwise (including any holdover period), Sublessee at its expense shall: (1) remove Sublessee's goods and effects and those of all persons claiming under Sublessee, and (2) repair and restore the Premises to a condition as good as received by Sublessee from Sublessor or as thereafter improved, reasonable wear and tear excepted, and (3) promptly and peacefully surrender the Premises (including surrender of alterations, additions or improvements installed in the Premises by Sublessor or Sublessee, except Sublessee's trade fixtures that do not become part of the Building and any items identified in a writing signed by both parties prior to installation of the equipment or fixtures described therein). If Sublessee caused the Premises to be improved with other than ceiling suspension systems, ceiling, fluorescent light fixture, mechanical cooling, heating and ventilation unit covers, millwork detail, doors, door sills, hardware or hard surface floor tile and base consistent with Sublessor's improvements to Floor Five existing on the date of this Sublease, then at Sublessor's option Sublessee shall pay Sublessor an amount equal to the cost to replace all such nonstandard items with building standard items. Any property left on the Premises after the expiration or termination of the Lease Term shall be deemed to have been abandoned and the property of Sublessor to dispose of as Sublessor deems expedient, and Sublessee shall be liable for all costs associated with the disposal of such property.     12. Brokers. Each party represents to the other that there is no real estate broker representing it that is entitled to any compensation in connection with this Sublease. Each party agrees to indemnify and hold the other harmless against all claims of any agent or broker alleging dealings with regard to the Premises through the indemnifying party. 4 --------------------------------------------------------------------------------     13. Default; Remedies. Each of the following shall be a default of Sublessee:     (a) Sublessee fails to make any payment of Basic Rent, or any other payment Sublessee is required to make, when such payment is due and that failure continues for five (5) days after written notice from Sublessor.     (b) Sublessee fails to perform any other obligations under this Sublease and that failure continues for ten (10) days after written notice from Sublessor; provided, however, if the failure is such that it cannot be cured solely by the payment of money and more than ten (10) days are reasonably required for its cure, then Sublessee shall not be deemed to be in default if Sublessee shall commence such cure within said ten (10) days period, and thereafter prosecute such cure to completion within twenty-five (25) days.     (c) Sublessee (i) files a volunteer petition in bankruptcy or insolvency; (ii) is adjudicated bankrupt or insolvent; (iii) takes any action seeking or consenting to or acquiescing in a reorganization arrangement in connection with any insolvency or bankruptcy proceeding, liquidation, dissolution, appointment of a trustee or receiver of liquidator or similar relief under any Federal or State bankruptcy or other law; (iv) makes an assignment for the benefit of creditors; or (v) fails to discharge within forty-five (45) days any proceeding brought against Sublessee seeking the relief described in clause (c)(iii) of this section.     In the event of a default by Sublessee, Sublessor shall have the remedies set forth in Section 21 of the Prime Lease.     14. Consent or Approval of Prime Landlord. If the consent or approval of Prime Landlord is required under the Prime Lease with respect to any matter relating to the Premises, Sublessee shall be required first to obtain the consent or approval of Sublessor (which Sublessor will not unreasonably withhold unless this Sublease expressly allow otherwise) with respect thereto and, if Sublessor grants such consent or approval, Sublessor or Sublessee may forward a request for consent or approval to the Prime Landlord, but Sublessor shall not be responsible for obtaining such consent or approval. Sublessor will cooperate with Sublessee in Sublessee's effort to obtain Prime Landlord's consent or approval.     15. Limitations on Sublessor's Liability.     (a) Sublessee acknowledges that Sublessor has made no representations or warranties with respect to the Building or the Premises except as provided in this Sublease.     (b) If Sublessor assigns its leasehold estate in the Building, Sublessor shall have no liability or obligation to Sublessee for anything that accrues or arises after that assignment. Sublessee shall then recognize Sublessor's assignee as landlord of this Sublease and the assignee shall assume and agree to perform all obligations of Sublessor to be performed after the date of transfer. Sublessor will notify Sublessee of any such assignment.     (c) Sublessor shall not be required to perform any of the covenants and obligations of the Prime Landlord under the Prime Lease, and insofar as any of the obligations of the Sublessor hereunder are required to be performed under the Prime Lease by the Prime Landlord thereunder, Sublessee shall rely on and look solely to the Prime Landlord for the performance thereof. If the Prime Landlord shall default in the performance of any of its obligations under the Prime Lease or breach any provision of the Prime Lease pertaining to the Premises, Sublessee shall have the right, at Sublessee's expense and upon prior notice to Sublessor, and in the name of Sublessor to make any demand or institute any action or proceeding, in accordance with and not contrary to any provision of the Prime Lease, against the Prime Landlord under the Prime Lease for the enforcement of the Prime Landlord's obligations thereunder. Sublessor will cooperate with Sublessee in Sublessee's efforts to enforce Prime Landlord's obligations. 5 --------------------------------------------------------------------------------     16. Utilities, Services, Maintenance and Repair. Sublessee shall be entitled to all those services, utilities, maintenance and repair which Prime Landlord is required to provide pursuant to Sections 9 and 11(b) of the Prime Lease. Sublessee shall look solely to the Prime Landlord for the provision of such services, utilities, maintenance and repair and will not interfere with Prime Landlord's provision of the same to Sublessee. To the extent that Prime Landlord charges Sublessor for any increase in the cost of such services and utilities and such increase is due solely to Sublessee's use of the Premises, Sublessee agrees to pay the charges therefor promptly upon receipt of Sublessor's bill. Sublessor's bill will contain the supporting documentation provided to Sublessor by Prime Landlord.     17. Interest on Unpaid Rent; Late Charge. All installments of Basic Rent and all other payments that are not paid when due shall bear interest from their due date until paid at a rate equivalent to the prime rate of interest in effect from time to time at the Bank of America (or an bank which is a successor to the Bank of America) plus four percent (4%). In addition, if Sublessee does not pay any installment of Basic Rent or any other payment due pursuant to this Sublease within three (3) business days of its due date, Sublessee shall pay to Sublessor, as Additional Rent, five percent (5%) of the amount past due, it being agreed between Sublessor and Sublessee that such amount represents a reasonable forecast of the additional administrative expense in connection with the late payment.     18. Alterations. Sublessee shall make no additions, changes, alterations or improvements (the "Alterations") to the Premises or any electrical or mechanical facilities pertaining to the Premises without the prior written consent of Sublessor which may be withheld in Sublessor's sole and absolute discretion. All Alterations shall be performed in compliance with laws in a good and workmanlike manner and all materials used shall be of a quality comparable to those in the Premises and Building and shall be in accordance with plans and specifications approved by Sublessor, and Sublessor may require that all such Alterations be performed under Sublessor's supervision. If Sublessor consents or supervises any such Alterations by Sublessee, the same shall not be deemed a warranty as to the adequacy of the design, workmanship or quality of materials, and Sublessor hereby expressly disclaims any responsibility or liability for the same, except for Sublessor's negligent supervision. Sublessor shall under no circumstances have any obligation to repair, maintain or replace any portion of the Alterations.     Sublessee shall maintain a safe working environment, including the continuation of all fire and security protection devices, if any, previously installed in the Premises by Sublessor. Sublessor at its option and expense may make any repairs, alterations, additions or improvements that Prime Landlord may deem necessary or advisable for the preservation, safety or improvement of the Premises or Building, but Sublessee at all times shall have reasonable access to the Premises. All alterations, additions and improvements except Sublessee's trade fixtures that do not become a part of the Building shall remain in and be surrendered with the Premises as a part thereof at the expiration or termination of this Sublease.     19. Casualty & Condemnation. Under certain circumstances described in the Prime Lease, either Prime Landlord or Sublessor may terminate the Prime Lease if there is a fire or other casualty damaging the Building or the Premises, or if there is a condemnation affecting the Building. Any such termination will automatically terminate this Sublease. Sublessor's obligation to repair any damage to the Premises is limited to its obligation to do so as tenant under the Prime Lease.     Rent will abate in proportion to the loss of use of the Premises caused by fire or other casualty, except if such damage resulted from or was contributed to directly or indirectly by the act, fault, or neglect of Sublessee, Sublessee's officers, contractors, agents, employees, invitees or licensees, then Rent shall abate only to the extent rent abates under the Prime Lease with respect to the Premises.     No damages, compensation or claim shall be payable by Sublessee for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Premises or the Building. 6 --------------------------------------------------------------------------------     20. Subordination. This Sublease is subject and subordinate to the Prime Lease, to all ground and underlying leases, and to all mortgages and deeds of trust which may now or hereafter affect the Building or the Development, and to any and all renewals, modifications, consolidations, replacements and extensions thereof, provided that Sublessor agrees not to effect any modification or amendment of the Prime Lease that materially and adversely affects the rights of Sublessee without the written consent of Sublessee (which consent shall not be unreasonably withheld or delayed).     21. No Hazardous Waste. Sublessee shall not dispose of nor otherwise allow the release of any hazardous waste or materials in, on or under the Premises, or any adjacent property, or in any improvements place on the Premises or within the Development. Sublessee represents and warrants to Sublessor that Sublessee's intended use of the Premises does not involve the use, production, disposal or bringing on to the Premises of any hazardous waste or materials, except batteries. As used herein, the term "hazardous waste or materials" includes any substance, waste or material defined or designated as hazardous, toxic or dangerous (or any similar term) by any federal, state or local statute, regulation, rule or ordinance now or hereafter in effect. Sublessee shall promptly comply with all statutes, regulations and ordinances, and with all orders, decrees or judgments of governmental authorities or courts having jurisdiction, relating to the use, collection, treatment, disposal, storage, control, removal or cleanup of hazardous waste or materials in, on or under the Premises or any adjacent property, or incorporated in any improvements, at Tenant's expense.     After notice to Sublessee and a reasonable opportunity for Sublessee to effect such compliance, Sublessor or Prime Landlord may, but is not obligated to, enter upon the Premises and take such actions and incur such reasonable costs and expenses to effect such compliance as it deems advisable to protect its interest in the Premises. However, neither Sublessor nor Prime Landlord shall be obligated to give Sublessee notice and an opportunity to effect compliance if (i) such delay might result in material adverse harm to Sublessor, Prime Landlord or the Premises, (ii) Sublessee has already had actual knowledge of the situation and a reasonable opportunity to effect compliance, or (iii) an emergency exists. Whether or not Sublessee has actual knowledge of the release of hazardous waste or materials on the Premises or any adjacent property as the result of Sublessee's use of the Premises, Sublessee shall reimburse Sublessor and Prime Landlord for the full amount of all costs and expenses incurred by Sublessor or Prime Landlord in connection with such compliance activities, and such obligation shall continue even after the termination of this Lease. Sublessee shall notify Sublessor and Prime Landlord immediately of any release of any hazardous waste or materials on the Premises.     Sublessee agrees to indemnify and hold harmless Sublessor and Prime Landlord against any and all losses, liabilities, suits, obligations, fines, damages, judgments, penalties, claims, charges, cleanup costs, remedial actions, costs and expenses (including, without limitation, attorneys' fees and disbursements) which may be imposed upon, incurred or paid by, or asserted against Sublessor, Prime Landlord or the Premises by reason of, or in connection with the acts or omissions of Sublessee, or any other person for whom Sublessee would otherwise be liable, resulting in the release of any hazardous waste or materials.     22. Security Deposit. Sublessee shall deposit with Sublessor on the date this Lease is executed by Tenant $52,451.25 (the "Security Deposit") as security for Tenant's performance of its obligations under this Lease. Landlord shall not be required to keep the Security Deposit separate from its general funds and Tenant shall not be entitled to interest on the Security Deposit. No part of the Security Deposit shall be considered held in trust, a prepayment of any amount due under this Lease or a measure of Landlord's damages in the event of Tenant's default. Upon an event of default by Tenant, Landlord may, without prejudice to any other remedy, use the Security Deposit to pay any amount due Landlord; to reimburse or compensate Landlord for any liability, cost or other damage caused by Tenant's default; or perform any obligation required of Tenant under this Lease. If Landlord uses any portion of the Security Deposit, Tenant shall restore the Security Deposit to its original amount within ten (10) days after Landlord's demand. Landlord will inspect the Premises within thirty (30) days after the later of the expiration date of this Sublease or the date Tenant vacates the Premises and Landlord shall refund 7 -------------------------------------------------------------------------------- to Tenant within a reasonable time after the inspection any portion of the Security Deposit not used or applied by Landord. Landlord's obligation with respect to the Security Deposit are those of a debtor and not a trustee. Landlord may commingle the Security Deposit with Landlord's general and other funds. The Security Deposit shall not bear interest.     23. Signs. Notwithstanding any other provision of this Sublease, Sublessee shall have no right to place any signs outside the Building.     24. Holding Over. If Sublessee holds over after expiration or termination of this Sublease without written consent of Sublessor, Sublessee shall pay two times the fixed minimum monthly rental in effect during the last month hereof and all other charges due hereunder for each month or any part thereof of any such holdover period. No holding over by Sublessee after the term of this Sublease shall operate to extend the Sublease term. In the event of any unauthorized holding over, Sublessee shall indemnify Sublessor against all costs and claims for damages, including, without limitation, any claims for damages by any other tenant to whom Sublessor or Prime Landlord may have leased all or any part of the Premises.     25. Estoppel Certificate. Upon Sublessor's request, at any time and from time to time, Sublessee shall execute and deliver to Sublessor within fifteen (15) business days after receipt of the request, a written instrument, duly executed:      (i) Certifying that this Sublease has not been amended or modified and is in full force and effect or, if there has been a modification or amendment, that this Sublease is in full force and effect as modified or amended, and stating the modifications or amendments;     (ii) Specifying the date to which the rent has been paid;     (iii) Stating whether, to Sublessee's best knowledge, Sublessor is in default and, if so, stating the nature of the default; and     (iv) Stating the commencement date of the term and whether any option to extend the term has been exercised.     26. Tenant's Vacation of Premises. If Sublessee vacates all or substantially all of the Premises without the payment of rent, upon such vacation Sublessor shall have the right, after giving Sublessee thirty (30) days' notice that it is retaking possession of some or all of the Premises and terminating this Sublease with respect to the portion retaken. The foregoing right shall be in addition to and not in limitation of any right Sublessor may have when Sublessee is in default.     27. Changes to Building. Sublessor or Prime Landlord shall have the right, from time to time, without thereby creating an actual or constructive eviction or incurring any liability to Sublessee, to change the arrangement or location of the following that are not contained within the Premises or any part thereof: entrances, passageways, doors and doorways, corridors, stairs, toilets, and other similar public service portions of the Building.     28. Notices. Any notice, statement, certificate, consent, approval, disapproval, request or demand required or permitted to be given in this Sublease shall be in writing and sent by a nationally 8 -------------------------------------------------------------------------------- recognized overnight delivery service such as Federal Express or Airborne or by United States mail, registered or certified mail, return receipt requested, postage prepaid, addressed, as the case may be:     To Sublessor at the following address:     Vopak Distribution Americas Corporation     Attn: Director of Real Estate Services and Risk Management, Van Waters & Rogers Inc. (Delivery and air courier) 6100 Carillon Point Kirkland, Washington 98033 (Mail) P.O. Box 34325 Seattle, Washington 98124-1325 and to the Sublessee at the following address: NEXTEL WIP LEASE CORP. 4500 Carillon Point Kirkland, WA 98033 ATTN: Legal Department     Either party by notice to the other may change or add persons and places where notices are to be sent or delivered. In no event shall notice have to be sent on behalf of either party to more than three (3) persons. Mailed notices will be deemed served four (4) business days after mailing certified or registered mail properly addressed with postage prepaid and notices sent by overnight delivery service for next day delivery will be deemed served on the business day first following the day they were sent.     29. Sublessor's and Sublessee's Power to Execute. Sublessor and Sublessee covenant, warrant and represent that they have full power and proper authority to execute this Sublease.     30. Entire Agreement. This Sublease contains the entire agreement between Sublessor and Sublessee. No modification of this Sublease shall be binding on the parties unless it is in writing and signed by the parties.     31. Consent to Sublease by Prime Landlord. This Sublease shall not become operative until and unless the Prime Landlord has given to Sublessor its consent hereto. Sublessor shall not be responsible for Prime Landlord's failure to consent to this Sublease. Should Prime Landlord not consent to this Sublease, each party shall be released from all obligations with respect hereto and neither party shall have any further rights in law or in equity with respect to this Sublease.     32. Guaranty. This Sublease and Sublessor's obligations hereunder are expressly conditioned upon NEXTEL PARTNERS INC. executing and delivering to Sublessor contemporaneous with execution of this Lease a Continuing Lease Guaranty which shall in form and substance as attached hereto as Exhibit C. SUBLESSOR:   SUBLESSEE: VOPAK DISTRIBUTION AMERICAS CORPORATION   NEXTEL WIP LEASE CORP. By   By --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Its   Its --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- STATE OF __________   )     ) ss. COUNTY OF __________   )     I certify that I know or have satisfactory evidence that            is the person who appeared before me, and said person acknowledged that (he/she) signed this instrument, on oath stated that (he/she) was authorized to execute the instrument and acknowledged it as the            of VOPAK DISTRIBUTION AMERICAS CORPORATION to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated: _____________   --------------------------------------------------------------------------------     Notary Public [Seal or Stamp]   --------------------------------------------------------------------------------     [Printed Name]     My appointment expires _______________ STATE OF __________   )     ) ss. COUNTY OF __________   )     I certify that I know or have satisfactory evidence that            is the person who appeared before me, and said person acknowledged that (he/she) signed this instrument, on oath stated that (he/she) was authorized to execute the instrument and acknowledged it as the            of NEXTEL WIP LEASE CORP. to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated: ____________   --------------------------------------------------------------------------------     Notary Public [Seal or Stamp]   --------------------------------------------------------------------------------     [Printed Name]     My appointment expires _______________ 10 -------------------------------------------------------------------------------- CONSENT BY PRIME LANDLORD     The, Landlord under the Prime Lease hereby consents to the attached Sublease with the understanding that the Sublessor's obligations under the Prime Lease are not modified or changed as it relates to the Landlord. By its consent, Prime Landlord agrees that the utilities, services, maintenance and repair it is required to provide under the Prime Lease to or for the space which is being subleased, will be provided by Prime Landlord to the Sublessee.     AGREED AND ACCEPTED THIS      DAY OF            , 2001.     PRIME LANDLORD:     CARILLON PROPERTIES By: __________________________         Barbara Leland     Its: __________________________     11 --------------------------------------------------------------------------------

CEDAR FAIR, L.P. KNOTT'S BERRY FARM   SENIOR SERIES C NOTE     No. 2001 C-1 ORIGINAL PRINCIPAL AMOUNT: $35,000,000 ORIGINAL ISSUE DATE: August 9, 2001 INTEREST RATE: 6.40% INTEREST PAYMENT DATES: February 24 and August 24 of each year, commencing August 24, 2001 FINAL MATURITY DATE: August 24, 2008 PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $7,000,000 on August 24 of each of the years 2004-2008, inclusive   FOR VALUE RECEIVED, the undersigned, Cedar Fair, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Company") and Knott's Berry Farm, a general partnership organized and existing under the laws of the State of California ("Knott's Berry Farm") (the Company and Knott's Berry Farm are hereinafter referred to as the "Co-Issuers") hereby, jointly and severally, promise to pay to The Prudential Insurance Company of America, or registered assigns, the principal sum of THIRTY FIVE MILLION DOLLARS, payable on the Principal Prepayment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Agreement referenced below) and any overdue payment of interest, payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% plus the Interest Rate specified above or (ii) 2% plus the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amounts, if any, and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Co-Issuers in writing, in lawful money of the United States of America.   This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase and Private Shelf Agreement, dated as of January 28, 1998 (herein called the "Agreement"), between the Co-Issuers, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate (as defined in the Agreement) which becomes a party thereto, on the other hand, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part, in some cases without the Yield-Maintenance Amount and in other cases with the Yield-Maintenance Amount (if any) specified in the Agreement. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Co-Issuers may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Co-Issuers shall not be affected by any notice to the contrary. In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. The obligations of the Partners (as defined in the Agreement) with respect to this Note are limited as provided in paragraph 11L of the Agreement.   This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal law of such State .     CEDAR FAIR, L.P. By: CEDAR FAIR MANAGEMENT COMPANY, Managing General Partner   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer   KNOTT'S BERRY FARM By: Magnum Management Corporation one of its general partners   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer             CEDAR FAIR, L.P. KNOTT'S BERRY FARM   SENIOR SERIES C NOTE     No. 2001 C-2 ORIGINAL PRINCIPAL AMOUNT: $7,000,000 ORIGINAL ISSUE DATE: August 9, 2001 INTEREST RATE: 6.40% INTEREST PAYMENT DATES: February 24 and August 24 of each year, commencing August 24, 2001 FINAL MATURITY DATE: August 24, 2008 PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $1,400,000 on August 24 of each of the years 2004-2008, inclusive   FOR VALUE RECEIVED, the undersigned, Cedar Fair, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Company") and Knott's Berry Farm, a general partnership organized and existing under the laws of the State of California ("Knott's Berry Farm") (the Company and Knott's Berry Farm are hereinafter referred to as the "Co-Issuers") hereby, jointly and severally, promise to pay to The Prudential Insurance Company of America, or registered assigns, the principal sum of SEVEN MILLION DOLLARS, payable on the Principal Prepayment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Agreement referenced below) and any overdue payment of interest, payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% plus the Interest Rate specified above or (ii) 2% plus the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amounts, if any, and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Co-Issuers in writing, in lawful money of the United States of America.   This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase and Private Shelf Agreement, dated as of January 28, 1998 (herein called the "Agreement"), between the Co-Issuers, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate (as defined in the Agreement) which becomes a party thereto, on the other hand, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part, in some cases without the Yield-Maintenance Amount and in other cases with the Yield-Maintenance Amount (if any) specified in the Agreement. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Co-Issuers may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Co-Issuers shall not be affected by any notice to the contrary. In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. The obligations of the Partners (as defined in the Agreement) with respect to this Note are limited as provided in paragraph 11L of the Agreement.   This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal law of such State .     CEDAR FAIR, L.P. By: CEDAR FAIR MANAGEMENT COMPANY, Managing General Partner   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer   KNOTT'S BERRY FARM By: Magnum Management Corporation one of its general partners   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer           CEDAR FAIR, L.P. KNOTT'S BERRY FARM   SENIOR SERIES C NOTE     No. 2001 C-3 ORIGINAL PRINCIPAL AMOUNT: $5,000,000 ORIGINAL ISSUE DATE: August 9, 2001 INTEREST RATE: 6.40% INTEREST PAYMENT DATES: February 24 and August 24 of each year, commencing August 24, 2001 FINAL MATURITY DATE: August 24, 2008 PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $1,000,000 on August 24 of each of the years 2004-2008, inclusive   FOR VALUE RECEIVED, the undersigned, Cedar Fair, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Company") and Knott's Berry Farm, a general partnership organized and existing under the laws of the State of California ("Knott's Berry Farm") (the Company and Knott's Berry Farm are hereinafter referred to as the "Co-Issuers") hereby, jointly and severally, promise to pay to Hartford Life Insurance Company, or registered assigns, the principal sum of FIVE MILLION DOLLARS, payable on the Principal Prepayment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Agreement referenced below) and any overdue payment of interest, payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% plus the Interest Rate specified above or (ii) 2% plus the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amounts, if any, and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Co-Issuers in writing, in lawful money of the United States of America.   This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase and Private Shelf Agreement, dated as of January 28, 1998 (herein called the "Agreement"), between the Co-Issuers, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate (as defined in the Agreement) which becomes a party thereto, on the other hand, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part, in some cases without the Yield-Maintenance Amount and in other cases with the Yield-Maintenance Amount (if any) specified in the Agreement. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Co-Issuers may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Co-Issuers shall not be affected by any notice to the contrary. In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. The obligations of the Partners (as defined in the Agreement) with respect to this Note are limited as provided in paragraph 11L of the Agreement.   This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal law of such State .     CEDAR FAIR, L.P. By: CEDAR FAIR MANAGEMENT COMPANY, Managing General Partner   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer   KNOTT'S BERRY FARM By: Magnum Management Corporation one of its general partners   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer           CEDAR FAIR, L.P. KNOTT'S BERRY FARM   SENIOR SERIES C NOTE     No. 2001 C-4 ORIGINAL PRINCIPAL AMOUNT: $3,000,000 ORIGINAL ISSUE DATE: August 9, 2001 INTEREST RATE: 6.40% INTEREST PAYMENT DATES: February 24 and August 24 of each year, commencing August 24, 2001 FINAL MATURITY DATE: August 24, 2008 PRINCIPAL PREPAYMENT DATES AND AMOUNTS: $600,000 on August 24 of each of the years 2004-2008, inclusive   FOR VALUE RECEIVED, the undersigned, Cedar Fair, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Company") and Knott's Berry Farm, a general partnership organized and existing under the laws of the State of California ("Knott's Berry Farm") (the Company and Knott's Berry Farm are hereinafter referred to as the "Co-Issuers") hereby, jointly and severally, promise to pay to Medica Health Plan, or registered assigns, the principal sum of THREE MILLION DOLLARS, payable on the Principal Prepayment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield-Maintenance Amount (as defined in the Agreement referenced below) and any overdue payment of interest, payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% plus the Interest Rate specified above or (ii) 2% plus the rate of interest publicly announced by Morgan Guaranty Trust Company of New York from time to time in New York City as its Prime Rate. Payments of principal, Yield-Maintenance Amounts, if any, and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Co-Issuers in writing, in lawful money of the United States of America.   This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase and Private Shelf Agreement, dated as of January 28, 1998 (herein called the "Agreement"), between the Co-Issuers, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate (as defined in the Agreement) which becomes a party thereto, on the other hand, and is entitled to the benefits thereof. As provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part, in some cases without the Yield-Maintenance Amount and in other cases with the Yield-Maintenance Amount (if any) specified in the Agreement. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Co-Issuers may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Co-Issuers shall not be affected by any notice to the contrary. In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. The obligations of the Partners (as defined in the Agreement) with respect to this Note are limited as provided in paragraph 11L of the Agreement.   This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal law of such State .     CEDAR FAIR, L.P. By: CEDAR FAIR MANAGEMENT COMPANY, Managing General Partner   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer   KNOTT'S BERRY FARM By: Magnum Management Corporation one of its general partners   By: _____________________________________ Bruce A. Jackson Vice President & Chief Financial Officer        

NONQUALIFIED STOCK OPTION AGREEMENT         THIS AGREEMENT is entered into as of December 15, 2000 by and between New Horizons Worldwide, Inc., a Delaware corporation (the "Company"), and Richard L. Osborne (the "Optionee"). WITNESSETH:         WHEREAS, the Company maintains the New Horizons Worldwide, Inc. Omnibus Equity Plan (the "Plan") for the benefit of eligible participants therein; and         WHEREAS, the Board of Directors of the Company is currently charged with administering the Plan with respect to awards to members of the Board who are not employees of the Company; and         WHEREAS, the Board and its disinterested members have determined that the Optionee, as a person eligible to receive awards under the Plan, should be granted nonqualified stock options to acquire Shares under the Plan upon the terms and conditions set forth in this Agreement as part of Optionee’s compensation for services as a member of the Board during 2001.         NOW, THEREFORE, the Company and the Optionee hereby agree as follows:         1. Definitions.         (a) The following terms shall have the meanings set forth below whenever used in this instrument:         (i) The word "Act" shall mean the federal Securities Act of 1933, as amended.         (ii) The word "Agreement" shall mean this instrument as originally executed and as it may later be amended.         (iii) The word "Company" shall mean New Horizons Worldwide, Inc., a Delaware corporation, and any successor thereto which shall maintain the Plan.         (iv) The words "Fair Market Value" means, in respect of a Share, its fair market value as determined in the reasonable judgment of the Committee at any time.         (v) The word "Option" shall mean the right and option to purchase Shares pursuant to the terms of this Agreement.         (vi) The words "Option Exercise Date" shall mean the date the Optionee exercises the Option by performing the acts described in Section 7 hereof.         (vii) The word "Optionee" shall mean the person to whom the Option has been granted pursuant to this Agreement.         (viii) The words "Personal Representative" shall mean, following the Optionee’s death, the person who shall have acquired, by will or by the laws of descent and distribution, the right to exercise the Option.         (ix) The word "Plan" shall mean the New Horizons Worldwide, Inc. Omnibus Equity Plan, as it was originally adopted and as it may later be amended.         (x) The word "Spread" shall mean, as of the Option Exercise Dare, an amount equal to the excess, if any, of the Fair Market Value of a Share in respect of which the Option is exercised over the Option Exercise Price.         (xi) The word "Transferee" shall mean the person or entity to whom rights to acquire Shares pursuant to the exercise of the Option shall have been transferred pursuant to Section 9 hereof.         (b) The following terms when used in the Agreement shall have the meanings given them in the Plan: "Affiliate;" "Board;" "Change in Control;" "Code;" "Committee;" "Consent;" "Family Members;" "Option Exercise Price;" "Shares."         2. Grant of Nonqualified Option. Effective as of the date of this Agreement, the Company grants to the Optionee, upon the terms and conditions set forth hereinafter, the right and option to purchase all or any lesser whole number of an aggregate of Fifteen Thousand (15,000) Shares at an Option Exercise Price of $ 14.44 per Share. The Option shall for all purposes be a nonqualified stock option subject to the federal income tax treatment described in Section 1.83-7 of the Federal Income Tax Regulations. Both the Company and the Optionee shall, on their respective federal income tax returns, report any transaction relating to the Option in a manner consistent with the preceding sentence.         3. Term of Option. Except as otherwise provided herein, the Optionee shall be entitled to exercise the Option at any time on or after January 1, 2001 and on or before the close of business on December 31, 2005 at the Company’s principal executive office (currently located at 1231 East Dyer Road, Suite 140, Santa Ana, California 92705-5605).         4. Cancellation of Option. If Optionee ceases to be a Director of the Company before or during the calendar year 2001 then the Option shall be cancelled with respect to a number of Shares equal to (A) multiplied by (B) below where:         (A) equals the number of Shares which are the subject of the Option; and         (B) equals a fraction, the numerator of which equals the number of full calendar quarters during the year 2001 during which the Optionee was not a Director and the denominator of which equals four; provided, however, that the Committee may in its absolute discretion determine (but shall not be under any obligation to determine) that such purchase rights shall be deemed to include additional Shares which are subject to the Option.         5. Change in Control. Notwithstanding the provisions of Sections 3 and 4 hereof, in connection with a Change in Control, the Optionee shall have the immediate and nonforfeitable right to exercise the Option with respect to all Shares covered by the Option. The Optionee shall be entitled to exercise the Option as provided in the immediately preceding sentence regardless of whether the surviving corporation in any merger or consolidation shall adopt and maintain the Plan. In the event the Option becomes exercisable pursuant to this Section 5, the Company shall notify the Optionee of his right to exercise the Option. Upon a Change in Control described in Section 1.6(b)(iii) of the Plan, the Option, to the extent not exercised, shall terminate unless the surviving corporation assumes the Option. In the event of a Change in Control described in Section 1.6(b)(iv) of the Plan, the Option, to the extent not exercised, shall terminate upon consummation of the Change in Control.         6. Adjustment Upon Changes in Capitalization. The number of Shares which may be purchased upon exercise of an Option and the Option Exercise Price shall be appropriately adjusted as the Committee may determine for any change after the date of the Agreement in the number of issued Shares resulting from the subdivision or combination of Shares or other capital adjustments, or the payment of a stock dividend, or other change in the Shares effected without receipt of consideration by the Company; provided, that any fractional Shares resulting from any such adjustment shall be eliminated. Adjustments under this Section 6 shall be made by the Committee, whose determination as to the adjustments to be made, and the extent thereof, shall be final, binding and conclusive.         7. Exercise of Option. The Option may be exercised by delivering to the Chairman, Vice Chairman, President or Chief Financial Officer of the Company at the then principal office address of the recipient officer, a completed Notice of Exercise of Option (obtainable from the Chief Financial Officer of the Company) setting forth the number of Shares with respect to which the Option is being exercised. Such Notice shall be accompanied by payment in full for the Shares, unless other arrangements satisfactory to the Committee for prompt payment of such amount are made. Payment of the Option Exercise Price may be made in any manner permitted by the Plan, subject to the consent of the Committee as applicable. With the consent of the Committee, the Optionee may effect a cashless exercise of the Option as described in the Plan. With the consent of the Committee in its sole discretion, payment for Shares acquired upon exercise of the Option may be made by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Shares acquired upon exercise of the Option to pay for all or some of the Shares acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be made at the Optionee’s direction on the Option Exercise Date; provided, that the Committee may require the Optionee to furnish an opinion of counsel acceptable to the Committee to the effect that such delivery would not result in the Optionee incurring any liability under Section 16 of the Act and does not require any Consent.         8. Issuance of Share Certificates. Subject to the last sentence of this Section 8, upon receipt by the Company prior to expiration of the Option of a duly completed Notice of Exercise of Option accompanied by payment for the Shares being purchased pursuant to such Notice (and, with respect to any Option exercised pursuant to Section 9 hereof by someone other than the Optionee, accompanied in addition by proof satisfactory to the Committee of the right of such person to exercise the Option), the Company shall deliver to the Optionee, within thirty (30) days of such receipt, a certificate for the number of Shares so purchased. The Optionee shall not have any of the rights of a stockholder with respect to the Shares which are subject to the Option unless and until a certificate representing such Shares is issued to the Optionee. The Company shall not be required to issue any certificates for Shares upon the exercise of the Option prior to (i) obtaining any Consents which the Committee shall, in its sole discretion, determine to be necessary or advisable, or (ii) the determination by the Committee, in its sole discretion, that no Consents need be obtained.         9. Successors in Interest, Etc. This Agreement shall be binding upon and inure to the benefit of any successor of the Company and the heirs, estate, and Personal Representative of the Optionee. A deceased Optionee’s Personal Representative shall act in the place and stead of the deceased Optionee with respect to exercising an Option or taking any other action pursuant to this Agreement. The Option shall not be transferable other than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of the Optionee only by the Optionee; provided, that a guardian or other legal representative who has been duly appointed for such Optionee may exercise the Option on behalf of the Optionee. Notwithstanding the preceding sentence, with the consent of the Committee in its sole discretion, the Optionee may transfer the rights under the Option in respect of some or all of the Shares which are subject to the Option to a Family Member or a trust for the exclusive benefit of the Optionee and/or Family Members, or a partnership or other entity affiliated with the Optionee that may be approved by the Committee. All terms and conditions of any Option, including provisions relating to the termination of the Optionee’s employment with the Company and its Affiliates, shall continue to apply following a transfer made in accordance with this Section 10 and the Transferee shall have no greater right to exercise the Option than the Optionee would have in the absence of the transfer. The Option may be exercised by the Transferee only in accordance with the terms of this Agreement and the Transferee’s exercise of the Option shall be subject to the Transferee and/or the Optionee satisfying all of the conditions relating to the exercise of the Option including, without limitation, provisions concerning payment of the Option Exercise Price and tax withholding.         10. Provisions of Plan Control. This Agreement is subject to all of the terms, conditions, and provisions of the Plan and to such rules, regulations, and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.         11. No Liability Upon Distribution of Shares. The liability of the Company under this Agreement and any distribution of Shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on the Company or the Committee in favor of any person with respect to any loss, cost or expense which the person may incur in connection with or arising out of any transaction in connection with this Agreement.         12. No Right to Be a Director, Etc. Nothing in this Agreement shall confer upon the Optionee any right to continue as a Director of or other advisor to the Company.         13. Resale Limitations. The Optionee acknowledges and agrees that (a) the Shares he may acquire upon exercise of the Option may not be transferred unless they become registered under the Act or unless the holder thereof establishes to the satisfaction of the Company that an exemption from such registration is available, (b) the Company will have no obligation to provide any such registration or take such steps as are necessary to permit sale of such Shares without registration pursuant to Rule 144 under the Act or otherwise, (c) at such time as such Shares may be disposed of in routine sales without registration in reliance on Rule 144 under the Act, such disposition may be made only in limited amounts in accordance with all of the terms and conditions of Rule 144 and (d) if the Rule 144 exemption is not available, compliance with some other exemption from registration will be required.         14. Withholding Taxes.         (a) Whenever Shares are to be delivered pursuant to the exercise of the Option, the Committee may require as a condition of delivery that the Optionee remit an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto. The Company may, as a condition of the exercise of the Option, deduct from any salary or other payments due to the Optionee, an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto or to the delivery of any Shares under the Plan.         (b) With the consent of the Committee in its sole discretion, (i) the Optionee may satisfy all or part of any withholding requirements by delivery of unrestricted Shares owned by the Optionee for at least one year (or such other period as the Committee may determine) having a Fair Market Value (determined as of the date of such delivery) equal to all or part of the amount to be withheld; provided, that the Committee may require the Optionee to furnish an opinion of counsel or other evidence acceptable to the Committee to the effect that such delivery would not result in the Optionee incurring any liability under Section 16 of the Act and does not require any Consent and/or (ii) the Optionee may direct that Shares to be issued pursuant to the exercise of the Option be used to satisfy any withholding obligation; provided, that for purposes of satisfying any such obligation the value of a Share shall be equal to the Spread.         15. Construction. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. The use of the singular or plural herein shall not be restrictive as to number and shall be interpreted in all cases as the context shall require. The use of the feminine, masculine or neuter pronoun shall not be restrictive as to gender and shall be interpreted in all cases as the context may require.         16. Time Periods, Etc. Any action required to be taken under this Agreement within a certain number of days shall be taken within that number of calendar days; provided, however, that if the last day for taking such action falls on a weekend or a holiday, the period during such action may be taken shall be automatically extended to the next business day. If the day for taking any action, or on which any action may be taken, under this Agreement falls on a weekend or a holiday, such action may be taken on the next business day.         17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and any applicable federal law.         18. Notices. Except as otherwise expressly provided herein, all notices hereunder shall be in writing and delivered or mailed by registered or certified mail, return receipt requested, or by private, overnight delivery services (such as Federal Express) as follows:         If to the Company:         New Horizons Worldwide, Inc.         1231 East Dyer Road, Suite 140         Santa Ana, California 92705-5605         Attention: Chief Financial Officer         If to the Optionee:         Last address set forth on the records         of the Company or its Affiliates or at such other address as either party may hereafter designate by giving notice to the other party as set forth above.         19. Further Assurances. From time to time after the exercise of an Option, either party, upon request of the other and without further consideration, shall execute and deliver to the requesting party any document or instrument, and shall take any other action as may be reasonably requested, to give effect to the exercise of the Option and the terms of this Agreement.         IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the day and year first above written. NEW HORIZONS WORLDWIDE, INC. (the "Company") By:__________________________________ Its: ________________________________ _____________________________________ (the "Optionee")

Exhibit 10.17 June 18,2001     Ms. Lisa Kranc <ADDRESS>> <<CITY>>, <<STATE>> <<ZIP>> Dear Lisa, On behalf of AutoZone I am delighted to confirm our offer to you for the role of Senior Vice President Marketing. Our offer includes a base salary of $220,000 per annum plus an annual bonus target of 60% of your base salary. You will be eligible for a performance and salary review at the end of fiscal 2002. Actual bonus awards for Fiscal 2002 will be determined by the achievement of pre-defined Company objectives. Bonus targets can therefore be less than target, but they can also exceed targets based on above plan performance. For Fiscal 2001, which ends at the end of August, your bonus will be prorated based on the period of actual service. Subject to the approval of the Compensation Committee of the Board of Directors, you will receive an initial stock option grant of 25,000 options. These options will be presented for grant no later than the October 2, 2001 meeting of the Compensation Committee. Thereafter, on an annual basis beginning on or around October of 2002 subsequent grants will be determined by pre-defined performance achievements and the established annual range of options. All stock options grants are made by and subject to the approval of the Compensation Committee or our Board of Directors. Notwithstanding, any and all Plans are subject to change or may be discontinued at any time. Copies of our current Bonus Plan and Stock Option Incentive Plan are included for your review, however as we discussed, these are under review and new plans should be finalized at our October 2001 Board of Directors meeting. Our offer of employment also includes relocation support, which includes coverage for the home sale and purchase transaction costs, personal goods shipment, and suitable temporary housing. We will also include a one-time miscellaneous gross payment of $10,000. You will be eligible to participate in AutoZone's full group benefits and save-up programs, which include medical, dental, vision, life and disability coverage along with a qualified pension and 401(k) program. Your employment at AutoZone is "at will" and terminable at any time. In the event of any non-cause related termination requested by AutoZone, we will pay you severance equal to your base salary, which severance shall to be paid out pro-rata in regular pay cycles. Lisa, the entire Executive Committee is enthusiastic about the possibility of you joining our team. I am personally looking forward to your positive response and to working with you in the near future. Please feel free to call Daisy or me to address any questions you may have. Sincerely, /s/ Steve Odland Steve Odland Chairman, President, and Chief Executive Officer

Exhibit (10)(v)* to Report on Form 10-K for Fiscal Year Ended June 30, 2001 by Parker-Hannifin Corporation     Parker-Hannifin Corporation Non-Employee Directors' Stock Plan, as amended.       *Numbered in accordance with Item 601 of Regulation S-K. PARKER-HANNIFIN CORPORATION NON-EMPLOYEE DIRECTORS' STOCK PLAN ARTICLE A -- Purpose.         The purpose of the Parker Hannifin Non-Employee Directors' Stock Plan (hereinafter referred to as the "Plan") is to strengthen the alignment of interests between non-employee directors (hereinafter referred to as "Participants") and the shareholders of Parker Hannifin Corporation (hereinafter referred to as the "Company") through the increased ownership of shares of the Company's Common Stock. This will be accomplished by allowing Participants to elect voluntarily to convert a portion of their fees for services as a director into Common Stock. ARTICLE B -- Administration.         1.        The Plan shall be administered by the Compensation and Management Development Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than four (4) members of the Board who are not full-time employees of the Company, appointed by the Board from time to time and to serve at the discretion of the Board.         2.        It shall be the duty of the Committee to administer this Plan in accordance with its provisions and to make such recommendations of amendments or otherwise as it deem necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee.         3.        Subject to the express provisions of this Plan, the Committee shall have authority to allow Participants the right to elect to receive fees for services as a director partly in cash and partly in whole shares of the Common Stock of the Company, subject to such conditions or restrictions, if any, as the Committee may determine. The Committee also has the authority to make all other determinations it deems necessary or advisable for administering this Plan.         4.        The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan.         5.        The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- Participation.         Participation in the Plan shall be limited to Directors who are not full-time employees of the Company. ARTICLE D -- Limitation on Number of Shares for the Plan.         1.         The total number of shares of Common Stock of the Company that may be awarded each year shall not exceed 7,500 shares. The total number of shares of Common Stock of the Company that may be awarded under the plan is 50,000.         2.         Shares transferred or reserved for purposes of the Plan will be subject to appropriate adjustment in the event of future stock splits, stock dividends or other changes in capitalization; following any such change, the term "Common Stock" or "shares of Common Stock" of the Company, as used in the Plan, shall be deemed to refer to such class of shares or other securities as may be applicable. ARTICLE E -- Shares Subject to Use Under the Plan.         Shares of Common Stock to be awarded under the terms of this Plan shall be either treasury shares or authorized but unissued shares. ARTICLE F -- Transfer of Shares.         1.         The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and may be set forth in agreements between the Company and the Participant or in the awards of stock to them, all as the Committee determines.         2.         The shares awarded shall be valued at the average of the high and low quotations for Common Stock of the Company on the New York Stock Exchange on the day of the transfer to a Participant. All shares awarded shall be full shares, rounded up to the nearest whole share. ARTICLE G -- Additional Provisions.         1.         The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, or alter the persons eligible to participate in this Plan. The Participants and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding awards are affected, notice thereof shall be given to the holders of such awards and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore awarded shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions.         2.         Every recipient of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and the transfer of shares agreement referable thereto, and the acceptance of any transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company. ARTICLE H --Duration of Plan.         This Plan shall become effective as of October 26, 1994 subject to ratification before December 31, 1995 by the affirmative vote of the holders of a majority of the Common Stock of the Company present, or represented, and entitled to vote at a meeting duly held. Any shares awarded prior to approval of the Plan by the shareholders must be restricted until such approval is obtained and shall be subject to immediate forfeiture in the event such approval is not obtained in which case the Participants would receive the fees they would have received for their services as Directors since October 26, 1994. This Plan will terminate on December 31, 2004 unless a different termination date is fixed by the shareholders or by action of the Board but no such termination shall affect the prior rights under this Plan of the Company or of anyone to whom shares have been transferred prior to such termination.

Exhibit 10.96 [Cornish & Carey Commercial Logo]   -------------------------------------------------------------------------------- SUBLEASE --------------------------------------------------------------------------------   Sublessor: Southwall Technologies, Inc., Premises: 1029 Corporation Way, #210   a Delaware corporation   Palo Alto, CA 94303         Sublessee: Digeo, Inc., a Delaware corporation Date: July 10, 2001   1. Parties:   This Sublease is made and entered into as of July 10, 2001, by and between Southwall Technologies, Inc., a Delaware corporation (Sublessor), and Digeo, Inc., a Delaware corporation (Sublessee), under the Master Lease dated October 14, 1999, between C & J Development Co., a California limited partnership, as Lessor and Sublessor under this Sublease as Lessee. A copy of the Master Lease is attached hereto as Exhibit "A" and incorporated herein by reference.       2. Provisions Constituting Sublease:   2.1 This Sublease is subject to all of the terms and conditions of the Master Lease except as specifically excluded in section 2.2 of this Sublease. Sublessee hereby assumes and agrees to perform all of the obligations of Lessee under the Master Lease to the extent said obligations apply to the Subleased Premises and Sublessee's use of the common area, except as specifically set forth herein. Sublessor hereby agrees to cause Lessor, under the Master Lease, to perform all of the obligations of Lessor thereunder to the extent said obligations apply to the Subleased Premises and Sublessee's use of the common areas. Sublessee shall not commit or permit to be committed on the Subleased Premises or on any other portion of the Project any act or omission which violates any term or condition of the Master Lease. Except to the extent waived or consented to in writing by the other party or parties hereto who are affected thereby, neither of the parties hereto will, by renegotiations of the Master Lease, assignment, subletting, default or any other voluntary action, avoid or seek to avoid the observance or performance of the terms to be observed or performed hereunder by such party but, will at all times, in good faith assist in carrying out all the terms of this Sublease and in taking all such action as may be necessary or appropriate to protect the rights of the other party or parties hereto who are affected thereby against impairment. Nothing contained in this Section 2.1 or elsewhere in this Sublease shall prevent or prohibit Sublessor (a) from exercising its right to terminate the Master Lease pursuant to the terms thereof or (b) from assigning its interest in this Sublease, only if Sublessee is in material, uncured breach of the terms of Sublease.         2.2 All of the terms and conditions contained in the Master Lease are incorporated herein, except as specifically provided below, and shall together with the terms and conditions specifically set forth in this Sublease constitute the complete terms and conditions of this Sublease. The following paragraphs of the Master Lease shall not be included in this Sublease: 2, 4, 5, 7, 9, 13, 16, 48, 53, 54, 55, Exhibit A.       3. Subleased Premises:   Sublessor leases to Sublessee and Sublessee leases from Sublessor the Subleased Premises upon all of the terms, covenants and conditions contained in this Sublease. The Subleased Premises consist of approximately 5,342 rentable +/- square feet, located at 1029 Corporation Way, #210 in Palo Alto, California as shown and described in Exhibit "B".       4. Rent:   Upon execution of this Agreement, Sublessee shall pay to Sublessor as Rent for the Subleased Premises the sum of Twenty-Three Thousand Five Hundred Ninety and 96/100 Dollars ($23,590.96) Full Service, representing July's pro rata rent (25th-31st) and August's rent payment. No rent shall be due prior to July 25, 2001. Thereafter, the monthly rent shall be the sum of Nineteen Thousand Seven Hundred Sixty-Five and 40/100 Dollars ($19,765.40) Full Service, in accordance with the following schedule:   Months Amount per square foot//Full Service   01-18 $3.70                         The rental amount shall be paid, without deductions, offset, prior notice or demand. If the commencement date or the termination date of the Sublease occurs on a date other than the first day or the last day, respectively, of a calendar month, then the Rent for such partial month shall be prorated and the prorated Rent shall be payable on the Sublease commencement date or on the first day of the calendar month in which the Sublease termination date occurs, respectively.         Sublessee shall not be required or obligated to complete any work or pay any repair and maintenance costs, property taxes and insurance, common area charges, capital expenditures, or other items that Master Lessor may pass through to Sublessor. Sublessor shall be responsible for ensuring that the building systems, plumbing, electrical and HVAC systems remain in good working condition and repair throughout the sublease term.       5. Security Deposit:   Upon execution of this Agreement, Sublessee shall pay to Sublessor $39,530.80 as a non-interest bearing Security Deposit. In the event Sublessee has performed all of the terms and conditions of this Sublease during the term hereof, Sublessor shall return to Sublessee, within ten (10) days after Sublessee has vacated the Subleased Premises, the Security Deposit less any sums due and owing to Sublessor.       6. Rights of Access and Use:   6.1 Use:     Sublease shall use the Subleased Premises only for those purposes permitted in the Master Lease, unless Sublessor and Master Lessor consent in writing to other uses prior to the commencement thereof.       7. Sublease Term:   7.1 Sublease Term:     The Sublease Term shall be for the period commencing on July 23, 2001 and continuing through December 31, 2002. In no event shall the Sublease Term extend beyond the Term of the Master Lease.         7.2 Inability to Deliver Possession:     In the event Sublessor is unable to deliver possession of the Subleased Premises at the commencement of the term, Sublessor shall not be liable for any damage caused thereby nor shall this Sublease be void or voidable, but Sublessee shall not be liable for Rent until such time as Sublessor delivers possession of the Subleased Premises to Sublessee, but the term hereof shall not be extended by such delay. If Sublessee, with Sublessor's consent, takes possession prior to commencement of the term, Sublessee shall do so subject to all the covenants and conditions hereof and shall pay Rent for the period ending with commencement of the term at the same rental as that prescribed for the first month of the term prorated at the rate of 1/30th thereof  per day. In the event Sublessor has been unable to deliver possession of the Subleased Premises within thirty (30) days from the commencement date, Sublessee, at Sublessee's option, may terminate this Sublease.       8. Notices:   All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be given in the manner provided in the Master Lease at the addresses shown below. Sublessor shall notify Sublessee of any Event of Default under the Master Lease, or of any other event of which Sublessor has actual knowledge which will impair Sublessee's ability to conduct its normal business at the Subleased Premises, as soon as reasonably practicable following Sublessor's receipt of notice from the Lessor of an Event of Default or actual knowledge of such impairment. If Sublessor elects to terminate the Master Lease, Sublessor shall so notify Sublessee by giving at least thirty (30) days notice prior to the effective date of such termination.   Sublessor's Address:    Southwall Technologies, Inc. 1029 Corporation Way Sublessee's Address:   Digeo, Inc. 1029 Corporation Way, #210     Palo Alto, CA 94303     Palo Alto, CA 94303 Attn:   Robert R. Freeman Attn:   Larry Weber     Sr. Vice President, CFO     President, Digeo Systems Group Phone Number:   650-962-9111 x 1225 Phone Number:   (650) 823-3985 (Cellular) Fax Number:   650-967-8713 Fax Number:   TBD   9. Broker Fee:   Upon execution of the Sublease, Sublessor shall pay Cornish & Carey Commercial, a licensed real estate broker, fees set forth in a separate agreement between Sublessor and Broker, for brokerage services rendered by Broker to Sublessor in this transaction.     10. Broker Representation:   The only Brokers involved in this Sublease are Cornish & Carey Commercial representing Sublessor and Colliers International representing Sublessee:     11. Compliance with Nondiscrimination Regulations:   It is understood that it is illegal for Sublessor to refuse to display or sublease the Subleased Premises or to assign, surrender or sell the Master Lease, to any person because of race, color, religion, national origin, sex, sexual orientation, marital status or disability.     12. Toxic Contamination Disclosure:   Sublessor and Sublessee each acknowledges that they have been advised that numerous federal, state, and/or local laws, ordinances and regulations (Laws) affect the existence and removal, storage, disposal, leakage of and contamination by materials designated as hazardous or toxic (Toxics). Many materials, some utilized in everyday business activities and property maintenance, are designated as hazardous or toxic.       Sublessee shall be released from any potential liability resulting from Sublessor's breach of the terms of the Master Lease including Section 50 (Environmental Matters) which occurred prior to commencement of the Sublease.       Some of the Laws require that Toxics be removed or cleaned up by landowners, future landowners or former landowners without regard to whether the party required to pay for "clean up" caused the contamination, owned the property at the time the contamination occurred or even knew about the contamination. Some items, such as asbestos or PCBs, which were legal when installed, now are classified as Toxics and are subject to removal requirements. Civil lawsuits for damages resulting from Toxics may be filed by third parties in certain circumstances.       Sublessor and Sublessee each acknowledge that Broker has no specific expertise with respect to environmental assessment or physical condition of the Subleased Premises, including, but not limited to, matters relating to: (i) problems which may be posed by the presence or disposal of hazardous or toxic substances on or from the Subleased Premises, (ii) problems which may be posed by the Subleased Premises being within the Special Studies Zone as designated under the Alquist-Priolo Special Studies Zone Act (Earthquake Zones), Section 2621 - 2630, inclusive of California Public Resources Code, and (iii) problems which may be posed by the Subleased Premises being within a HUD Flood Zone as set forth in the U.S. Department of Housing and Urban Development "Special Flood Zone Area Maps", as applicable.       Sublessor  and Sublessee each acknowledge that Broker has not made an independent investigation or determination of the physical or environmental condition of the Subleased Premises, including, but not limited to, the existence or nonexistence of any underground tanks, sumps, piping, toxic or hazardous substances on the Subleased Premises. Sublessee agrees that it will rely solely upon its own investigation and/or the investigation of professionals retained by it or Sublessor, and neither Sublessor nor Sublessee shall rely upon Broker to determine the physical and environmental condition of the Subleased Premises or to determine whether, to what extent and in what manner, such condition must be disclosed to potential sublessees, assignees, purchasers or other interested parties. Sublessor shall indemnify Sublessee from any prior toxic contamination.     13. Rent Abatement and Damages to Personal Property:   In the event Sublessor, pursuant to the terms of the Master Lease, is entitled to and receives rent abatement, then to the extent such rent abatement affects the Subleased Premises, Sublessee shall be entitled to rent abatement in an amount that the net rentable area of the Subleased premises bears to the total net rentable area of the Master Lease, and only to the extent any such abatement applies to the Sublease Term. In addition, any amounts paid or credited to Sublessor under the terms of the Master Lease for damage to personal property shall be credited to Sublessee, subject to the same limitations set forth above.     14. Tenant Improvements:   Sublessee shall take possession of the Premises in an "as is" condition with the exception that Sublessor will steam clean the carpet. Sublessor shall also insure that all Building systems are in good working condition at Lease commencement. Sublessor shall patch the walls and provide touch-up paint as necessary so that upon delivery to Sublessee, the walls and doors of the Premises are clean, free of holes, and appear in good clean condition. Sublessee shall have the right, at Sublessee's cost and completed by licensed contractors with government approvals as required, to divide the conference room into two separate rooms, add supplemental HVAC to Sublessee's server room, and add a satellite dish to the roof. Sublessee shall have access to its satellite dish 24 hours per day, 7 days per week. Sublessee shall also have the right to make further changes to the Premises that it deems necessary subject to reasonable approval from Sublessor and Lessor which shall not be unduly withheld. Regarding such additional improvements, at the time of Sublessor's approval, Sublessor may require Sublessee to return the improvements back to its original condition at the end of the Sublease term. Sublessee shall keep property lien free for any improvement work.     15. Furniture:   With the exception of all furniture in the conference room, the phone systems and all file cabinets, Sublessee shall have the right to use the furniture and whiteboards in the Premises at no charge during the sublease term. Sublessor shall also provide full compliment of office furniture for each private office. Additionally, Sublessor will provide cubicles which will support 14 full-time work stations. Furthermore, Sublessee, at Sublessee's sole cost, will have permission from the Sublessor to reconfigure the cubicles. Sublessor shall provide the name and phone number of their furniture contractor as soon as possible.     16. Expansion:   Sublessee shall have the right of first offer on Suites #100 and #200 in the building. The process for this right of first offer shall be that should Sublessor at any time receive an offer on either one of these suites, Sublessor shall provide a copy of that offer to Sublessee. Sublessee shall then have 2 full business days following receipt of that agreement by the Sublessee to lease the subject space under the terms of that offer. If Sublessee does not respond or does not accept the terms of the offer, Sublessor shall have the right to lease space to that third party. The right of first offer shall exist any time Sublessor receives a new offer or substantive change to an existing offer.     17. Insurance:   Pursuant to the Master Lease Paragraph #11, 2nd page, 8th line down "shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185" shall not be applicable to Sublessee.       With regard to the Master Lease Paragraph #11, 2nd page, 12th line down, Sublessee deductible shall be $50,000 per occurrence. Sublessee shall be solely responsible for any loss up to the $50,000 deductible amount.       Pursuant to the Master Lease Paragraph #11, 2nd page, 12th line down "The commercial general liability insurance carried ... provisions set forth in said Paragraph 18" shall be inapplicable to Sublessee.     18. Early Occupancy:   Sublessor shall provide early occupancy to the Premises no later than July 23, 2001. Sublessor will use its best efforts to get Sublessee into the space prior to July 23, 2001.     19. Signage:   Sublessor shall allow Sublessee exterior signage in the form of building signage, based on their pro rata share of the building. Such signage shall be subject to Master Landlord's and Sublessor's prior approval.     20. Full Service Sublease:   Both parties agree they are entering into a Full Service Sublease including 5 days a week janitorial and utilities.   Sublessor:   By: /s/ Robert R. Freeman --------------------------------------------------------------------------------   Date: July 12, 2001 --------------------------------------------------------------------------------   Robert R. Freeman, Sr. Vice President, CFO Southwall Technologies, Inc.         Sublessee:   By: /s/ Larry Weber --------------------------------------------------------------------------------   Date: July 12, 2001 --------------------------------------------------------------------------------   Larry Weber, President, Digeo Systems Group Digeo, Inc.         NOTICE TO SUBLESSOR AND SUBLESSEE: CORNISH & CAREY COMMERCIAL, IS NOT AUTHORIZED TO GIVE LEGAL OR TAX ADVICE; NOTHING CONTAINED IN THIS SUBLEASE OR ANY DISCUSSIONS BETWEEN CORNISH & CAREY COMMERCIAL AND SUBLESSOR AND SUBLESSEE SHALL BE DEEMED TO BE A REPRESENTATION OR RECOMMENDATION BY CORNISH & CAREY COMMERCIAL, OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT OR TAX CONSEQUENCES OF THIS DOCUMENT OR ANY TRANSACTION RELATING THERETO. ALL PARTIES ARE ENCOURAGED TO CONSULT WITH THEIR INDEPENDENT FINANCIAL CONSULTANTS AND/OR ATTORNEYS REGARDING THE TRANSACTION CONTEMPLATED BY THIS PROPOSAL.   Exhibit "A" Master Lease Exhibit "B" Premises         CONSENT OF MASTER LESSOR                   Master Lessor ("Master Lessor"), as landlord under the Master Lease dated October 14, 1999, attached hereto as Exhibit A ("Lease") , hereby consents to the foregoing Sublease by and between Southwall Technologies, Inc., a Delaware corporation ("Sublessor") and Digeo, Inc., a Delaware corporation ("Sublessee"). Said consent shall not, nor be deemed to, waive, amend or modify any provision of the Lease, nor shall said consent be deemed to be or constitute a consent to any further sublease or assignment or other future transaction (whether similar or dissimilar) whatsoever, which under the terms of the Lease requires Master Lessor's consent. Further, said consent shall not release, nor be deemed to release, Tenant from any of its covenants, agreements, liabilities, and obligations under or arising out of the Lease, and nor shall said consent constitute Master Lessor's consent to, or create or be deemed to create, any direct contractual privity between Master Lessor and Sublessee with respect to the Sublease (not-withstanding any provisions as may exist to the contrary in the Sublease). In providing said consent, Master Lessor makes no representations or warranties whatsoever, whether express or implied, regarding the physical or environmental condition of the Subleased Premises or Premises (including, without limitation, its habitability or suitability for any use or purpose or compliance with the Americans with Disabilities Act) or regarding any other condition affecting the Subleased Premises or Premises, and by its execution of this instrument Sublessee covenants and agrees not to sue and to forever release Master Lessor, and its trustees, officers, directors, agents and employees for and from any and all claims, losses, damages, causes of action, and liabilities arising out of hazardous substances or groundwater contamination presently existing on, under or emanating from the Premises or any part thereof.                   By its execution of this instrument, Sublessee acknowledges and agrees that the Sublease is and shall remain at all times subject and subordinate in all respects to the Lease, and Sublessee further agrees to indemnify, defend and hold Master Lessor harmless on the same terms and conditions that Sublessor has agreed to indemnify, defend and hold Master Lessor harmless under Paragraph 18 of the Lease (with each reference to the "Premises", "Tenant", "Landlord" and "Paragraph 7" contained therein being deemed to refer to the Subleased Premises, Sublessee, Master Lessor, and the Sublease, respectively). Said indemnity by Sublessee shall survive the expiration or sooner termination of the Sublease.                   As set forth in paragraph 19 of the Master Lease, one-half of any sums or other economic consideration received by Sublessor as a result of the foregoing sublease agreement between Sublessor and Sublessee (except rental or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Sublessor is obligated to pay Master Lessor under the Master Lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Master Lessor as additional rent under the Master Lease without affecting or reducing any other obligation of Sublessor under the Master Lease or hereunder.                   All notices to be given to Landlord pursuant to the Lease (or to Lessor pursuant to the Sublease) shall be sent to 360 S. San Antonio Road, Suite 14, Los Altos, CA 94022.                   Unless otherwise defined herein, all initially capitalized terms used herein shall have the meaning ascribed to them in the Lease or Sublease, as applicable. The provisions of the Lease, Sublease and this consent shall apply during any early occupancy period. In the event of any inconsistency between the terms of this consent and the terms of the Sublease, the terms of this consent shall control.                   IN WITNESS WHEREOF, the parties hereto have executed this Consent of Master Lessor as of the day and year set forth the below parties' respective signatures.   MASTER LESSOR: C & J DEVELOPMENT COMPANY,   a California limited partnership       By: /s/ Sandra Simons --------------------------------------------------------------------------------   Sandra Simons, as Trustee under the Charles S. McCandless and Jean A. McCandless Inter Vivos Trust Agreement dated January 25, 1977, a General Partner       Date: --------------------------------------------------------------------------------     SUBLESSEE: SOUTHWALL TECHNOLOGIES, INC., a Delaware Corporation       By: /s/ Robert R. Freeman --------------------------------------------------------------------------------       Name: Robert R. Freeman --------------------------------------------------------------------------------       Its: Sr. VP, CFO --------------------------------------------------------------------------------       Date: July 12, 2001 --------------------------------------------------------------------------------     SUBLESSOR: DIGEO, INC., a Delaware Corporation       By: /s/ Larry Weber --------------------------------------------------------------------------------       Name: Larry Weber --------------------------------------------------------------------------------       Its: President, dSG --------------------------------------------------------------------------------       Date: July 12, 2001 --------------------------------------------------------------------------------    

SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT             This Second Amendment dated as of September 30, 2001 to Third Amended and Restated Credit Agreement dated as of September 29, 2000 as amended prior to the date hereof ("Credit Agreement") by and among GIBRALTAR STEEL CORPORATION OF NEW YORK ("Borrower"); GIBRALTAR STEEL CORPORATION ("Company"); and THE CHASE MANHATTAN BANK, as administrative agent ("Administrative Agent") for THE CHASE MANHATTAN BANK ("Chase"); FLEET NATIONAL BANK; MELLON BANK, N.A., KEYBANK NATIONAL ASSOCIATION ("Key"); HSBC BANK USA; PNC BANK, N.A.; MANUFACTURERS AND TRADERS TRUST COMPANY; NATIONAL CITY BANK OF PENNSYLVANIA; FIFTH THIRD BANK, NORTHEASTERN OHIO; FIRSTAR BANK, N.A.; SUNTRUST BANK; and COMERICA BANK (collectively, "Banks").           A.     Preliminary Statement           WHEREAS, the Borrower, the Company, the Administrative Agent and the Banks are parties to the Credit Agreement; and           WHEREAS, the Borrower, the Company and the Banks wish to further amend certain terms of the Credit Agreement;           WHEREAS, unless otherwise defined herein, terms used in the Credit Agreement shall have such defined meanings when used herein;           NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, and upon satisfaction of the conditions set forth in Section C, below, the Banks, the Borrower, the Company, and the Administrative Agent, hereby agree as follows:           B.     Amendment                    1.     Section 1.1 of the Credit Agreement is amended so that in the definition of "Credit Pricing Agreement", the phrase "Fourth Amended and Restated Credit Pricing Agreement dated as of March 30, 2001" is deleted and the phrase "Fifth Amended and Restated Credit Pricing Agreement dated as of September 30, 2001" is substituted in its place.                    2.     Section 6.15 of the Credit Agreement (Interest Coverage Ratio) is deleted in its entirety and the following is substituted in its place:                           "6.15  Interest Coverage Ratio. Permit, in the case of the Company on a Consolidated Basis, the ratio of Earnings Before Taxes and Interest plus Depreciation and Amortization minus Capital Expenditures (excluding Capital Expenditures made in connection with permitted acquisitions) to interest payable on Total Liabilities, calculated on an annual rolling basis of four fiscal quarters to be less than: 2.50 to 1.00 as of the last day of the fiscal quarter ending September 30, 2001; 2.50 to 1.00 as of the last day of the fiscal quarter ending December 31, 2001; and 3.00 to 1.00 as of the last day of each fiscal quarter thereafter."                    3.     Section 6.16 of the Credit Agreement is amended so that Section 6.16 is deleted in its entirety and the following is substituted in its place:                            "6.16  Net Worth. Permit, in the case of the Company on a Consolidated basis, the Net Worth as of the last day of any fiscal quarter to be less than $120,000,000 plus 50% of Cumulative Net Income (as defined below) plus 100% of the net proceeds of the Company's public equity offering of up to 2,500,000 shares anticipated to be completed in the fourth fiscal quarter of 2001 ("Equity Offering"). Cumulative Net Income means net income of the Company on a Consolidated basis from June 30, 1997 through the end of the fiscal quarter for which the calculation of Net Worth is being made."                    4.     Section 6.17 of the Credit Agreement (Funded Debt/EBITDA) is amended so that Section 6.17 is deleted in its entirety and the following is substituted in its place:                            "6.17  Funded Debt/EBITDA. Permit, in the case of the Company on a Consolidated bases, the ratio of Funded Debt (as defined below) to Earnings Before Interest and Taxes plus Depreciation and Amortization ("EBITDA") as of the last day of any fiscal quarter, to be greater than 3.75 to 1.0 as of the last day of the fiscal quarter ending September 30, 2001; 3.75 to 1.0 as of the last day of the fiscal quarter ending December 31, 2001; and 3.00 to 1.0 for each fiscal quarter thereafter, such calculations to be based on annual rolling basis of four fiscal quarters; provided, however, if the Company completes the Equity Offering (as defined in Section 6.16 hereof), then the following ratios shall apply in place of the foregoing ratios as of the end of the below indicated quarters:   Quarter End Ratio     December 31, 2001 3.25 to 1.0     March 31, 2002 and       each fiscal quarter       thereafter 3.00 to 1.0.   "Funded Debt" means debt for money borrowed which is bearing interest. For the purposes of calculating this covenant, upon the consummation of a permitted acquisition, up to 12 month historical EBITDA of the acquired entity shall be included in the calculation of the ratio, subject to the Banks' review and approval, in their discretion, of such acquired entity's financial information provided, however, such historical EBITDA shall only be included in the calculation of Funded Debt if the applicable acquired entity's EBITDA is not included in the Consolidated EBITDA of the Company for the applicable month."           C.     Conditions. The effectiveness of this Agreement shall be conditioned upon the satisfaction of the following conditions:                    1.     Each Guarantor Subsidiary shall have executed and delivered to the Administrative Agent, for the benefit of the Banks, a Reaffirmation Agreement, in form acceptable to the Administrative Agent and the Banks, reaffirming and ratifying the unlimited continuing guaranties and security agreements previously given by each Guarantor Subsidiary to the Administrative Agent for the benefit of the Banks.                    2.     Borrower and Company shall execute and deliver to Administrative Agent, for the benefit of the Banks, a Fifth Amended and Restated Credit Pricing Agreement in form acceptable to the Administrative Agent and the Banks.                    3.     The Company and the Borrower hereby agree to pay to the Administrative Agent for the account of the Banks an amendment fee payable as follows: $193,750 shall be paid by the Company and/or the Borrower upon execution of this Agreement by the parties hereto; and an additional $193,750 shall be paid by the Company and/or the Borrower on or before January 2, 2002 in the event the Company has not by December 31, 2001 (i) completed the Equity Offering (as defined in Section 6.16 of the Credit Agreement, as amended by this Agreement); (ii) raised at least $25,000,000 in net proceeds; and (iii) applied all of such net proceeds to prepay indebtedness of the Company under the Credit Agreement, as amended by this Agreement.                    4.     The Borrower and/or the Company shall have paid all costs and expenses incurred by the Administrative Agent and the Banks in connection with the transactions contemplated by this Agreement including, without limitation, reasonable attorney's fees.           D.     Other Provisions                    1.     Except as specifically set forth herein, the Credit Agreement shall remain in full force and effect and is hereby reaffirmed. The Borrower and the Company acknowledge that they are bound by all of the terms, covenants and conditions set forth in the Credit Agreement, and that, if there has occurred any Default or Event of Default, the Agent and the Banks shall have no obligation to make any Advances or Swingloans or to issue any Letters of Credit. If there has occurred a Default or an Event of Default, Agent and the Banks may condition the making of any subsequent Advances or Swingloans or the issuance of any Letters of Credit upon the execution and delivery by Borrower and Company of an amendment to the Credit Agreement which may include, without limitation, additional or revised covenants, an increased rate of interest on the Revolving Credit, increased Letter of Credit or other fees and such other terms, conditions and covenants as the Agent and the Banks may require.                    2.     The terms "Administrative Agent" and "Banks" as used herein shall include the successors and assigns of those parties and all of the entities listed on Schedule 1 hereto.                    3.     This Agreement shall be construed under, and governed by, the internal laws of the State of New York without regard to its conflict of laws and rules which would make the laws of another jurisdiction applicable.                    4.     This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same Agreement.           IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized officers, all as of the date hereof.        Borrower:      GIBRALTAR STEEL CORPORATION OF NEW            YORK      By:   /s/  John E. Flint                                          John E. Flint                    Vice President        Company:      GIBRALTAR STEEL CORPORATION      By:   /s/  John E. Flint                                            John E. Flint                      Vice President        THE CHASE MANHATTAN BANK,      as Administrative Agent      By:   /s/  Robert J. McArdle                                   Robert J. McArdle                 Vice President Consented to as of this 30th day of September, 2001        THE CHASE MANHATTAN BANK      By:   /s/  Robert J. McArdle                                        Robert J. McArdle                      Vice President Consented to as of this 30th day of September 2001        FLEET NATIONAL BANK      By:   /s/  John C. Wright                                           John C. Wright                      Vice President Consented to as of this 30th day of September, 2001        MELLON BANK, N.A.      By:   /s/  Edward J. Kloecker, Jr.                                  Edward J. Kloecker, Jr.                      Vice President Consented to as of this 30th day of September, 2001        KEYBANK NATIONAL ASSOCIATION      By:   /s/  Mark F. Wachowiak                                        Mark F. Wachowiak                      Vice President Consented to as of this 30th day of September, 2001        HSBC BANK USA      By:   /s/  /William H. Graser                                       William H. Graser                      Vice President Consented to as of this 30th day of September, 2001        PNC BANK, N.A.      By:   /s/  David B. Gookin                                          David B. Gookin                      Vice President Consented to as of this 30th day of September, 2001        MANUFACTURERS AND TRADERS         TRUST COMPANY      By:   /s/  Wayne N. Keller                                          Wayne N. Keller                      Vice President Consented to as of this 30th day of September, 2001        NATIONAL CITY BANK OF PENNSYLVANIA      By:   /s/  William A. Feldmann                                      William A. Feldmann                      Vice President Consented to as of this 30th day of September, 2001        FIFTH THIRD BANK, NORTHEASTERN OHIO      By:   /s/  James P. Byrnes                                          James P. Byrnes                      Vice President Consented to as of this 30th day of September, 2001        FIRSTAR BANK, N.A.      By:   /s/  David J. Dannemiller                      David J. Dannemiller                      Vice President Consented to as of this 30th day of September, 2001        SUNTRUST BANK      By:   /s/  W. David Wisdom                                          W. David Wisdom                      Vice President Consented to as of this 30th day of September, 2001        COMERICA BANK      By:   /s/  Joel S. Gordon                                           Joel S. Gordon                      Account Officer        

INSTALLMENT PROMISSORY NOTE $1,138,269.00   Hackensack, New Jersey December 19, 2000       FOR VALUE RECEIVED, the undersigned (hereinafter called the "Debtor") promises to pay, without offset, defense or counterclaim, to the order of PEOPLE'S CAPITAL AND LEASING CORP. (hereinafter called "PEOPLE'S"), at 207-231 Bank Street, Waterbury, CT 06702, or at such other place as may be designated in writing by the holder of this Note, the principal sum of One Million One Hundred Thirty Eight Thousand Two Hundred Sixty Nine Dollars and 00/100 ($1,138,269.00) with interest thereon in eighty-four (84) successive monthly installments (which monthly installments are inclusive of interest) as follows: one (1) installment in the amount of $18,314.00 (the "Advance") due upon execution of this Note, which will be applied in inverse order only against the last installment of principal and interest provided that the undersigned has not defaulted on this Note or Security Agreement, followed by eighty-three (83) monthly installments each in the amount of $18,314.00 commencing on January 29, 2000, with like monthly installments being payable on a like date each month thereafter. Each monthly installment shall first be applied to interest and then in reduction of the principal.       The Debtor has on this date executed and delivered to PEOPLE'S a Security Agreement of even date pursuant to which Debtor has granted to PEOPLE'S a security interest in certain equipment as collateral security for the payment of this Note (the "Security Agreement"). If the Debtor fails to pay any installment due under this Note more than five (5) business days after written notice of non-payment or is in default under a material term of the Security Agreement or under any other instrument or agreement between PEOPLE'S and the Debtor or if any representation or warranty by the Debtor to PEOPLE'S, whether in any application, financial statement, the Security Agreement, or any other agreement between Debtor and PEOPLE'S is materially untrue, then and in any such event, PEOPLE'S at its option, may declare this Note and any other obligation of the Debtor to PEOPLE'S immediately due and payable without notice or demand.       Presentment, demand for payment, notice of dishonor and protest are hereby waived.       PEOPLE'S may renew or extend this Note, release any guarantor hereof or waive or modify any provision hereof, without affecting the obligation of the Debtor.       PEOPLE'S may, at its election and subject to prior exercise in its discretion of its right of acceleration, accept payment of arrears; and if any defaulted payment is more than five days in arrears, the Debtor shall pay as liquidated damages, in addition to other amounts due, a late charge equal to two percent (2%) per month of each defaulted payment so in arrears, but only to the extent permitted by law. After the expressed or declared maturity of this Note, the Debtor shall pay interest on the unpaid principal balance at two percent (2%) per month, but only to the extent permitted by law. In the event that PEOPLE'S institutes an action upon this Note or under the Security Agreement, the Debtor shall pay, in addition to unpaid principal, interest and late charges, the expenses of collection incurred by PEOPLE'S, including reasonable attorney's fees.      The undersigned, if more than one, shall be jointly and severally liable hereunder.       THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.       It is understood and agreed that in no event and upon no contingency shall the Debtor be required to pay interest in excess of the rate allowed by the laws of the State of New York. The intention of the parties being to conform strictly to the usury laws now in force, the provision for interest herein shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts having jurisdiction.       PEOPLE'S shall have the right to fill in any blanks related to non-essential terms left in this Note or in the Security Agreement; but this Note and such Security Agreement may not be otherwise modified or discharged, in whole or in part, and no right or remedy of PEOPLE'S hereunder or under any other agreement may be waived, except by written agreement signed by PEOPLE'S. All rights and benefits of PEOPLE'S hereunder shall inure to the benefit of the holder of this Note.   DISC GRAPHICS, INC.           By:    _________________________   Title:   _________________________ No. 129 SECURITY AGREEMENT       Agreement dated December 29, 2000 between DISC GRAPHICS, INC., a CORPORATION under the laws of the State of DELAWARE (herein called "Debtor") and PEOPLE'S CAPITAL AND LEASING CORP. having its principal place of business at 207-231 Bank Street, Waterbury, Connecticut 06702 as the Secured Party, (herein called "Secured Party").       FOR VALUABLE CONSIDERATION and to secure an indebtedness of the Debtor to Secured Party in the principal amount of $1,138,269.00 plus interest thereon (the "Loan") as evidence by an Installment Promissory Note of even date herewith (herein called the "Note") and any renewal, extensions or replacements thereof and, further, to secure the obligations of the Debtor under this Agreement and any other obligation of the Debtor to Secured Party which is now in existence or may hereafter come into existence, the Debtor hereby grants to Secured Party a security interest in the property listed on the annexed Equipment Schedule A, together with all equipment parts, attachments, present and future accessions, accessories, additions, substitutions and all replacements thereto or thereof or hereafter attached to, placed upon, or used in connection with, the said property and all proceeds of the foregoing, including insurance proceeds (all herein collectively called the "Collateral").      1.   DEBTOR'S WARRANTIES, REPRESENTATIONS AND COVENANTS: Debtor hereby warrants, represents and agrees (a) that the Collateral is lawfully owned by Debtor, free and clear of all other liens, encumbrances and security interests, and Debtor, will warrant and defend title to the same against the claims and demands of all persons; (b) that Debtor has not granted, and will not grant, to anyone other than Secured Party any security interest in the Collateral and, except for Financing Statements in favor of Secured Party, no Financing Statements or other instrument affecting the Collateral, or rights therein is on file in any public filling office; (c) that the Collateral is and shall be retained in Debtor's possession at 1160 West 16th Street, Indianapolis, Indiana 46202; (d) that the Collateral is and will be used only for business or commercial purposes; (e) that the Collateral is and will remain personal property; (f) that if the Collateral is attached to real estate or if the Collateral is or may become subject to a prior interest in favor of any party having an interest in the real estate, Debtor, on demand of Secured Party, will furnish Secured Party with a writing by which any and all parties having such prior interest subordinate or disclaim their rights and priorities in favor of Secured Party's security interest provided herein; (g) that the Debtor is duly organized and validly existing in good standing under the laws of the state of its incorporation or organization and has full power to own its assets and to carry on its business as now being conducted; (h) that this Agreement and the Note have been validly authorized, duly executed and delivered and constitute the valid and legally binding obligations of the Debtor, enforceable in accordance with their respective terms and are not violative of, or create a default under, its Articles or Organization, Charter, By-laws, or under any order, writ, injunction or decree of any court or governmental instrumentality or agreement to which Debtor is a party.      2.   NO WARRANTY AND UNCONDITIONAL OBLIGATION: DEBTOR ACKNOWLEDGES THAT THE SECURED PARTY HAS MADE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ITS MERCHANTABILITY, SUITABILITY, DESIGN, CAPACITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. All payments due under the Note shall be made without notice and demand and Debtor's obligation to make any payment thereunder or hereunder shall be absolute and unconditional. Debtor shall not be entitled to any reduction or set-off against such payment, nor, except as otherwise expressly provided herein, shall this Security Agreement terminate, or the obligations of Debtor be otherwise affected by reason of any defect in, lack of fitness for use of, damage to, loss of possession or use of the Collateral, or for any other cause, it being the intention of the parties hereto that all amounts payable by Debtor hereunder and under the Note shall continue to be payable in all events in the manner and at the times provided in the Note and hereunder.      3.   INSURANCE:   Debtor agrees that from the date hereof it will, at its sole cost and expense, keep the Collateral insured against all risks of physical loss or damage including loss by fire, theft, wind and explosion with extended coverage for not less than the greater of the indebtedness or the Collateral's full replacement cost and that it will carry personal injury liability and property damage liability insurance in such amounts and covering such risks as Secured Party may reasonably require. All said insurance shall be in form and with companies satisfactory to Secured Party. The loss under all such policies against physical loss or damage shall be payable to Secured Party or its assignee and the Debtor as their interests may appear and Secured Party or its assignee shall be named as an additional insured under all liability insurance policies. Such policies shall provide that no less than thirty (30) days notice shall be given by the insurance company to Secured Party or its assignee prior to any cancellation or alteration of the policies and that the coverage afforded shall not be impaired or invalidated against Secured Party or its assignee on account of any breach of condition or warranty contained in any policy or application therefor by the Debtor or any reason of any action or inaction of the Debtor. The insurance policies and all renewals thereof, or Certificates in lieu thereof, shall be promptly delivered by the Debtor to Secured Party and shall be held by Secured Party until the indebtedness secured hereby is paid. Debtor hereby assigns to Secured Party all monies, not in excess of the indebtedness secured hereby and the obligations contained herein, which may become payable under such insurance including the return of any unearned premiums, and directs any insurer to make payment directly to Secured Party and authorizes Secured Party to apply such monies in payment against the indebtedness secured hereby and the obligations contained herein and to remit any excess to the Debtor. If the Collateral is damaged, other than being totally destroyed, and such damage is repairable and covered by insurance, all loss proceeds payable by the insurance company or companies shall be made available by Secured Party to be applied to the repair and/or replacement of such damage to the Collateral provided Debtor is not in default of its obligations under this Agreement or in the payment of any of the indebtedness secured hereby and provided further than Security Party receives such assurances as it may in its sole discretion require that (i) such proceeds will be utilized for such repair or replacement and that the Debtor has advanced such sums as may be required for the repair or replacement to the extent that the insurance proceeds are insufficient therefor; (ii) all replacements shall be of the same or a later model than the item replaced and all repairs will be of first class workmanship and (iii) the Collateral will be free of mechanics' liens and title to replacements will vest in Debtor free of liens and encumbrances except for the first security interest of Secured Party therein. Any excess insurance proceeds shall be applied against the indebtedness secured hereby and the obligations contained herein. The Debtor appoints Secured Party as its attorney-in-fact to endorse any draft, make any claim under such insurance and execute any proof of claim and to do all other things necessary and required to effect a settlement under any insurance policies. In the event of a failure by Debtor to procure and maintain such insurance, Secured Party is hereby authorized and empowered (but not obligated) to do so and the premiums paid for same shall be a lien against the Collateral, added to the amount of the indebtedness secured hereby and payable on demand with interest at the lessor of 2% per month or the maximum legal rate.      4.   RISK OF LOSS AND MAINTENANCE OF COLLATERAL: All risks of loss, theft or destruction of the Collateral shall be borne by the Debtor. Debtor agrees to keep the Collateral in first class operating condition and appearance at all times. Upon any failure of the Debtor to comply with the foregoing, Secured Party, in addition to its other rights and remedies hereunder, may, but shall not be obligated to, cause repairs to be made to the Collateral, the cost of which shall be a lien against the Collateral, added to the amount of the indebtedness secured hereby and payable on demand with interest at the lessor of 2% per month or the maximum legal rate.      5.   USE OF COLLATERAL AND OTHER DEBTOR OBLIGATIONS: Debtor agrees that it will not use the Collateral in violation of any statute or ordinance or applicable insurance policy and will promptly pay all taxes, assessments, license fees and other public or private charges levied or assessed against the Collateral and this obligation shall survive the termination of this Agreement; that Debtor will not permit any lien, charge, encumbrance or security interest of any kind whatsoever (other than Secured Party's security interest) to accrue upon or attach to the Collateral; that Debtor will not remove the Collateral from its location as above set forth without the prior written consent of Secured Party which shall not be unreasonably withheld; that if any part of the Collateral is subject to a certificate of title law, Debtor will cause Secured Party's security interest to be noted thereon and promptly deliver such certificate of title to Secured Party, that Debtor will not secrete, sell, transfer, dispose of, attempt to dispose of, substantially modify or abandon the Collateral or any part thereof; that Debtor will sign and deliver to Secured Party such Financing Statements and Continuation Statements, in form acceptable to Secured Party, as Secured Party may, from time to time, reasonably request, or as are reasonably necessary in the opinion of Secured Party, to establish and maintain a valid security interest in the Collateral and Debtor will pay any relative filing fees or costs with respect thereto and for prior lien searches; and that Debtor hereby constitutes and appoints Secured Party its true and lawful attorney-in-fact to execute and deliver any financing statement or other document which may be required to establish and/or maintain Secured Party's security interest in the Collateral and/or the additional collateral security covered by the provisions of paragraph 7 below. Debtor shall, at its own cost and expense, protect and defend its title to the Collateral and defend all actions and claims which may be asserted against the Collateral and its use thereof. In the event of a failure by Debtor to pay any taxes, assessments, license fees and other public or private changes levied or assessed against the Collateral, Secured Party, in addition to its other rights and remedies hereunder, may, but shall not be obligated to, make such payments, and the amounts so paid shall be a lien against the Collateral added to the amount of the indebtedness secured hereby and payable on demand with interest at the lesser of 2% per month or the maximum legal rate. Debtor will allow Secured Party and its representatives free access to the Collateral at all times for purposes of inspection or repair. Debtor will furnish to Secured Party unaudited quarterly financial statements within thirty (30) days after the end of its first three quarters in each fiscal year and its Form 10K or a certified Financial Statement prepared by an independent certified public accountant reasonably acceptable to Secured Party within ninety (90) days after the close of its fiscal year, all of which shall be true and correct in all respects, shall be prepared in accordance with generally accepted accounting principles and shall be supplied until the indebtedness secured hereby is paid in full.      6.   DEFAULT: Debtor shall be in default under the terms of this Agreement and the Note upon the occurrence of any of the following: (a) if the Debtor shall fail to make any payment under the Note or this Agreement when due; (b) if the Debtor fails to maintain in force the required insurance or removes, sells, transfers, encumbers, sublets or parts with possession of the Collateral or any part thereof or attempts to do any of the foregoing; (c) if the Debtor shall fail to perform or comply with any of the other terms, covenants, or conditions of this Agreement of the Note and any such failure shall continue for a period ten (10) days after written notice to Debtor; (d) if the Collateral or any part hereof be seized or levied upon under legal process; (e) if the Debtor defaults under or breaches any of the terms, covenants or condition of any other Security Agreement, Conditional Sales Contract, Lease, Note or Agreement it may now have or hereafter make with Secured Party; (f) if Debtor ceases doing business as a going concern or makes or sends notice of an intended Bulk Sale or makes an assignment for the benefit of creditors; (g) if any proceedings are commenced by Debtor or are commenced against Debtor and are not dismissed within sixty (60) days under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute of any jurisdiction, whether now or hereafter in effect; (h) if a receiver, trustee or conservator be appointed for any of Debtor's property, or (i) if any quarterly representation or statement made herein by Debtor or contained in any separate statement in writing in connection herewith, including, without limitation, any financial statements furnished to Secured Party by or on behalf of Debtor, is untrue or incomplete in any material respect.       Upon the occurrence of any default, the indebtedness secured hereby and all other obligations then owing by the Debtor to Secured Party shall, if Secured Party so elects, become immediately due and payable and Secured Party shall have the rights and remedies of a secured party under the Uniform Commercial Code and any other applicable laws, and it shall then be lawful for, and Secured Party is hereby authorized and empowered, with the aid and assistance of any person or persons, to enter any premises were the Collateral or any part thereof is, or may be placed, and to assemble and/or remove same and/or to render if unusable and sell and dispose of such Collateral at one or more public or private sales upon at least five business (5) days written notice to Debtor of such sale. The proceeds of each such sale shall be applied by Secured Party toward the payment of expenses of retaking, including transportation, storage, refurbishing, preparing for such sale, advertising, selling and all related charges and disbursements in connection therewith and the indebtedness and interest secured hereby. Should the proceeds of any such sale be insufficient to fully pay all the items above mentioned, Debtor hereby covenants and agrees to pay any deficiency to Secured Party and if Secured Party employs counsel for the purpose of effecting collection of any monies due hereunder (whether or not Secured Party has retaken the Collateral or any part thereof) or for the purpose of recovering the Collateral or for the purpose of protecting Secured Party's interest because of any default of Debtor, Debtor agrees to pay reasonable attorneys' fees and such attorneys; fees shall be a lien on the Collateral herein and the proceeds thereof. Secured Party may require Debtor to assemble the Collateral and make it available to Secured Party at a price to be designated by Security Party which is reasonably convenient to both parties. All rights and remedies hereunder are cumulative and not exclusive and a waiver by Secured Part of any breach by Debtor of the terms, covenants, and conditions hereof shall not constitute a waiver of future breaches or defaults and no failure or delay on the part of Secured Party in exercising any of its options, powers, rights or remedies or partial or single exercise thereof, shall constitute a waiver thereof.       7.   ADDITIONAL SECURITY: As additional collateral security for the Debtor's obligations under the Loan and any other obligation of the Debtor to Secured Party, Debtor hereby grants to Secured Party a security interest in all machinery and equipment covered by any other lease, security agreement or conditional sales contract (collectively the "agreement") between the Debtor and Secured Party whether such agreement is now in existence or may hereafter come into existence and Debtor hereby assigns to Secured Party all of its right, title and interest in and to any surplus money to which Debtor may be entitled upon the sale of any machinery and equipment covered by such agreement.       Notwithstanding anything above to the contrary, the benefit of the foregoing additional security provision shall apply to Secured Party and its assignee holding the Note and this Agreement only to the extent that Secured Party or such assignee is also the holder of such other agreement(s).       8.   WAIVER OF JURY TRIAL: Debtor hereby waives the right of a jury trial in any action or proceeding by either party, or assigns, arising out of the matter of this Agreement, the Collateral, or the Notice or other obligations secured hereby.       9.   CHANGES AND MODIFICATIONS: This Agreement may not be changed, modified or discharged, in whole or in part, and no right or remedy of Secured Party hereunder or under the Note or as a secured party under the Uniform Commercial Code may be waived by Secured Party unless such change, modification, discharge or waiver is in writing and signed on behalf of Secured Party by one of its duly authorized officers. All prior representations and agreements are merged in this Agreement.       10.   AUTHORIZATION TO SECURED PARTY: Secured Party is hereby authorized and empowered to date this Agreement and to fill in blank spaces in accordance with the actual terms of the related transaction.       11.   ASSIGNMENT: Secured Party may assign this Agreement and the Note or grant a security interest therein and in the event of any such assignment, the right of the assignee to receive all payments due hereunder and under the Note, as well as any other rights of the assignee, shall not be subject to any defense, set-off or counterclaim which Debtor may have against Secured Party. On receipt of notice of such assignment, the Debtor shall promptly acknowledge its obligations hereunder and under the Note to the assignee and shall make all payments due thereunder as such assignee may direct. Following any such assignment, the term "Secured Party" shall be deemed to include or refer to such assignee and any successor assignee.*       12.   MISCELLANEOUS: Notices or other communications hereunder shall be given in writing and mailed to the other party at the address specified herein or to such changed address as either party may give the other notice of in writing. Forbearance or indulgence by Secured Party in any regard shall not constitute a waiver of the applicable covenant or condition. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. The paragraph headings are for convenience of reference only and not a part of this Agreement.**       13.   GOVERNING LAW: This Agreement and the rights and obligations of Secured Party and Debtor hereunder shall be governed by and construed in accordance with the laws of the State of New York.       IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and delivered as of the day and year first above written.   DISC GRAPHICS, INC.     (Debtor)   By: __________________________   Title: President & CEO   Address: 10 Gilpin Avenue     Hauppauge, NY 11788       ACCEPTED: Secured Party:    PEOPLE'S CAPITAL AND LEASING CORP. By:      __________________________________________ Title:     ___________________________________________ * Debtor has the right to assign the Agreement to a person or entity which acquires all or substantially all of Debtor's assets, with the consent of the Secured Party, which consent shall not be unreasonably delayed, conditioned or withheld, yet will be subject to credit approval at Secured Party's sole discretion. ** Any notices required under this Agreement must be sent by certified mail return receipt requested or by reputable overnight courier, and are effective upon the earlier of actual receipt or three (3) business days if mailed or the next business day if sent via courier.

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.39 SETTLEMENT AGREEMENT     THIS SETTLEMENT AGREEMENT is made this 30th day of March, 2001, between WIND RIVER SYSTEMS KABUSHIKI KAISHA, a corporation organized and existing under the laws of Japan and having its registered office at Ebisu Prime Square Tower, 1-1-39 Hiroo, Shibuya-ku, Tokyo 150-0012, Japan ("WRSKK"), and NISSIN ELECTRIC CO., LTD., a corporation organized and existing under the laws of Japan and having its registered office at 47 Umezu-Takase-cho, Ukyo-ku, Kyoto, Japan ("Nissin") and     WHEREAS, in 1989, Wind River Systems, Inc., a corporation organized and existing under the laws of the State of California, USA ("WRSI"), Nissin, and the other shareholders of WRSKK, entered into the Nihon Wind River Systems KK Joint Venture Agreement, which they amended by that certain Amended Joint Venture Agreement dated 1 October 1991 (These two agreements and their incidental and related agreements shall be referred to collectively herein as the "JVA");     WHEREAS, WRSKK and Nissin entered into that certain Master Distributor Agreement dated 17 September 1990 (This agreement and its incidental and related agreements shall be referred to collectively herein as the "MDA");     WHEREAS, WRSI, WRSKK, and Nissin terminated their business relationships involving WRSI computer software and other products ("WRSI Products") arising out of the JVA and MDA as of 31 December 2000; and     WHEREAS, a number of unresolved issues remain from the termination of said JVA and MDA and the parties desire to resolve said issues upon the terms and conditions described below.     NOW, THEREFORE, IT IS AGREED AS FOLLOWS:     Section 1.  Confirmation.  WRSI terminated sales of WRSI Products through distributors of WRSKK or through other distributors in Japan as of 31 December 2000. The parties have discussed, confirmed, and mutually agree upon the following facts: 1.As a result of Nissin conveying its shares in WRSKK to WRSI on 28 December 2000, the JVA was amicably terminated. 2.The MDA was amicably terminated as of 31 December 2000. 3.Nissin will introduce any customers it has developed pursuant to its activities under the MDA to WRSKK or its designee and will assist in the orderly continuation of all transactions dealing with WRSI Products. However, WRSKK and its designee shall not be responsible for or assume any of Nissin's liabilities (not only monetary liabilities, but service liabilities, and any and all liabilities of any type and nature) to any of Nissin's customers even if WRSKK or its designee received an introduction to the customer from Nissin and entered into a business relationship with said customer. 4.Pursuant to the terms and conditions of this Agreement, WRSKK agrees to pay to Nissin a sum certain to settle any claims arising out of the termination of the JVA and MDA, if any, and for Nissin's customer list, goodwill, etc. (hereinafter referred to collectively as "Settlement Proceeds"). The particular breakdown of how the Settlement Proceeds will be allocated among the various matters will be determined upon discussions between the parties hereto as provided in Section 4 below. Upon Nissin's receipt of the Settlement Proceeds, Nissin releases and forever discharges WRSKK and WRJ for all monetary claims arising out of or resulting from the termination of the JVA and MDA. 5.To date Nissin has purchased from WRSI and retains in its current inventory a certain quantity of a WRSI Product called a "Chip Bundle". The parties agree that Nissin shall be entitled to continue to sell its current inventory of said Chip Bundles in Japan. Nissin -------------------------------------------------------------------------------- agrees not to make additional new purchases of said Chip Bundles and WRSKK agrees not to purchase and will not allow WRSI to purchase any Chip Bundles from Nissin. 6.The parties hereto agree that as between them there are no claims, debts, obligations, or liabilities arising out of the termination of the JVA and MDA other than those specifically identified in this Agreement.     Section 2.  Customer Introduction Assistance.   1.Nissin shall disclose to WRSKK or its designee the following information immediately after the parties execute this Agreement: a.A list of all customers with whom Nissin has or had business transactions under the MDA; b.The contents of any contracts or maintenance agreements between Nissin and any customers identified in the preceding clause; and c.A list of potential customers discovered during Nissin's business activities during the period from 1 January 2001 to 30 March 2001 with whom Nissin believes that WRSKK or its designee have a chance to conclude an agreement and a report on the status of all negotiations in progress. 2.Nissin agrees that WRSKK or its designee are free to conclude contracts for WRSI Products and other products with the persons or entities identified by Nissin in the preceding clauses and Nissin agrees to cooperate in such activities with WRSKK and its designee. 3.The prior clauses notwithstanding, upon the expiration of the one (1) year term of any maintenance agreements identified in clause 1.b. of this Section 2 above, WRSKK or its designee shall succeed to the rights of Nissin under said maintenance agreements. However, WRSKK or its designee may propose in advance whatever terms and conditions it may require in order to succeed to said maintenance agreements. In addition, Nissin agrees to cooperate with WRSKK or its designee in the orderly succession of said maintenance agreements without additional compensation.     Section 3.  Settlement Proceeds.   1.WRSKK hereby recognizes that it has a duty to pay to Nissin as Settlement Proceeds the sum of Two Hundred Twenty Million Japanese Yen (JPY220,000,000). Said Settlement Proceeds shall be paid by wire transfer to an account designated by Nissin by 30 March 2001. 2.WRSKK hereby agrees that it or its designee shall make payment to Nissin as provided in the preceding clause. Moreover, WRSKK agrees that it will bear the cost of the telegraphic transfer handling charges.     Section 4.  Allocation of Settlement Proceeds.  Based upon discussions between the parties regarding the customer information disclosed to WRSKK or its designee pursuant to Section 1.4 of this Agreement, the parties will decide by 27 April 2001 the particular breakdown of how the Settlement Proceeds will be allocated among the various matters (the "Final Allocation"). Furthermore, in accordance with the Final Allocation as determined hereinabove, WRSKK or its designee and Nissin by 27 April 2001 shall prepare and conclude a settlement agreement relating to the sale of Nissin's customer list, goodwill, etc. to WRSKK or its designee ("Customer List Settlement Agreement") and a settlement agreement relating to JVA and MDA termination claims, if any ("Termination Settlement Agreement"). The Settlement Proceeds payable to Nissin by WRSKK pursuant to this Agreement shall be allocated respectively to the Customer List Settlement Agreement and the Termination Settlement 2 -------------------------------------------------------------------------------- Agreement pursuant to the Final Allocation determined hereinabove. If the Final Allocation of Settlement Proceeds results in an increase in any governmental taxes, duties, licenses, fees, excises, or tariffs now or hereafter imposed on the payment of the Settlement Proceeds, such charges shall be paid by the party obligated by law to make such payment, or in lieu thereof, the party obligated by law to make such payment shall provide an exemption certificate acceptable to the other party and the applicable authority. If revenue stamps are required under Japanese law to be affixed to this Agreement, the parties shall be required to bear the cost of such stamps for the copy in their possession. Each party shall be responsible for all costs and expenses incurred on its behalf, including but not limited to attorneys fees, related to this Agreement and the negotiations and consultations leading up to the formation of this Agreement.     Section 5.  Law Governing.  This Settlement Agreement shall be governed by and construed in accordance with the laws of Japan. The parties hereto hereby agree that any suits brought hereunder shall be brought in the Tokyo District Court in Tokyo, Japan, which will have sole and exclusive jurisdiction for the first instance.     Section 6.  Attorney Fees.  In the event a suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reasonable attorneys fees.     Section 7.  Notices.  Any notice under this Agreement shall be in writing and shall be effective when actually delivered in person, or the next business day for notices sent by telefax and promptly confirmed in a manually signed writing, or three (3) days after being deposited in the mail, registered or certified, postage prepaid and addressed to the party at the address stated in this Agreement or such other address as any party may designate by written notice to the other.     Section 8.  Waiver.  Failure of any party at any time to require performance of any provision of this Agreement shall not limit the party's right to enforce the provision, nor shall any waiver of any breach of any provision be a waiver of any succeeding breach of any provision or a waiver of the provision itself for any other provision.     Section 9.  Assignment.  Except as otherwise provided within this Agreement, neither party hereto may transfer or assign this Agreement without prior written consent of the other party.     Section 10.  Presumption.  This Agreement or any provision thereof shall not be construed against any party due to the fact that said Agreement or any provision thereof was drafted by said party.     Section 11.  Titles and Captions.  All article, section and paragraph titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor affect the interpretation of this Agreement.     Section 12.  Pronouns and Plurals.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the Person or Persons may require.     Section 13.  Entire Agreement.  This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement.     Section 14.  Agreement Binding.  This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 3 --------------------------------------------------------------------------------     Section 15.  Further Action.  The parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of this Agreement.     Section 16.  Parties in Interest.  Except as expressly provided herein as to WRJ, nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party.     Section 17.  Savings Clause.  If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. [The remainder of this page is intentionally left blank.] 4 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, this Agreement has been made in duplicate, each of the parties caused this Agreement to be executed by a duly authorized officer or agent as of the date first above written, and the parties hereto shall each keep one (1) original copy of the Agreement. WIND RIVER SYSTEMS KABUSHIKI KAISHA, a Japan corporation     By   /s/ GIUSEPPE KOBAYSHI    -------------------------------------------------------------------------------- Giuseppe Kobayshi Its: Representative Director     Place and Date of Signing: Tokyo, Japan, 30 March 2001 "WRSKK"     NISSIN ELECTRIC CO., LTD., a Japan corporation     By   /s/ YUKITOSHI MURATA    -------------------------------------------------------------------------------- Yukitoshi Murata Its: Representative Director, Senior Managing Director     Place and Date of Signing: Kyoto, Japan, 30 March 2001 "Nissin"         5 -------------------------------------------------------------------------------- QuickLinks SETTLEMENT AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.61 AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT     THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this "Amendment"), is entered into as of January   , 2001, between FOOTHILL CAPITAL CORPORATION, a California corporation, ("Foothill"), and NETWORK COMPUTING DEVICES, INC., a Delaware corporation ("Borrower"), with reference to the following facts:     WHEREAS, Foothill and Borrower are parties to that certain Loan and Security Agreement, dated as of March 30, 2000 (as amended, restated, or modified from time to time, the "Agreement");     WHEREAS, Borrower has requested that Foothill increase the concentration limit with respect to Accounts owing by Unique Co-op Solutions, Inc.;     WHEREAS, Borrower also has advised Foothill that Borrower has issued that certain Convertible Promissory Note, dated as of August 31, 2000, to the order of SCI Technology, Inc., an Alabama corporation, in the original principal amount of $3,300,000 (the "SCI Indebtedness"), a copy of which is attached hereto as Exhibit A; and     WHEREAS, Foothill is willing to consent to the incurrence of the SCI Indebtedness and to so amend the Agreement, in each case, in accordance with the terms and conditions hereof.     NOW, THEREFORE, in consideration of the above recitals and the mutual promises contained herein, Foothill and Borrower hereby agree as follows: 1.  Defined Terms.  All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Agreement, as amended hereby. 2.  Amendments to the Agreement.       (a) Clause (h) of the definition of "Eligible Domestic Accounts" contained in Section 1.1 of the Agreement hereby is amended and restated in its entirety as follows:     "(h) Domestic Accounts with respect to an Account Debtor whose total obligations, together with those of its Affiliates, owing to Borrower exceed (a) with respect to Adtcom and its Affiliates, 35% of the sum of all Eligible Accounts, (b) with respect to Tech Data and its Affiliates, 25% of the sum of all Eligible Accounts, (c) with respect to Ingram Micro and its Affiliates, 20% of the sum of all Eligible Accounts, (d) with respect to Unique Co-op Solutions, Inc., 20% of the sum of all Eligible Accounts, and (e) with respect to any other Account Debtor and its Affiliates, 10% of the sum of all Eligible Accounts, in each case, to the extent of the obligations owing by such Account Debtor in excess of such percentage, provided, however, that Foothill shall have the right, at any time and from time to time to change the foregoing percentages in its Permitted Discretion;"     (b) Clause (g) of the definition of "Eligible Foreign Accounts" contained in Section 1.1 of the Agreement hereby is amended and restated in its entirety as follows:     "(g) Foreign Accounts with respect to an Account Debtor whose total obligations, together with those of its Affiliates, owing to Borrower (net of the amount of the obligations of such Account Debtor or its Affiliates deemed ineligible under clause (h) of the definition of Eligible Domestic Accounts) exceed (a) with respect to Adtcom and its Affiliates, 35% of the sum of all Eligible Accounts, (b) with respect to Tech Data and its Affiliates, 25% of the sum of all Eligible Accounts, (c) with respect to Ingram Micro and its Affiliates, 20% of the sum of all Eligible Accounts, (d) with respect to Unique Co-op Solutions, Inc., 20% of the sum of all Eligible Accounts, and (e) with respect to any other Account Debtor and its Affiliates, 10% of the sum of all Eligible Accounts, in each case, to the extent of the obligations owing by such Account Debtor in excess of such percentage, provided, however, that Foothill shall have the right, at any time and from time to time to change the foregoing percentages in its Permitted Discretion;" -------------------------------------------------------------------------------- 3.  Consent to SCI Indebtedness.  Anything in the Agreement or the other Loan Documents to the contrary notwithstanding, Foothill hereby consents to the incurrence by Borrower of the SCI Indebtedness. 4.  Representations and Warranties.  Borrower hereby represents and warrants to Foothill that:     (a) the execution, delivery, and performance of this Amendment and of the Agreement, as amended by this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected,     (b) this Amendment and the Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and     (c) this Amendment has been duly executed and delivered by Borrower. 5.  Conditions Precedent to Amendment.  The satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment:     (a) Foothill shall have received the reaffirmation and consent attached hereto as Exhibit B, duly executed and delivered by an authorized officer of each Guarantor;     (b) The representations and warranties in this Amendment, the Agreement as amended by this Amendment, and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date);     (c) No Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein;     (d) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any governmental authority against Borrower or Foothill; and     (e) All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 6.  Miscellaneous.       (a) Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment.     (b) Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment.     (c) This Amendment shall be governed by and construed in accordance with the laws of the State of California.     (d) This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Amendment. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of 2 -------------------------------------------------------------------------------- a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver a manually executed counterpart of this Amendment but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.     [Remainder of page left intentionally blank] 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.     NETWORK COMPUTING DEVICES, INC., a Delaware corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     FOOTHILL CAPITAL CORPORATION, a California corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- Exhibit A SCI PROMISSORY NOTE 5 -------------------------------------------------------------------------------- Exhibit B REAFFIRMATION AND CONSENT     All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in that certain Amendment Number One to Loan and Security Agreement, dated as of January  , 2001 (the "Amendment"). The undersigned hereby (a) represents and warrants to Foothill that the execution, delivery, and performance of this Reaffirmation and Consent are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) consents to the amendment of the Agreement by the Amendment and to the transactions described therein; (c) acknowledges and reaffirms its obligations owing to Foothill under the Guaranty and any other Loan Documents to which it is a party; and (d) agrees that each of the Guaranty and any other Loan Documents to which it is a party is and shall remain in full force and effect. Although the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, it understands that Foothill has no obligations to inform it of such matters in the future or to seek its acknowledgement or agreement to future amendments, and nothing herein shall create such a duty. Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Reaffirmation and Consent. Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed by the laws of the State of California.     AUSTRALIA, NETWORK COMPUTING DEVICES (BENELUX) B.V., a company organized under the laws of The Netherlands     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES (CANADA), INC., a corporation organized under the laws of Canada     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   -------------------------------------------------------------------------------- 6 --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES (FRANCE) S.A.R.L., a company organized under the laws of France     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES, GMBH, a company organized under the laws of Germany     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NCD GRAPHIC SOFTWARE CORPORATION, an Oregon corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES (FSC), INC., a Guam corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NCD ACQUISITION CORP., an Indiana corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES (UK), LTD., a company organized under the laws of England     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   -------------------------------------------------------------------------------- 7 --------------------------------------------------------------------------------     NETWORK COMPUTING DEVICES SCANDINAVIA AB, a company organized under the laws of Sweden     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- QuickLinks AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT Exhibit A Exhibit B

Exhibit 10.5 Forms of Addenda to Executive Termination Benefits Agreements The Company has entered into Executive Termination Benefits Agreements with its Named Executive Officers and certain other senior executives.  Each of the Executive Termination Benefits Agreements is accompanied by an Addendum that describes the benefits that would be provided to the executive. The form of the Executive Termination Benefits Agreements, including the standard form of Addendum, was filed as Exhibit 10.4 to the Company's report on Form 10-Q for the period ended June 30, 2001. There are two versions of the Addendum which apply to the Named Executive Officers.  The versions differ principally in the multiple of annual compensation that would be payable to the executive under Section 3 of the applicable Addendum.  The addenda for William J. Hannigan, Jeffery M. Jackson and Eric J. Speck provide for 3 years compensation.  The addendum for Michael W. Nelson provides for 2 years compensation.  The forms of these addenda are attached.   ADDENDUM TO EXECUTIVE TERMINATION BENEFITS AGREEMENTS   1.   Continuation Period pursuant to Subparagraph 1(d) of the Executive Termination Benefits Agreement shall mean “the period of time beginning on the Termination Date and ending thirty-six (36) months thereafter.”       2.   The following language shall be added as Subparagraph 2(a)(iv) of the Executive Termination Benefits Agreement:           by the Executive within the thirty (30) day period immediately following the first anniversary of a Change in Control.       3.   The following language shall be added as Subparagraph 4(a) of the Executive Termination Benefits Agreement:           The Company will pay to the Executive the sum of (i) three (3) times the greater of (A) the Executive’s effective annual base salary at the Termination Date or (B) the Executive’s effective annual base salary immediately prior to the Change in Control, plus (ii) three (3) times the greater of (X) the highest annual bonus awarded to the Executive under the Company’s Variable Compensation Plan or any other bonus plan (whether paid currently or on a deferred basis) with respect to any twelve (12) consecutive month period during the last three (3) fiscal years ending prior to the Termination Date or (Y) the highest target bonus rate applicable to the Executive for any period during such prior three (3) year period, multiplied by the applicable annual base salary determined under clause (i) of this Section 4(a); the resulting amount to be paid in a lump sum on the first day of the month following the Termination Date.       4.   The following language shall be added following the last sentence of Subparagraph 4(f)(iii) of the Executive Termination Benefits Agreement:           Notwithstanding anything in Section 4(f)(ii) or (iii) (or elsewhere) to the contrary, all equity awards shall vest upon voluntary termination of the Executive during the thirty (30) day period immediately following the first anniversary of the Change in Control.     5.   The following language shall be added as Subparagraph 4(j) of the Executive Termination Benefits Agreement:           Travel Privileges. The Company will purchase or otherwise make available to the Executive personal air travel on American Airlines and American Eagle (A) under terms and conditions no less favorable than those that did apply or would have applied to the Executive as an “Eligible Employee” under the Travel Privileges Agreement between the Company and American Airlines, Inc. (“American”) dated July 1, 1996, as amended, including any successor agreement (“Travel Agreement”) if the Executive’s employment with the Company had continued; and (B) at an after tax cost to the Executive equal to the after tax cost the Executive would have paid for personal air travel using the travel privileges as an “Eligible Employee” under the Travel Agreement if the Executive’s employment with the Company had continued. The Company will provide personal air travel pursuant until the earlier to occur of: (A) the expiration of the Travel Agreement (currently scheduled for June 30, 2008) or (B) a termination of the Travel Agreement by American other than as a consequence of the Change in Control; except that if before such an occurrence the Executive reaches (w) fifty-five (55) years of age with five (5) years of service if hired on or before July 31, 1996, or (x) fifty-five (55) years of age with ten (10) years of service if hired after July 31, 1996, or (y) fifty (50) years of age with ten (10) years of service, or (z) fifty (50) years of age with fifteen (15) years of service, then the Company will purchase or otherwise make available to the Executive, immediately if the Executive qualifies under the preceding clauses (w) or (x), or upon the Executive reaching sixty-two (62) years of age if the Executive qualifies under the preceding clause (y), or upon the Executive reaching fifty-five (55) years of age if the Executive qualifies under the preceding clause (z), personal air travel on American Airlines and American Eagle (a) under terms and conditions no less favorable than those that would have applied to the Executive as an “Eligible Retiree” under the Travel Agreement if the Executive had retired from the Company; and (b) at an after tax cost to the Executive equal to the after tax cost the Executive would have paid for personal air travel using the travel privileges available as an “Eligible Retiree’ under the Travel Agreement if the Executive had retired from the Company. If the Travel Agreement is terminated by American due to the Change in Control, the Company will provide the personal air travel described in this Section (4)(j) without regard to any termination of the Travel Agreement.     Dated:  August 8, 2001       SABRE HOLDINGS CORPORATION       By       James F. Brashear     Corporate Secretary               SABRE INC.         By       James F. Brashear     Senior Vice President, Deputy General Counsel and Corporate Secretary         [Executive]       Signed:       ADDENDUM TO EXECUTIVE TERMINATION BENEFITS AGREEMENTS   1.   Continuation Period pursuant to Subparagraph 1(d) of the Executive Termination Benefits Agreement shall mean “the period of time beginning on the Termination Date and ending twenty-four (24) months thereafter.”       2.   The following language shall be added as Subparagraph 4(a) of the Executive Termination Benefits Agreement:           The Company will pay to the Executive the sum of (i) two (2) times the greater of (A) the Executive’s effective annual base salary at the Termination Date or (B) the Executive’s effective annual base salary immediately prior to the Change in Control, plus (ii) two (2) times the greater of (X) the highest annual bonus awarded to the Executive under the Company’s Variable Compensation Plan or any other bonus plan (whether paid currently or on a deferred basis) with respect to any twelve (12) consecutive month period during the last two (2) fiscal years ending prior to the Termination Date or (Y) the highest target bonus rate applicable to the Executive for any period during such prior two (2) year period, multiplied by the applicable annual base salary determined under clause (i) of this Section 4(a); the resulting amount to be paid in a lump sum on the first day of the month following the Termination Date.     3.   The following language shall be added as Subparagraph 4(j) of the Executive Termination Benefits Agreement:           Travel Privileges. The Company will purchase or otherwise make available to the Executive personal air travel on American Airlines and American Eagle (A) under terms and conditions no less favorable than those that did apply or would have applied to the Executive as an “Eligible Employee” under the Travel Privileges Agreement between the Company and American Airlines, Inc. (“American”) dated July 1, 1996, as amended, including any successor agreement (“Travel Agreement”) if the Executive’s employment with the Company had continued; and (B) at an after tax cost to the Executive equal to the after tax cost the Executive would have paid for personal air travel using the travel privileges as an “Eligible Employee” under the Travel Agreement if the Executive’s employment with the Company had continued. The Company will provide personal air travel pursuant until the earlier to occur of: (A) the expiration of the Travel Agreement (currently scheduled for June 30, 2008) or (B) a termination of the Travel Agreement by American other than as a consequence of the Change in Control; except that if before such an occurrence the Executive reaches (w) fifty-five (55) years of age with five (5) years of service if hired on or before July 31, 1996, or (x) fifty-five (55) years of age with ten (10) years of service if hired after July 31, 1996, or (y) fifty (50) years of age with ten (10) years of service, or (z) fifty (50) years of age with fifteen (15) years of service, then the Company will purchase or otherwise make available to the Executive, immediately if the Executive qualifies under the preceding clauses (w) or (x), or upon the Executive reaching sixty-two (62) years of age if the Executive qualifies under the preceding clause (y), or upon the Executive reaching fifty-five (55) years of age if the Executive qualifies under the preceding clause (z), personal air travel on American Airlines and American Eagle (a) under terms and conditions no less favorable than those that would have applied to the Executive as an “Eligible Retiree” under the Travel Agreement if the Executive had retired from the Company; and (b) at an after tax cost to the Executive equal to the after tax cost the Executive would have paid for personal air travel using the travel privileges available as an “Eligible Retiree’ under the Travel Agreement if the Executive had retired from the Company. If the Travel Agreement is terminated by American due to the Change in Control, the Company will provide the personal air travel described in this Section (4)(j) without regard to any termination of the Travel Agreement.       Dated:  August 8, 2001       SABRE HOLDINGS CORPORATION       By       James F. Brashear     Corporate Secretary               SABRE INC.         By       James F. Brashear     Senior Vice President, Deputy General Counsel and Corporate Secretary         [Executive]       Signed:    

Exhibit 10.24 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of the 8th day of May 2001, is entered into by and among NEXIQ Technologies, Inc., ("NEXIQ") a New Hampshire corporation (NEXIQ shall also be referred to as the "Buyer"), and Motorola, Inc. ("Motorola"), a Delaware corporation with an address of 6501 William Cannon Drive, West Austin, TX 78735; James C. Griffin, Jr. ("Griffin") who resides at 4702 Chandler Ct., Iowa City, IA 52245, Robert Hering ("Hering") who resides at 918 Bluffwood Drive, Iowa City, IA 52245; Dan Marquardt ("Marquardt") who resides at 2020 Diamond Ridge Road SE, Cedar Rapids, Iowa 52403; Hass Machlab ("Machlab") who resides at 2680 Glenn Hollow Court, Coralville, IA 52241; William J. Callahan ("Callahan") who resides at 620 Northwood Street, Iowa City, IA 52245; Ronald E. Stahlberg ("Stahlberg") who resides at 1616 5th St., #2, Coralville, IA 2241; Gregory A. Dils ("Dils") who resides at 352 Oriole Court, Tiffin, IA 52340; Mark G. Brown ("Brown") who resides at 1914 Bristol Drive, Iowa City, Iowa 52245; and J. Jay Lash ("Lash") who resides at 905 East 4th Street, Vinton, IA 52349 (Motorola, Griffin, Hering, Marquardt, Machlab, Callahan, Stahlberg, Dils, Brown and Lash are each a "Seller" and collectively referred to as the "Sellers"), and Diversified Software Industries, Inc. (the "Company"), an Iowa corporation. RECITALS WHEREAS, the Sellers collectively own all of the issued and outstanding shares of every class of the stock of the Company in such respective shares as described on Exhibit A. WHEREAS, the Sellers desire to sell and the Buyer desires to purchase, on the terms and conditions set forth below, all of the issued and outstanding shares of every class of the stock of the Company. WHEREAS, the parties intend that the stock-for-stock transaction contemplated hereby would be a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS. Unless the context otherwise requires, the following terms shall have the following meanings in this Agreement, the Exhibits and Disclosure Schedules hereto, and such definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: 1.1 "Affiliate" shall mean any Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, another Person. The term "control" means the possession, directly or indirectly, of more than fifty percent (50%) of the voting interests of the Person. -------------------------------------------------------------------------------- 1.2 "Best Efforts" shall mean the efforts that a prudent Person desirous of achieving the result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible. 1.3 "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in Manchester, New Hampshire are required by law to close or are permitted to close. 1.4 "Buyer" shall have the meaning assigned to such term in the introductory paragraph of this Agreement. 1.5 "Claims" shall mean all liabilities, demands, claims, actions or causes of action, regulatory, legislative or judicial proceedings or investigations, assessments, levies, losses, fines, penalties, damages, costs and expenses, including, without limitation, reasonable attorneys', accountants', investigators', and experts' fees and expenses, sustained or incurred in connection with the defense or investigation of any such Claim. 1.6 "Closing" shall have the meaning provided therefor in Section 2.3. 1.7 "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization. 1.8 "Fraud" shall mean a false representation of a matter of fact which is intended to deceive another person and does so. 1.9 "GAAP" shall mean generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Company's Financial Statements and the other financial materials and statements described in Section 4.17 were prepared. 1.10 "Knowledge." The phrase "to the Buyer's knowledge" and phrases with similar language or effect shall mean the actual knowledge of a member of the Board of Directors of the Buyer or an executive officer of the Buyer. The phrases "to Seller's knowledge," "known by the Sellers" and phrases with similar language or effect shall mean the actual knowledge of any of the Sellers. The phrases "to Company's knowledge," "known by the Company" and phrases with similar language or effect shall mean the actual knowledge of a member of the Company's Board of Directors or an executive officer of the Company. 1.11 "Material Adverse Effect" means any change, circumstance, or effect that, individually or in the aggregate with all other changes, circumstances or effects, is or is reasonably likely to be materially adverse to (a) the properties, business, operations, profits or condition (financial or otherwise) of the party and its Subsidiaries taken as a whole, (b) the ability of the party or any Subsidiary to perform its obligations under this Agreement or any of the other transaction documents contemplated hereby, or (c) the legality, validity or enforceability of any party's material obligations under this Agreement or any of the other transaction documents contemplated hereby. 2 -------------------------------------------------------------------------------- 1.12 "NEXIQ Shares" shall mean the common stock, $.01 par value, of the Buyer. 1.13 "Person" shall mean an individual, a partnership, corporation, limited liability company, limited liability partnership, trust or unincorporated organization, and a government or agency or authority or political subdivision thereof. 1.14 "Registerable Securities" shall mean (i) NEXIQ Shares held by a Seller after giving effect to the transactions contemplated by this Agreement; and (ii) NEXIQ Shares issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any securities described in clause (i) or this clause (ii) of this definition. Notwithstanding the foregoing, Registerable Securities shall not include any securities sold by a Seller to the public either pursuant to a registration statement or Rule 144. 1.15 "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor law, and regulations and rules issued pursuant to that Act or successor law. 1.16 "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor law, and regulations and rules issued pursuant to that Act or successor law. 1.17 "Sellers" shall have the meaning assigned to such term in the introductory paragraph of this Agreement. 1.18 "Shares" shall have the meaning assigned to such term in Section 2.1 of this Agreement. 1.19 "Subsidiary" shall mean, with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries. 1.20 "Taxes" shall mean any tax (including any income tax, capital gains tax, value-added tax, sales tax, property tax, gift tax, employment tax, payroll tax or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency, or other fee, and any related charge or amount (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any federal, state, local, municipal foreign or other governmental or quasi-governmental authority or payable pursuant to any tax-sharing agreement or any other contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee. 1.21 "Tax Return" shall mean a report, return or other information required to be supplied to or filed with a governmental entity with respect to any Taxes. 3 -------------------------------------------------------------------------------- 2. EXCHANGE OF SHARES; CLOSING. 2.1 Exchange of Shares. Subject to the terms and conditions of this Agreement, at the Closing the Sellers will transfer and assign to the Buyer, and the Buyer will receive from the Sellers, the Three Million Three Hundred Forty Thousand Two Hundred Eight (3,340,208) shares of the Company's no par value common stock described on Exhibit A (the "Shares") in exchange for One Million Seven Hundred Fourteen Thousand Two Hundred Eighty-Five (1,714,285) NEXIQ Shares (the "Purchase Price"). The Purchase Price Shall be allocated among the Sellers as described in Exhibit B. 2.2 Tax Structure of the Transaction. It is contemplated that the purchase of the Shares would be structured as a tax-free stock-for-stock reorganization under Section 368(a)(1)(B) of the Code. 2.3 The Closing. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 10:00 a.m. Eastern Time on May 8, 2001 via teleconference and facsimile machine (with counterparts of original executed documents sent via overnight mail), or at such other time, date or place as may be mutually agreeable to the Sellers and the Buyer (the "Closing Date"). Immediately following the Closing, via overnight mail, the Sellers shall deliver to the Buyer the share certificates of the Company representing the Shares, duly executed for transfer to the Buyer (or accompanied by duly executed stock transfer powers). Within ten (10) business days after the Closing, the Buyer (or its agent for the transfer and issuance of stock) shall deliver to the Sellers NEXIQ share certificates for the number of NEXIQ Shares representing in total the Purchase Price. If, at the Closing, any of the conditions specified in Section 8 shall not have been fulfilled, the Buyer shall, at its election, be relieved of all of its obligations under this Agreement and will thereby waive all other rights it may have by reason of such failure or such non-fulfillment. If, at the Closing, any of the conditions specified in Section 9 shall not have been fulfilled, the Sellers shall, at their election, be relieved of all obligations under this Agreement, and will thereby waive all other rights they may have by reason of such failure or such non-fulfillment. 3. NEXIQ SHARES. 3.1 Transfer Restrictions. The NEXIQ Shares delivered to the Sellers shall bear a legend restricting the transfer of such shares in accordance with this Agreement and federal and state securities laws as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY OTHER SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (I) UPON EFFECTIVE REGISTRATION OF THE SECURITIES UNDER THE ACT AND OTHER APPLICABLE SECURITIES LAWS COVERING SUCH SECURITIES, OR (II) UPON ACCEPTANCE BY THE 4 -------------------------------------------------------------------------------- COMPANY OF AN OPINION OF COUNSEL IN SUCH FORM AND BY SUCH COUNSEL, OR OTHER DOCUMENTATION, AS IS SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. 3.2 Demand Registrations. 3.2.1 At any time after twelve (12) months from the date of this Agreement, one or more Sellers holding at least fifty percent (50%) of the Registrable Securities may request the Buyer to register under the Securities Act all or any portion of the Registrable Securities held by such requesting Sellers in the manner specified in such request, and upon receipt of such request the Buyer shall promptly deliver notice of such request to all Sellers holding Registrable Securities who shall then have thirty (30) days to notify the Buyer in writing of their desire to be included in such registration. The Buyer will use its best efforts to expeditiously effect the registration of all Registrable Securities whose Sellers request participation in such registration under the Securities Act, but only to the extent provided for in the following provisions of this Agreement; provided, however, that the Buyer shall not be required to effect registration pursuant to a request under this Section 3.2 more than one (1) time for the Sellers of the Registrable Securities as a group, and may register the Registrable Securities on Form S-3 under the Securities Act, if available. Notwithstanding anything to the contrary contained herein, the right to demand registration under this Section 3.2 shall terminate after the effective date of a registration statement filed by the Buyer covering a firm commitment for an underwritten public offering in which the Sellers shall have been entitled to join and in which there shall have been effectively registered all Registrable Securities as to which registration shall have been requested. 3.2.2 Whenever a requested registration pursuant to Section 3.2.1 above is for an underwritten offering, only Registrable Securities which are to be included in the underwriting may be included in the registration, and, if the managing underwriter of such offering determines in good faith that the number of Registrable Securities so included which are to be sold by the Sellers of the Registrable Securities should be limited due to market conditions and/or the necessity of including in such underwriting or registration securities to be sold for the account of the Buyer, then the Buyer may reduce the number of securities to be included in such offering to a number deemed satisfactory by the managing underwriter, provided that the securities to be excluded shall be determined in the following order of priority: first; securities held by persons participating in such offering not having contractual, incidental or "piggyback" registration rights; and second, securities held by any person having contractual, incidental or "piggyback" registration rights subordinated and junior to the rights of the sellers of Registrable Securities; and third, securities held by any Seller participating in such registration pursuant to the exercise of demand registration rights pursuant to Section 3.2.1 above, as determined on a pro rata basis. Notwithstanding the foregoing, in the event that the underwriter or underwriters cut back the number of Registrable Securities required to be included by the Sellers in such demand registration by more than fifty percent (50%), then such registration will not be deemed to be a demand registration for purposes of this Section 3.2. Whenever a requested registration pursuant to Section 3.2.1 above is for an underwritten public offering, the Sellers of at least a majority of the Registrable Securities as to which registration has been requested may designate the managing underwriter(s) of such offering. 5 -------------------------------------------------------------------------------- 3.2.3 If at the time of any request to register Registrable Securities pursuant to Section 3.2.1 above the Buyer is preparing or within thirty (30) days thereafter commences to prepare a registration statement for a public offering (other than a registration effected solely to implement an employee benefit plan, a reorganization or merger or acquisition, or a transaction to which Rule 145 of the Commission is applicable) which in fact is filed and becomes effective within ninety (90) days after the request, or is engaged in any activity which, in the good faith determination of the Buyer's board of directors, would be adversely affected by the requested registration to the material detriment of the Buyer, then the Buyer may at its option direct that such request be delayed for a period not in excess of four (4) months from the effective date of such offering or the date of commencement of such other activity, as the case may be, such right to delay a request to be exercised by the Buyer not more than once in any one (1) year period. Nothing in this Section 3.2.3 shall preclude a seller of Registrable Securities from enjoying registration rights which it might otherwise possess under Section 3.3 hereof. 3.3 Piggyback Registrations. If the Buyer at any time proposes to register any of its securities under the Securities Act (including pursuant to a demand of any stockholder of the Buyer exercising registration rights) for sale to the public (except with respect to registration statements on Form S-4 or S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice to all Sellers. Upon the written request of any of such Sellers of the Registrable Securities given within twenty (20) days after receipt by such Sellers of such notice, the Buyer will, subject to the limits contained in this Section 3.3, use its best efforts to cause all such Registrable Securities of said requesting Sellers to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent requisite to permit such sale or other disposition by such Seller; provided, however, that if the Buyer is advised in writing in good faith by any managing underwriter of the Buyer's securities being offered in a public offering pursuant to such registration statement that the amount to be sold by sellers other than the Buyer (collectively, "Selling Stockholders") is greater than the amount which can be offered without adversely affecting the offering, the Buyer may reduce the amount offered for the accounts of Selling Stockholders (including sellers of shares of Registrable Securities) pursuant to a contractual, incidental "piggy back" right to include such securities in a registration statement to a number deemed satisfactory by such managing underwriter; provided further, that no reduction shall be made in the amount of Registrable Securities offered for the accounts of the Sellers unless such reduction is imposed pro rata with respect to (i) all securities whose sellers have a contractual, incidental "piggy back" right to include such securities in the registration statement as to which inclusion has been requested pursuant to such right and (ii) any executive officer of the Buyer; and provided further, that there is first excluded from such registration statement all shares of Common Stock sought to be included therein by (x) any seller thereof, other than any executive officer of the Buyer, not having any such contractual, incidental or "piggyback" registration rights and (y) any seller thereof having contractual, incidental registration rights subordinated and junior to the rights of the Sellers. 6 -------------------------------------------------------------------------------- Notwithstanding the foregoing provisions, the Buyer may withdraw any registration statement referred to in this Section 3.3 without thereby incurring any liability to the Sellers. 3.4 Registration Procedures. If and whenever the Buyer is required by the provisions of this Agreement to use its best efforts to effect the registration of any of its securities under the Securities Act, the Buyer will, as expeditiously as possible: 3.4.1 prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective; provided, however, that notwithstanding any other provision of this Agreement, the Buyer shall not in any event be required to use its best efforts to maintain the effectiveness of any such registration statement for a period in excess of six (6) months; 3.4.2 prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Seller or Sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement; 3.4.3 furnish to each Seller such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Seller may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Seller; 3.4.4 use every reasonable effort to register or qualify the securities covered by such registration statement under such other securities or state "blue sky" laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such seller to consummate the public sale or other disposition in such jurisdictions of the securities owned by such Seller, except that the Buyer shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; 3.4.5 promptly notify each Seller of the happening of any event which makes any statement made in any registration statement or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Buyer shall prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 7 -------------------------------------------------------------------------------- 3.4.6 before filing the registration statement or prospectus or amendments or supplements thereto, furnish to one counsel selected by the Sellers copies of such documents proposed to be filed which shall be subject to the reasonable review of such counsel; 3.4.7 furnish to each prospective Seller a signed counterpart, addressed to the prospective Seller, of (A) an opinion of counsel for the Buyer, dated the effective date of the registration statement, and (B) a "comfort" letter signed by the independent public accountants who have certified the Buyer's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) and (in the case of the accountants' letter) with respect to events subsequent to the date of the financial statements, as are customarily covered (at the time of such registration) in opinions of the Buyer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities, subject to any requirement by the accountants for representation letters from the selling sellers of Registrable Securities; 3.4.8 use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Buyer is then listed; 3.4.9 notify the Sellers and the managing underwriter or underwriters, if any, promptly and confirm such advice in writing promptly thereafter: 3.4.9.1 when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; 3.4.9.2 of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; 3.4.9.3 of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; 3.4.9.4 if at any time the representations and warranties of the Buyer made as contemplated by this Agreement cease to be true and correct; and 3.4.9.5 of the receipt by the Buyer of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; and 3.4.10 enter into such agreements and take such other actions as Sellers of such Registrable Securities holding more than 50% of the shares so to be sold shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. 8 -------------------------------------------------------------------------------- 3.5 Expenses. All expenses incurred in effecting the registrations provided for in Sections 3.1 and 3.2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Buyer and fees for all of the Sellers, underwriting expenses (other than expenses, fees, commissions, discounts and transfer taxes relating to the Registrable Securities), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 3.4.8 hereof (all of such expenses referred to as "Registration Expenses"), shall be paid by the Buyer; provided, that if an offering pursuant to any registration commenced pursuant to Section 3.2 above is abandoned by the Sellers (other than by reason of adverse information pertaining to the Buyer's business affairs or financial position unknown to the Sellers prior to the commencement of such registration proceedings, or by reason of the underwriters cutting back the number of Registrable Securities by more than fifty percent (50%) in a demand registration as provided in Section 3.2.2, in which event the Buyer shall bear all Registration Expenses), such Sellers shall bear pro rata any costs incurred by the Buyer in conjunction with such registration. In either event, the number of registrations to which the Sellers are entitled pursuant to Section 3.2 shall not be reduced thereby. 3.6 Furnishing Information. It shall be a condition precedent to the obligations of the Buyer to take any action pursuant to Section 3.2 or 3.3 that the Sellers shall furnish to the Buyer such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 3.7 Indemnification. 3.7.1 The Buyer shall indemnify and hold harmless each of the Sellers, each underwriter (as defined in the Securities Act), and each other person who participates in the offering of such securities and each other person, if any, who controls (within the meaning of the Securities Act) such Seller, underwriter or participating person (individually and collectively the "Buyer Indemnified Person") against any losses, claims, damages or liabilities (collectively the "liability"), joint or several, to which such Buyer-Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. Except as otherwise provided in Section 3.5, the Buyer shall reimburse each such Buyer-Indemnified Person in connection with investigating or defending any such liability; provided, however, that the Buyer shall not be liable to any Buyer-Indemnified Person in any such case to the extent that any such liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Buyer by such Buyer-Indemnified Person specifically for use therein; and provided further, that the Buyer shall not be required to indemnify any 9 -------------------------------------------------------------------------------- person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any person to deliver a prospectus as required by the Securities Act regardless of any investigation made by or on behalf of such Buyer-Indemnified Person and shall survive transfer of such securities by such Seller. 3.7.2 Each Seller shall, by acceptance thereof, indemnify and hold harmless each other holder of any Registrable Securities, the Buyer, its directors and officers, each underwriter and each other person, if any, who controls the Buyer or such underwriter (individually and collectively the "Seller-Indemnified Person"), against any liability, joint or several, to which any such Seller-Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such Seller, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Buyer by such Seller specifically for use therein. Such Seller shall reimburse any Seller-Indemnified Person for any legal fees incurred in investigating or defending any such liability; provided, however, that such Seller's obligations hereunder shall be limited to an amount equal to the net proceeds to such Seller sold in any such registration; and provided further, that no Seller shall be required to indemnify any person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any person to deliver a prospectus as required by the Securities Act. 3.7.3 Indemnification similar to that specified in Sections 3.7.1 and 3.7.2 above shall be given by the Buyer and each Seller (with such modifications as may be appropriate) with respect to any required registration or other qualification of the Registrable Securities under any federal or state law or regulation of governmental authority other than the Securities Act. 3.7.4 In the event the Buyer, any Seller or any other person receives a complaint, claim or other notice of any liability or action, giving rise to a claim for indemnification under Sections 3.7.1, 3.7.2 or 3.7.3 above, the person claiming indemnification under such paragraphs (the "Indemnified Person") shall promptly notify the person against whom indemnification is sought (the "Indemnifying Person") of such complaint, notice, claim or action, and such Indemnifying Person shall have the right to investigate and defend any such loss, claim, damage, liability or action. The Indemnified Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of the Indemnifying Person, provided, however, that an Indemnified Person shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Person, if (a) the Indemnifying Person fails promptly to defend or (b) representation of such Indemnified 10 -------------------------------------------------------------------------------- Person by the counsel retained by the Indemnifying Person would be inappropriate due to actual or reasonably likely differing interests between such Indemnified Person and any other party presented by such counsel in such proceeding. In no event shall an Indemnifying Person be obligated to indemnify any Person for any settlement of any claim or action effected without the Indemnifying Person's prior written consent. 3.8 Rule 144 Reporting. With a view to making available to the Sellers the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Buyer shall: 3.8.1 Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act; 3.8.2 File with the SEC, in a timely manner, all reports and other documents required of the Buyer under the Securities Act and the Exchange Act; 3.8.3 So long as the Seller owns any Registrable Securities, furnish to such Seller forthwith upon request: a written statement by the Buyer as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Buyer; and such other reports and documents as the Seller may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS. The Company and the Sellers, jointly and severally, covenant, warrant and represent to the Buyer as follows: 4.1 Corporate Organization; Good Standing. True, correct and complete copies of the Company's Certificate of Incorporation, as amended, or Articles of Incorporation, as the case may be and By-Laws of each of the Company and any Subsidiary, certified by an Officer of the Company, are attached as Exhibit 4.1. The Company: 4.1.1 is a corporation duly organized, validly existing and in good standing under the laws of the State of Iowa. Attached hereto as Schedule 4.1.1 of the Disclosure Schedules is a list of the Subsidiaries of the Company, if any, setting forth the authorized and issued capital stock and ownership interest of each of such Subsidiaries; 4.1.2 and each of its Subsidiaries has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and to enter into and perform its obligations under this Agreement, and the transactions contemplated hereby; and 11 -------------------------------------------------------------------------------- 4.1.3 and each of its Subsidiaries, except as set forth on Schedule 4.1.3 of the Disclosure Schedules, has duly qualified and are authorized to do business and are in good standing as a foreign corporation in each jurisdiction where the nature and conduct of its business requires. Schedule 4.1.3 of the Disclosure Schedules sets forth each jurisdiction in which the Company is authorized to do business as a foreign corporation. 4.2 Capitalization. The authorized equity securities of the Company consist of Five Million (5,000,000) shares of common stock, no par value, of which Three Million Three Hundred Forty Thousand Two Hundred Eight (3,340,208) shares were issued and outstanding immediately prior to the Closing. Sellers are, and will be as of the Closing, the legal and beneficial owners of the Shares. All of the issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth on Schedule 4.2 of the Disclosure Schedules, there are no contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company. None of the outstanding equity securities or other securities of the Company was issued in violation of any state securities (or "Blue Sky") laws and/or regulations. 4.3 Title to Shares; Authority. Each of the Sellers have valid legal and beneficial title and interest in and to the portion of the Shares indicated as owned by such Seller in Exhibit A, respectively, free and clear of any and all liens, encumbrances, equities and claims, and have the full right, power and authority to sell, transfer and deliver such shares as provided in this Agreement, other than any restrictions imposed under the Company bylaws, the Shareholder Agreement by and among the Company and the Sellers or federal or state securities laws, and as are specifically listed on Schedule 4.3. 4.4 Books and Records. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to the Buyer, are complete and correct in all material respects and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records in all material respects of all meetings held of, and corporate action taken by, the stockholders, the Board of Directors and committees of the Board of Directors of the Company, and no formal annual or special meeting of any such stockholders or Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in the minute books. At the Closing, all of those books and records will be in the possession of the Company. 4.5 Legal, Valid and Binding Obligations. This Agreement and any other documents executed by or on behalf of the Sellers or the Company in connection with the transactions contemplated in this Agreement hereby or thereby each constitutes the legal, valid and binding obligation of the Sellers and the Company, enforceable in accordance with the respective terms hereof and thereof, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights generally and by equitable principles. 4.6 Contracts. Except as set forth on Schedule 4.6 of the Disclosure Schedules, each Seller is not a party to any contract or agreement affecting or relating to the Shares, other than the By Laws of the Company, or to any contract, arrangement or understanding with the Company or any Affiliate of the Company. 12 -------------------------------------------------------------------------------- 4.7 Title to Properties. The Company and any Subsidiary has good and marketable ownership, title and interest to its properties and assets reflected as owned by the Company or its Subsidiary on the Company's Financial Statements and/or Closing Date Balance Sheet (as defined in Section 4.17) or acquired by it since the date of the Closing Date Balance Sheet (other than properties and assets disposed of in the ordinary course of business since the Closing Date Balance Sheet), and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances (including without limitation, easements and licenses), except for those set forth on Schedule 4.7 of the Disclosure Schedules, liens for or current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company or any Subsidiary, including without limitation, the ability of the Company or any Subsidiary to secure financing using such properties and assets as collateral. To the Sellers' and the Company's knowledge, there are no condemnation, environmental, zoning or other land use regulation proceedings, either instituted or planned to be instituted, which would adversely affect the use or operation of either the Company's or any Subsidiary's properties and assets for their respective intended uses and purposes, or the value of such properties, and the Company and any Subsidiary have not received notice of any special assessment proceedings which would affect such properties and assets. The Company and any Subsidiary owns or has valid leases or licenses to use all tangible properties necessary to conduct its business substantially in the manner in which it is presently being conducted. 4.8 Patents, Trademarks, Etc. Set forth in Schedule 4.8 of the Disclosure Schedules, and incorporated herein, is a list of all domestic and foreign patents, patent rights, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights and software licenses, and all applications for such which are in the process of being prepared, owned by or registered in the name of the Company or any Subsidiary, or of which the Company or any Subsidiary is a licensor or licensee or in which the Company or any Subsidiary has any right. The Company and any Subsidiary owns or possesses adequate licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets, customer lists, software licenses and know how (collectively, "Intellectual Property") necessary to the conduct of its business as currently conducted, and no claim is pending or, to the knowledge of the Company, threatened to the effect that the operations of the Company or any Subsidiary infringe upon or conflict with the asserted rights of any other person under any Intellectual Property used, owned or licensed by the Company, and, to the Sellers' and Company's knowledge, there is no basis for any such claim (whether or not pending or threatened). To the knowledge of the Company, no claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company or any Subsidiary, or which the Company or any Subsidiary otherwise has the right to use, is invalid or unenforceable by the Company or any Subsidiary, and, to the Sellers' and the Company's knowledge, there is no basis for any such claim (whether or not pending or threatened). All prior art known to Griffin, Lash, Stahlberg and Dils (who are collectively referred to as the "Inventors") which may be or may have been, to the Inventors' knowledge, pertinent to the examination of any United States patent or patent application listed in Schedule 4.8 of the Disclosure Schedules has been cited to the United States Patent and Trademark Office. 13 -------------------------------------------------------------------------------- 4.9 Leasehold Interests. Each lease or agreement to which the Company is a party or under which it is a lessee of any property, real or personal, is a valid and existing agreement, duly authorized and entered into, without any default of the Company or any Subsidiary thereunder and, to the Sellers' and the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default or event of default by the Company or any Subsidiary under any such lease or agreement or, to the Sellers' and the Company's knowledge, by any other party thereto. The Company's possession of such property has not been disturbed and, to the Sellers' and the Company's knowledge, no claim has been asserted against the Company or any Subsidiary adverse to its rights in such leasehold interests. Schedule 4.9 of the Disclosure Schedules sets forth all of such leases with summaries of rent, term and security deposits provisions. 4.10 Material Contracts. Schedule 4.10 of the Disclosure Schedules contains a list of all presently existing contracts, agreements and commitments (or group of related contracts, agreements and commitments with the same party) that includes a commitment and/or obligation equal to or exceeding Ten Thousand Dollars ($10,000) or which is otherwise material to the Company or any Subsidiary, to which the Company or any Subsidiary, as the case may be, is a party or by which it is bound (the "Contracts"). All such instruments are valid and enforceable in accordance with their terms and, to the knowledge of Sellers and the Company, the Company has complied with all the provisions of such Contracts and are not in default thereunder, and Sellers and the Company are not aware of any defaults by the other parties thereto, nor does any condition exist that with notice or lapse of time or both would constitute a default. Sellers have furnished to Buyer complete copies of such documents. Sellers have provided to Buyer a list of customer purchase orders to be filled after the Closing. 4.11 Loans and Advances. Except as set forth in Schedule 4.11 of the Disclosure Schedules, the Company does not have any outstanding loans or advances to any Person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company in accordance with past practices and incurred during the ordinary course of business. 4.12 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons. The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other Person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business as set forth in Schedule 4.12 of the Disclosure Schedules. 14 -------------------------------------------------------------------------------- 4.13 Significant Customers and Suppliers. Set forth on Schedule 4.13 of the Disclosure Schedules, and incorporated herein, is a list of the twenty-five (25) largest customers of and suppliers to the Company and each supplier of the Company which accounted for in excess of Ten Thousand Dollars ($10,000) of sales to the Company during the fiscal years ended June 30, 1999 and June 30, 2000 and from July 1, 2000 through March 31, 2001, and the dollar volume of business with each such customer for the fiscal years ended June 30, 1999 and June 30, 2000 and from July 1, 2000 through March 31, 2001. No current customer or supplier, during the period covered by the Company's Financial Statements and Closing Date Balance Sheet or which has been significant to the Company thereafter, has terminated, materially reduced or, to the Sellers' or the Company's knowledge, threatened to terminate or materially reduce its purchases under existing contracts, purchase orders or provision of products or services to the Company, as the case may be. 4.14 Broker. Except as set forth on Schedule 4.14 of the Disclosure Schedules, Sellers and the Company have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or other similar payment in connection with this Agreement or the transactions contemplated hereby. 4.15 Taxes. All tax returns required to be filed by the Company and any Subsidiary in any jurisdiction have been timely and accurately filed and all Taxes, assessments, fees and other governmental charges upon the Company and any Subsidiary or upon any of their properties, income or franchises, which are shown to be due and payable in such returns have been paid except for such taxes, assessments, fees and other governmental charges set forth on Schedule 4.15 of the Disclosure Schedules, and incorporated herein, the payment of which are being contested by the Company in good faith by appropriate proceedings and with respect to which the Company has set aside on its books reserves in accordance with GAAP. The Company and any Subsidiary has filed all required Tax Returns for all taxable years or periods which ended on or prior to the Closing Date, and, to the Sellers' and the Company's knowledge, all Federal and state tax liabilities of the Company for such years have been satisfied. The Company has not executed any waiver or waivers that would have the effect of extending the applicable statute of limitations in respect of tax liabilities. Except as set forth on Schedule 4.15 of the Disclosure Schedules, the Company and the Sellers do not know of any proposed additional tax assessment against the Company and its Subsidiaries for which provision has not been made on its accounts, and no controversy in respect of additional Federal or state taxes due is pending or, to the Sellers' and the Company's knowledge, threatened. Except as set forth on Schedule 4.15 of the Disclosure Schedules, the Company and the Sellers are not aware of any audit or challenge for any federal or state tax liability for any period by the Internal Revenue Service or any state taxing authority. The provisions for Taxes on the books of the Company are deemed adequate in all material respects by the Company. The Company has delivered to the Buyer true and correct copies of federal and state income tax returns for all years in which the statute of limitations has not expired. 4.16 Machinery and Equipment. Schedule 4.16 of the Disclosure Schedules sets forth a true, correct and complete list of all machinery and equipment having a fair market value of over Ten Thousand Dollars ($10,000) and any lease agreement, security interest or financing arrangement relating to same, as of the date hereof, which are used in or relate to the business 15 -------------------------------------------------------------------------------- of the Company and any Subsidiary and all lease agreements and financing agreements relating thereto and all agreements or instruments granting a security interest therein. All items of machinery, equipment and other tangible personal property used in the Company's and any Subsidiary's business have been maintained and repaired in the normal course of the Company's and any Subsidiary's business, ordinary wear and tear and obsolescence excepted. 4.17 Financial Statements and Records. The Sellers have delivered to the Buyer the Company's financial statements, including the notes thereto, for the years ending June 30, 1999 and June 30, 2000 (the "Company's Balance Sheet Date") audited by McGladrey & Pullen, LLP, copies of which are attached hereto as Exhibit 4.17 (collectively, the "Company's Financial Statements"). The Company's Financial Statements fairly present the financial position of the Seller as of the dates thereof and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP. The books and records of the Company fully and fairly reflect all of its transactions, properties, assets and liabilities in all material respects, except (i) liabilities that arise in the ordinary course of business after the applicable date of the Company Financial Statements, (ii) liabilities disclosed in Schedule 4.17; and/or (iii) liabilities arising in the ordinary course of business that are not required under GAAP to be reflected on the Company's Financial Statements. The Company's Financial Statements reflect all adjustments deemed necessary by the Company's auditors for a fair presentation of the financial information contained therein. The Sellers have delivered to the Buyer an internally prepared, unaudited and unreviewed balance sheet as of March 31, 2001, ("Closing Date Balance Sheet") attached hereto as Schedule 4.17 of the Disclosure Schedules. To the best of the Company's and the Sellers' knowledge, the Closing Date Balance Sheet fully and fairly reflect all of the Company's transactions, properties, assets and liabilities in all material respects, except (i) liabilities that arise in the ordinary course of business after the applicable date of the Closing Date Balance Sheet, or (ii) liabilities disclosed in Schedule 4.17. 4.18 No Undisclosed Liabilities. Except as expressly disclosed in Schedule 4.18 of the Disclosure Schedules, the Company and any Subsidiary has no liabilities or obligations of any nature, , except for liabilities or obligations reflected or reserved against in the Company's Financial Statements or Closing Date Balance Sheet and current liabilities incurred in the ordinary course of business since the Company's Balance Sheet Date, liabilities which do not have and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and liabilities arising in the ordinary course of business that are not required under GAAP to be reflected in the Financial Statements. 4.19 Absence of Certain Changes and Events. Except as set forth in Schedule 4.19 of the Disclosure Schedules, since June 30, 2000, the Company and its Subsidiaries have conducted their business only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of business in a manner consistent with its past practice, and, subject thereto, there have not been (i) any changes in the business, condition (financial or otherwise), results of operations of the Company or its Subsidiaries or any development or combination of developments of which the Company has knowledge that, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect; (ii) any material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Company or its Subsidiaries, whether or not covered by insurance; (iii) any distribution of or with 16 -------------------------------------------------------------------------------- respect to the Shares; (iv) any material change by the Company in its accounting practices, principles or methods; or (v) any increase in the compensation, benefits or term of employment of officers or employees of the Company or its Subsidiaries (including any such increase pursuant to any bonus, pension, profit-sharing or other plan or commitment). 4.20 Insurance. The Company has continuously been insured since April of 1997 and is insured under various policies of fire, liability and other forms of insurance as set forth on Schedule 4.20 of the Disclosure Schedules (specifying the insurer, the policy number and the aggregate limit, if any, of the insurer's liability thereunder), which policies are in full force and effect, valid and enforceable in accordance with their terms and provide adequate insurance for the business of the Company and its assets and properties. 4.21 Accounts Receivable. All accounts receivable reflected in the Company's Financial Statements and all accounts receivable arising after the date thereof up to and including the date hereof (to the extent not heretofore or theretofore collected) arose from bona fide transactions in the ordinary course of business and will be fully collectible in the ordinary course of business without resort to litigation, except to the extent of any provision or reserve established with respect thereto in accordance with GAAP or as provided in Schedule 4.21. 4.22 Employee Benefit Plans. 4.22.1 Schedule 4.22 of the Disclosure Schedules sets forth each employee benefit plan which the Company currently sponsors or to which the Company contributes as well as each employee benefit plan which the Company, or any predecessor company, sponsored or to which the Company contributed since January 1, 1995. The Company and each of the Sellers are not, and have not been since January 1, 1995, an Affiliate of any other Person other than the Company Schedule 4.22 of the Disclosure Schedules also sets forth any obligation of the Company with respect to severance or separation benefits to any employee. 4.22.2 The Company (i) has satisfied all respective contribution obligations in respect of each employee benefit plan, and (ii) is and has at all times been in compliance in all material respects with all applicable provisions of the federal Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, with respect to each such plan. No employee benefit plan or trust created thereunder has at any time incurred any accumulated funding deficiency (as such term is defined in Section 302 of ERISA), whether or not waived. 4.22.3 Neither the Company nor any employee benefit plan thereof, or any trust created thereunder or to the knowledge of Company or Sellers, any trustee or administrator thereof, has engaged in any prohibited transaction (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) that would subject any person to the penalty or tax on such transactions imposed by Section 502 of ERISA or 4975 of the Code. As used in this Section 4.23, the term "employee benefit plan" shall have the meaning specified in Section 3 of ERISA. 4.23 Environmental. To the knowledge of the Sellers or the Company, (i) the Company and its assets and business, and all real properties owned by the Company and/or at which the Company's assets or business are or have been operated (the "Properties"), are now and at all times have been, in material compliance with all Environmental Laws (as herein defined) 17 -------------------------------------------------------------------------------- and Environmental Permits (as herein defined); (ii) except as set forth in Schedule 4.23 of the Disclosure Schedules, there is not now nor has there been any storage, handling, use, disposal or Release (as herein defined) of any Hazardous Materials (as herein defined) on, at, in or under any of the Properties and there are no Hazardous Materials within any structure on any of the Properties requiring remediation, decommissioning, decontamination, abatement or removal pursuant to Environmental Laws; (iii) there are no above or below ground tanks or reservoirs used or installed for the purpose of storage or containment of Hazardous Materials at, on or under any of the Properties; (iv) copies of all notices, notices of violation, citations, inquiries, information requests or demands and complaints which the Company or the Sellers have received respecting any alleged violation of or non-compliance with any Environmental Law or Environmental Permit are appended to Schedule 4.23 of the Disclosure Schedules, and all such violations and non-compliance alleged in such documents have been corrected by the Company to the satisfaction of the applicable governmental agency; (v) there are no Claims pending or threatened against the Sellers, the Company or the Company's assets or business or any of the Properties under Environmental Laws; (vi) the Company possesses all Environmental Permits which are required for the operation of its assets and business at the Properties as the same are currently being operated; (vii) all Environmental Permits issued to the Company are disclosed in Schedule 4.23 of the Disclosure Schedules, and the Sellers have delivered copies of all such Environmental Permits to Buyer; (viii) Seller and the Company shall take all necessary actions to have any Environmental Permits issued to the Sellers or the Company, which by their terms or by operation of law will expire or otherwise become ineffective on or before the Closing Date, renewed or reissued to the Company prior to the Closing Date so as to allow Buyer to continue the operation of the Company's assets and business without interruption after the Closing Date; (iv) Schedule 4.23 of the Disclosure Schedules sets forth all environmental studies, reports, audits, summaries, proposals, recommendations, work plans and field and laboratory data in Sellers' or the Company's possession, custody or control relating or referring to environmental conditions or the presence or Release of Hazardous Materials on, at, under or emanating from any of the Properties, including without limitation, with respect to any soil, surface water or groundwater contamination at any of the Properties and Sellers or the Company has delivered copies of such documents to Buyer. As used in this Agreement, 4.23.1 "Environmental Laws" means all federal, state, regional, county, and local statutes, ordinances, rules, regulations, policies, orders, decrees, guidances, directives, judgments, arbitration awards and common law, which pertain to public health and safety, damage to or protection of the environment, pollution or contamination of any type whatsoever and Releases of Hazardous Materials into the environment; 4.23.2 "Environmental Permits" means licenses, permits, registrations, authorizations, certificates, approvals, agreements and consents which are required under or are issued pursuant to Environmental Laws; 4.23.3 "Hazardous Materials" means any substance, materials or waste, whether solid, liquid or gaseous, and any pollutant or contaminant, that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or hazardous, or that is defined, listed, regulated, controlled or limited by any Environmental Law or for which a standard is set by any Environmental Law; and 18 -------------------------------------------------------------------------------- 4.23.4 "Release" means any intentional or unintentional spilling, leaking, disposing, discharging, emitting, depositing, injecting, leaching, escaping, release, burial, pumping, pouring, emptying or dumping into the environment in violation of environmental laws in violation of Environmental Laws. 4.24 Litigation. Other than as set forth on Schedule 4.24 of the Disclosure Schedules, there is no litigation, or judicial or administrative actions or proceedings pending or, to the knowledge of Sellers or the Company, threatened against or relating to the Company or any Subsidiary, their respective properties or business, nor to the knowledge of Sellers or the Company is there any basis for any such action, or for any governmental investigation relative to the Company or any Subsidiary, their respective properties or business, which, either individually or in the aggregate, would have a Material Adverse Effect on the Company, or on the properties or operations of the Company's or any Subsidiary's business, or which might prevent or hinder the consummation of the transactions contemplated by this Agreement. 4.25 Compliance with Law. Without otherwise limiting in any way the other representations and warranties in this Section 4, the Company (a) has not been, to its knowledge, within the last five (5) years, and is not currently, in violation or default of any laws, ordinances, governmental rules or regulations, orders, judgments, decrees or rulings of any arbitration board, or governmental, regulatory or judicial authority to which it is subject, which violation or default could reasonably be expected to have a Material Adverse Effect and (b) has not failed, to its or the Sellers' knowledge to obtain any licenses, permits, franchises or other governmental authorizations for which the failure to obtain would have a Material Adverse Effect on the ownership of its properties or to the conduct of its business. 4.26 Governmental Consent. Except for federal and state securities laws and as provided in Schedule 4.26, no consent, approval or authorization of, or filing, registration or qualification with, any Person is necessary or required on the part of the Sellers in connection with the execution and delivery of this Agreement and the documents and transactions contemplated hereby to which the Sellers are parties, compliance with the terms hereof or thereof, or in connection with the offer, issue, sale or delivery of the Shares. 4.27 No Conflicts. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement conflicts or will conflict with or results or will result in a breach of the terms, conditions or provisions of, or constitute, or will on the Closing Date constitute, a default under, the Articles of Incorporation or the By-Laws of the Company or, except as set forth on Schedule 4.27 of the Disclosure Schedules, a material breach or violation of or default under or grounds for termination of, or an event which with the lapse of time or notice and the lapse of time could cause a default under or breach or violation of, or grounds for termination of, any note, indenture, mortgage, license, title retention agreement or any other agreement or instrument to which either the Company or any of the Sellers, is a party or by which the Company or any of its assets is bound, or would result in the creation of any lien, charge or other 19 -------------------------------------------------------------------------------- security interest or encumbrance upon any property or asset or right of the Company, or violate, require consent or filings under any existing law, order, rule regulation, writ, injunction or decree of any union or any government, governmental department, commission, board, bureau, agency, body or court, domestic or foreign, having jurisdiction over the Company or any of its properties. No governmental authorization, approval, order, license, permit, franchise or consent, and no registration, declaration or filing with any governmental authority is required, in connection with the execution, delivery and performance of this Agreement by the Company and Sellers. 4.28 Labor Matters. The Company has no union contracts with respect to any of its employees. The Company has not committed, and neither the Sellers, nor the Company has received any notice of or claim that the Company has committed any unfair labor practice under applicable federal or state law. The Company is and has been in compliance in all material respects with all applicable federal, state and local laws and regulations relating to employment and employment practices, including, but not limited to, the following, to the extent applicable to the Company: the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, Americans with Disabilities Act, state and local human rights laws, WARN, the Rehabilitation Act of 1974, the Occupational Safety and Health Act, state workers' compensation laws, state disability laws, state unemployment laws, the Immigration Reform and Control Act of 1986, the Equal Pay Act and COBRA. To the knowledge of the Company and the Sellers, the Company has not engaged in any violation of the common law relating to employment and employment contracts, including, but not limited to, wrongful discharge, breach of employment contract, intentional infliction of emotional distress, defamation, negligent retention, negligent hiring or negligent supervision, and the information contained in the personnel records of any of the Company's employees is true and correct in all material respects and was not recorded in violation of any applicable employment laws. Except as set forth on Schedule 4.28 of the Disclosure Schedules, the Company and any Subsidiary have no employment contract or arrangement, written or verbal, with any of their respective employees. 4.29 Bank Accounts. Schedule 4.29 of the Disclosure Schedules sets forth (i) the name and location of each bank, trust company, securities or other broker or other financial institution with which the Company or any Subsidiary has an account, credit line or safe deposit box or vault or otherwise maintains relations, (ii) the names of all signatories thereto and persons authorized to draw thereon or to have access to any safe deposit box or vault, and (iii) the names of all persons authorized by proxies, powers of attorneys or other instruments to act on behalf of the Company or any Subsidiary on matters concerning its business or affairs. 4.30 Investor. Each Seller, alone or with the assistance of the financial advisor of his choice, is a sophisticated investor with sufficient knowledge and experience in investing in companies similar to the Buyer so as to be able to evaluate the risks and merits of its investment in the Buyer and that he is financially able to hold the shares of the Buyer to be acquired by him and to bear the risks thereof. Except as listed on Schedule 4.30 of the Disclosure Schedules, each Seller is an "accredited investor" as defined under Rule 501 under the Securities Act. 4.31 Certain Payments. No Company officer, director, agent, or employee, or any other person associated with or acting for or on behalf of the Company has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property or 20 -------------------------------------------------------------------------------- services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Company or any Subsidiary, or (iv) in violation of any law or regulation prohibiting such payments, (b) established or maintained any fund or asset that has not been recorded in the books or records of the Company. 4.32 Relationships with Related Persons. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller or Affiliate of any Seller, nor the Company has, or since July 1, 1998 has, had any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Company's business. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller or Affiliate of any Seller, nor the Company owns, or since July 1, 1998 has owned, (of record or as beneficial owner) an equity interest, or any other equity or financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Company, or (ii) engaged in competition with the Company with respect to any line of the products or services of the Company (a "Competing Business") in any market presently served by the Company. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller nor, an Affiliate of any Seller is a party to any contract with, or has any claim or right against, the Company. 4.33 Reorganization Representations. 4.33.1 Prior to the Closing, the Sellers did not dispose of any Shares, or receive any distribution from the Company, in a manner that would cause the transaction to violate the continuity of shareholder interest requirement set forth in Treasury Regulation sec.;1.368-1(e) of the Code. 4.33.2 The Company operates at least one significant, historic business line, or owns at least a significant portion of its historic business assets, in each case within the meaning of Treasury Regulation sec.;1.368-1(d) of the Code. 4.34 Financial Projections; Business Plan. The financial projections heretofore supplied to Buyer, including, without limitation, the Company's Business Plan dated February 1, 2001, were prepared by the Company and the Sellers in good faith on the basis of assumptions which were reasonable when made and such financial projections are not intended to be projections or assurances of future performance to be relied upon. The failure to cross-reference an exception to a particular representation or warranty which appropriately appears in a section of any of the Disclosure Schedules to another applicable section of any of the Disclosure Schedules shall not be deemed a failure to disclose such exception. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. The Buyer covenants, warrants and represents to Sellers as follows: 21 -------------------------------------------------------------------------------- 5.1 Corporate Organization; Good Standing. True, correct and complete copies of the Buyer's Articles of Incorporation, as amended, and By-Laws, certified by the Secretary of the Buyer, are attached as Exhibit 5.1. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New Hampshire, with corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Buyer is qualified to do business as a foreign corporation in each jurisdiction where such qualification is necessary to conduct its business, except where any failure to be so qualified would not have a Material Adverse Effect. 5.2 Capitalization. The authorized equity securities of the Buyer consist of Seventy-Five Million (75,000,000) shares of $.01 par value common stock and Twenty Million (20,000,000) shares of $.01 par value preferred stock. As of April 10, 2001 there were 7,894,238 shares of common stock of the Buyer issued and outstanding. Since April 10, 2001, there has been no material issuance of Common Stock of the Buyer and no issuance of preferred stock of the Buyer. All of the issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in Schedule 5.2 of the Disclosure Schedules, the Buyer has no contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Buyer. None of the outstanding equity securities or other securities of the Buyer was issued in violation of the Securities Act. 5.3 Title to Shares; Duly Authorized. The Buyer has the right to issue the NEXIQ Shares delivered to the Sellers on the Closing Date pursuant to Section 2.3. Such shares are duly authorized, all necessary corporate action has been taken to issue such shares to the Sellers and, when such shares are issued, they will be validly issued, fully paid, and non-assessable. 5.4 Legal, Valid and Binding Obligations; Authorized. This Agreement and any other documents executed by or on behalf of the Buyer in connection with the transactions contemplated hereby or thereby each constitutes the legal, valid and binding obligation of the Buyer or its Subsidiary, enforceable in accordance with the respective terms hereof and thereof, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights generally and by equitable principles. The execution, delivery and performance of this Agreement and the other documents contemplated hereby by the Buyer: 5.4.1 have been duly authorized by all necessary corporate action and do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of the Buyer except such as have been duly obtained; and 5.4.2 are within the corporate powers of the Buyer. 5.5 No Conflicts. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement conflicts or will conflict with or results or will result in a breach of the terms, conditions or provisions of, or constitute, or will on the Closing Date constitute, a default under, the Articles of Incorporation or the By-Laws of the Buyer or its Subsidiary or, except as set forth on Schedule 5.5 of the Disclosure Schedules, a material breach or violation of or default under or grounds for termination of, or an event which with the lapse of time or notice and 22 -------------------------------------------------------------------------------- the lapse of time could cause a default under or breach or violation of, or grounds for termination of, any note, indenture, mortgage, license, title retention agreement or any other agreement or instrument to which the Buyer, is a party or by which the Buyer or any of its assets is bound, or would result in the creation of any lien, charge or other security interest or encumbrance upon any property or asset or right of the Buyer, or violate, require consent or filings under any existing law, order, rule regulation, writ, injunction or decree of any union or any government, governmental department, commission, board, bureau, agency, body or court, domestic or foreign, having jurisdiction over the Buyer or any of its properties. Except as set forth on Schedule 5.5 of the Disclosure Schedules, no third party consent, or governmental authorization, approval, order, license, permit, franchise or, and no registration, declaration or filing with any governmental authority is required, in connection with the execution, delivery and performance of this Agreement by the Buyer. 5.6 Certain Proceedings. There is no pending action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any federal, state, local or foreign governmental or quasi-governmental body or arbitrator involving the Buyer or its Subsidiary and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this Agreement or any of the transactions contemplated herein. To Buyer's knowledge, no such action, arbitration, audit, hearing, investigation, litigation, or suit has been threatened. 5.7 No Undisclosed Liabilities. The Buyer has no liabilities or obligations of any nature, whether known or unknown and whether absolute, accrued, contingent, or otherwise which do not have and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, except for liabilities or obligations reflected or reserved against in Buyer's most recent Form 10-Q filed with the Securities and Exchange Commission (the "Form 10-Q") and current liabilities incurred in the ordinary course of business since the period ending date of such Form 10-Q. 5.8 Absence of Changes and Events. Since the period ending date of the Form 10-Q, except as set forth in Schedule 5.8 of the Disclosure Schedules, the Buyer and its Subsidiaries have conducted their business only in, and have not engaged in any transaction other than according to, the ordinary and usual course of such business in a manner consistent with its past practice, and there have not been (i) any changes in the business, condition (financial or otherwise), or results of operations of the Buyer of which the Buyer has knowledge that, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect; (ii) any material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Buyer, whether or not covered by insurance; or (iii) any distribution of or with respect to the NEXIQ Shares; (iv) any material change by the Buyer in its accounting practices, principles or methods. 5.9 Broker. Buyer has incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or other similar payment in connection with this Agreement. 23 -------------------------------------------------------------------------------- 5.10 Governmental Consent. Except for federal and state securities laws, no consent, approval or authorization of, or filing, registration or qualification with, any Person is necessary or required on the part of the Buyer in connection with the execution and delivery of this Agreement and the other documents and transactions contemplated hereby to which the Buyer is a party, compliance with the terms hereof or thereof, or in connection with the offer, issue, sale or delivery of the NEXIQ Shares. 5.11 Shares not Registered. Buyer understands and acknowledges that the Shares are not registered under the Securities Act or qualified under applicable blue sky laws, on the grounds that the sale of securities contemplated by this Agreement are exempt from registration under the Securities Act and exempt from qualifications available under applicable blue sky laws. Buyer acknowledges and understands that the Shares must be held indefinitely unless the Shares are subsequently registered under the Securities Act and qualified under applicable blue sky laws or an exemption from such registration and such qualification is available. 5.12 SEC Reports: Financial Statements. NEXIQ has filed all required forms, reports, registration statements and documents with the SEC, since December 31, 1998 (collectively, the "SEC Reports"), each of which, as of its respective date, complied in all material respects with all applicable requirements of the Securities Act and the Securities Exchange Act. As of their respective dates, none of the SEC Reports, including, without limitation, any financial statements or schedules included therein, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of NEXIQ and its subsidiaries included in its Annual Report on Form 10-K for the years ended September 26, 1999 and September 24, 2000, and the unaudited consolidated interim financial statements included in its Quarterly Report on Form 10-Q for its quarter ended March 25, 2001, fairly present in conformity with GAAP applied on a consistent basis, the consolidated financial position of NEXIQ and its subsidiaries as of the dates thereof and its consolidated statements of operations, shareholders' equity, and cash flows for the periods then ended. 5.13 Reorganization Representations. 5.13.1 Buyer will not issue any consideration to the Sellers for the sale of the Shares other than voting stock of the Buyer and will not assume any liabilities of Sellers as part of this transaction. 5.13.2 It is the present intention of the Buyer to continue at least one significant historic business line of the Company, or to use at least a significant portion of the Company's historic business assets in a business, in each case within the meaning of Treasury Regulation sec.;1.368-1(d) of the Code. 5.13.3 The Buyer does not have any plan or intention to: 5.13.3.1 purchase, redeem or otherwise reacquire, directly or indirectly, any of the Shares issued in connection with this transaction; 24 -------------------------------------------------------------------------------- 5.13.3.2 liquidate the Company; 5.13.3.3 merge the Company into another corporation other than another wholly owned subsidiary of the Buyer; 5.13.3.4 cause the Company to sell or otherwise dispose of a substantial portion of its assets, except for dispositions made in the ordinary course of business; or 5.13.3.5 sell or otherwise dispose of the Company stock acquired in this transaction. 5.14 Acquisition for Investment; Investor. The Buyer is acquiring the Shares for its own account, for investment purposes and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. The Buyer is an accredited investor as defined under Rule 501 of the Securities Act. 5.15 [Intentionally Left Blank] The failure to cross-reference an exception to a particular representation or warranty which appropriately appears in a section of any of the Disclosure Schedules to another applicable section of any of the Disclosure Schedules shall not be deemed a failure to disclose such exception. 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; NON-WAIVER. All representations and warranties shall survive the Closing for eighteen (18) months regardless of any investigation or lack of investigation by any of the parties hereto, except for the Sellers' representations and warranties with respect to Taxes, environmental matters, and employee benefit plans which shall survive for the period of the applicable statute of limitations, and except for Fraud, the Sellers' representations and warranties with respect to title made in Section 4.3 and the Buyer's representations and warranties with respect to title made in Section 5.3 which shall survive forever. The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver has occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. 7. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary in this Agreement, the maximum liability of the Sellers and of the Buyer under this Agreement or for Claims asserted by Buyer or the Sellers for any other circumstances or legal theory, including, but not limited to, Claims for (i) any inaccuracy in or breach of any representation or warranty made by the Sellers to the Buyer, or Buyer to the Sellers herein, or (ii) the breach by Sellers or Buyer of, or failure of Sellers or Buyer to comply 25 -------------------------------------------------------------------------------- with, any of the covenants or obligations under this Agreement to be performed by the Sellers or Buyer, as the case may be, shall be limited in the aggregate to Five Hundred Thousand Dollars ($500,000) in the case of the Buyer, and in the case of the Sellers, each Seller's Allocable Portion (the Seller's "Allocable Portion shall be determined by the percentage ownership of the Shares each Seller owned prior to the Closing as described in Exhibit A) of $500,000, except, however, that the liability of the Sellers resulting from Fraud or a breach of Sellers' representations and warranties made with respect to title in Section 4.3 shall be limited to the Allocable Portion of the Purchase Price received by each Seller; provided, however, that in no event shall Sellers be liable to Buyer for individual Claims of less than Ten Thousand Dollars ($10,000); and provided further that in no event shall Sellers be liable to Buyer in any respect or in any amount until the value of all Claims equals or exceeds Thirty Thousand Dollars ($30,000), in which event Sellers (subject to the minimum Claim requirement above) shall be liable for the entire amount of such Claims. 8. CLOSING CONDITIONS OF BUYER. The Buyer's obligation to purchase and pay for the Shares to be delivered to Buyer at the Closing shall be subject to the following conditions precedent: 8.1 Delivery of Shares. Sellers shall deliver, or cause to be delivered, to Buyer certificates representing the Shares, duly endorsed (or accompanied by duly executed stock transfer powers). 8.2 Articles of Incorporation and Certificates of Good Standing. Sellers shall deliver to Buyer at Closing: 8.2.1 a certified copy of the Company's Articles of Incorporation, as amended, issued by the Secretary of State of the State of Iowa; 8.2.2 a Certificate of Good Standing / Legal Existence of the Company issued by the Secretary of State of the State of Iowa; 8.2.3 the current Bylaws of the Company and any Subsidiary; and 8.2.4 Termination of the existing services agreement by and between the Company and the Buyer. 8.3 Closing Certificate. Sellers shall deliver to Buyer a certificate executed by Sellers representing and warranting to Buyer that each of the Sellers' representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date. 26 -------------------------------------------------------------------------------- 8.4 Employment Agreements. 8.4.1 James C. Griffin, Jr., shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.1. 8.4.2 William J. Callahan shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.2. 8.4.3 Hass Machlab shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.3. 8.4.4 Ron Stahlberg shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.4. 8.4.5 Brian Payne shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.5. 8.4.6 Each of the employees listed on Exhibit 8.4.6 shall have executed an Amendment to their employment agreements with the Company in form substantially similar as attached Exhibit 8.4.6. 8.5 Legal Opinions. At Closing, the Buyer shall have received from Simmons, Perrine, Albright & Ellwood, P.L.C., counsel to the Company in this transaction, its opinion dated the Closing Date, in form and substance reasonably satisfactory to the Buyer and its counsel, McLane, Graf, Raulerson & Middleton, Professional Association, and covering such matters as the Buyer and such counsel may require. 8.6 Certificate of the Secretary. The Sellers shall deliver to the Buyer at Closing a certificate of the Company's corporate secretary, in a form reasonably acceptable to Buyer and their counsel, certifying as to the Company's articles of incorporation, bylaws, capitalization, and the incumbency of officers. 8.7 Third Party Consents. Sellers deliver to Buyer such third party consents as are required because of the change in ownership and control of the Company and to consummate the transactions contemplated hereunder. 8.8 Shareholders Agreement. Sellers shall deliver to Buyer a termination of the Shareholders Agreement dated as of June 8, 1999 (the "Shareholder Agreement") by and among the Company and the Sellers. 8.9 Motorola Waiver of Rights of First Refusal. 27 -------------------------------------------------------------------------------- 8.10 [Intentionally Left Blank.] 8.11 Assignment of Patent from James Griffin, et al., to the Company. 8.12 Company Board approval recognizing and approving the Plan of Reorganization as embodied in this Agreement. 9. CLOSING CONDITIONS OF SELLERS. The Sellers' obligations to sell and transfer the Shares to be delivered to Buyer at the Closing shall be subject to the following conditions precedent: 9.1 Buyer shall deliver to Sellers: 9.1.1 Certificates representing such number of duly authorized and validly issued NEXIQ Shares as provided in Section 3.1. 9.2 Articles of Incorporation and Certificates of Good Standing. Buyer shall deliver to Sellers at Closing: 9.2.1 a certified copy of the Buyer's Articles of Incorporation, as amended, issued by the Secretary of State of the State of New Hampshire; 9.2.2 a Certificate of Good Standing / Legal Existence of the Buyer issued by the Secretary of State of the State of New Hampshire; and 9.2.3 the current Bylaws of the Buyer. 9.3 Closing Certificate. Buyer shall deliver to Sellers a certificate executed by a duly authorized officer of the Buyer representing and warranting to Sellers that each of the Buyer's representations and warranties in this Agreement is accurate in all respects as of the Closing Date as if made on the Closing Date. 9.4 Legal Opinions. At Closing, the Sellers shall have received from McLane, Graf, Raulerson & Middleton Professional Association, counsel to Buyer in this transaction, its opinion dated the Closing Date, in form and substance reasonably satisfactory to the Company and their counsel, Simmons, Perrine, Albright & Ellwood, P.L.C., and covering such matters as the Sellers and such counsel may require. 9.5 Certificate of the Secretary. The Buyer shall deliver to the Sellers at Closing a certificate of the Buyer's corporate secretary, in a form reasonably acceptable to Sellers and its counsel, certifying as to the Buyer's articles of incorporation, bylaws, capitalization, and the incumbency of officers. 28 -------------------------------------------------------------------------------- 9.6 Resolutions. The Buyer shall deliver to the Sellers at Closing certified resolutions of the Buyer's board of directors approving this Agreement and the transactions contemplated hereby. 9.7 Employment Agreements. 9.7.1 James C. Griffin, Jr., shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.1. 9.7.2 William J. Callahan shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.2. 9.7.3 Hass Machlab shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.3. 9.7.4 Ron Stahlberg shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.4. 9.7.5 Brian Payne shall have terminated his existing employment agreement with the Company and executed an employment agreement with the Company in a form substantially similar to attached Exhibit 8.4.5. 9.7.6 Each of the employees listed on Exhibit 8.4.6 shall have executed an Amendment to their employment agreements with the Company in form substantially similar as attached Exhibit 8.4.6. 10. POST-CLOSING COVENANTS. 10.1 Post-Closing Cooperation. The Buyer and Sellers agree that following the Closing, each shall execute and deliver such documents, instruments, certificates, notices or other further assurances as counsel of the requesting party shall reasonably deem necessary or desirable to complete consummation of this Agreement and the transactions contemplated hereby. 10.2 Delivery of Shares. Within ten (10) business days after the Closing, the Buyer (or its agent for the transfer and issuance of stock) shall deliver to the Sellers such number of duly authorized and validly issued NEXIQ Shares as provided in Section 3.1. 10.3 Severance Obligation. Buyer agrees that if any employee of the Company is terminated, other than for cause, during the twelve (12) month period following the Closing, then any such employee shall be entitled, at a minimum, to the severance benefits the Buyer provides to its similarly situated employees consistent with the Buyer's past business 29 -------------------------------------------------------------------------------- practices taking into consideration, among other things, the position of such employee and the length of employment. 10.4 Tax Matters Cooperation. The Sellers shall cooperate fully with the Company in connection with its filing of tax returns required to be filed by the Company in any jurisdiction and with any audit, litigation or other proceeding with respect to Taxes related to the operation of the Company prior to Closing. The Buyer shall cooperate fully with the Sellers in connection with any audit, litigation or other proceeding with respect to Taxes related to the operation of the Company prior to Closing. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Sellers agree to provide Buyer with any tax returns required to be filed for periods prior to the Closing Date within a reasonable time prior to filing. 10.5 Company Business Plan. Buyer shall use its best efforts to operate the Company in accordance with the Company's Business Plan dated February 1, 2001, with such Business Plan providing for the funding to market, distribute and further promote the sale, license and distribution of the Company's current IVIS product. 10.6 DSI Offices. For a minimum of twelve (12) months following Closing, Buyer shall use its best efforts to maintain the Company's current operations in its current location in Coralville, Iowa in substantially the same form as at Closing. 11. INDEMNIFICATION. 11.1 Sellers' Indemnification Obligations. 11.1.1 Subject to the limitation in Section 7, from and after the Closing, each Seller shall indemnify, save and keep Buyer and its successors and assigns (each a "Buyer Indemnitee" and collectively, the "Buyer Indemnities") harmless against and from such Seller's Allocable Portion of all Claims sustained or incurred by any Buyer Indemnitee, as a result of or arising out of or by virtue of (i) any inaccuracy in or breach of any representation or warranty made by the Sellers to the Buyer herein or in any closing document delivered to the Buyer in connection therewith; or (ii) the breach by Sellers of, or failure of Sellers to comply with, any of the covenants or obligations under this Agreement to be performed by the Sellers. 11.1.2 Buyer Indemnities shall be entitled to make claims for indemnification for a period of eighteen (18) months following the Closing Date, except for claims for indemnification with respect to the Sellers' representations and warranties with respect to Taxes, and employee benefit plans which Buyer Indemnities shall be entitled to make for a period equal to the unexpired term of the applicable statute of limitations plus thirty (30) days, except for environmental matters which Buyer Indemnities shall be entitled to make for a period of six (6) years, and except for claims for indemnification with respect to the Sellers' representations and warranties with respect to title made in Section 4.3 and Fraud which the Buyer Indemnities shall be entitled to make forever. 30 -------------------------------------------------------------------------------- 11.2 Buyer's Indemnification Obligations. 11.2.1 Subject to the limitations in Section 7, from and after the Closing, Buyer shall indemnify, save and keep each Seller and its successors and assigns (each a "Seller Indemnitee" and collectively, the "Seller Indemnities") harmless against and from all Claims sustained or incurred by any Seller Indemnitee, as a result of or arising out of or by virtue of (i) any inaccuracy in or breach of any representation or warranty made by the Buyer to each Seller herein or in any closing document delivered to the Sellers in connection therewith; or (ii) the breach by Buyer of, or failure of Buyer to comply with, any of the covenants or obligations under this Agreement to be performed by the Buyer. 11.2.2 Seller Indemnities shall be entitled to make claims for indemnification for a period of eighteen (18) months following the Closing Date, except for claims for indemnification with respect to the Buyer's representations and warranties with respect to title made in Section 5.3 and Fraud which the Seller Indemnities shall be entitled to make forever. 11.3 Indemnification Procedures. The procedure set forth below shall be followed with respect to every claim for indemnification by any Buyer Indemnities or Seller Indemnities under Sections 11.1 or 11.2: 11.3.1 Notice. The party seeking indemnification (the "Indemnified Party") shall give to the party from whom indemnification is sought (the "Indemnifying Party") written notice of any Claims for which indemnity may be sought under either Section 11.1 or 11.2, promptly but in any event within thirty (30) calendar days after the Indemnified Party receives notice thereof; provided, however, that failure by the Indemnified Party to give such notice shall not relieve the Indemnifying Party from any liability it shall otherwise have pursuant to this Agreement except to the extent that the Indemnifying Party is actually prejudiced by such failure. Such notice shall set forth in reasonable detail the basis for such potential Claims and shall be given in accordance with Section 12.1 below. The indemnification period provided for herein shall be tolled for a particular claim for a period beginning on the date that the Indemnified Party receives written notice of such Claims until the final resolution of the claim. 11.3.2 Defense and Control of Third Party Claims. The Indemnifying Party shall have the right, at its option, to be represented by counsel of its choice and to assume the defense or otherwise control the handling of any third party Claims for which indemnity is sought by notifying the Indemnified Party in writing to such effect with ten (10) days of receipt of such notice. If the Indemnifying Party does not give timely notice in accordance with the preceding sentence, or abandons the defense of such Claims, the Indemnifying Party shall be deemed to have given notice that it does not wish to control the handling of such third party Claims for which indemnity is sought. In the event the Indemnifying Party elects (by written notice within such ten (10) day period) to assume the defense of or otherwise control the handling of any such third party Claims for which indemnity is sought, the Indemnified Party shall cooperate, at the expense of the Indemnifying Party, and the Indemnifying Party shall indemnify and hold harmless the 31 -------------------------------------------------------------------------------- Indemnified Party from and against all Claims suffered therefrom, notwithstanding the fact that the Indemnifying Party may not have been so liable to the Indemnified Party had it not elected to assume the defense of or to otherwise control the handling of such third party Claims. If the Indemnifying Party notifies the Indemnified Party that the Indemnifying Party elects to defend such third party Claims, but reserves the right to dispute its indemnification obligation, then the Indemnified Party may elect, at its option, may retain counsel, as an indemnifiable expense, to defend such third party Claims and assume the defense or otherwise control the handling of such third party Claims. In the event that the Indemnifying Party does not assume the defense or otherwise control the handling of third party Claims for which the Indemnified Party is entitled to indemnification hereunder, the Indemnified Party may retain counsel, as an indemnifiable expense, to defend such third party Claims. Any such expense shall be borne by the Indemnifying Party and the Indemnified Party shall have final authority with respect to any such matter. In any event, the Indemnified Party and the Indemnifying Party each may participate, at its own expense, in the defense of such third party Claim. If the Indemnifying Party chooses to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any personnel or any books, records or other documents within its control that are reasonably necessary or appropriate for such defense, subject to the receipt of appropriate confidentiality agreements. 11.3.3 Cooperation. The parties shall cooperate in the defense of any third party Claims and shall make available all books and records which are relevant in connection with such third party Claims. The Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to any matter which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. 12. MISCELLANEOUS. 12.1 Notice. All notices, requests, consents or other communications to be sent or given under this Agreement shall be in writing and shall be delivered by hand, overnight courier, certified mail or electronic facsimile, in each case with written confirmation of receipt. Notice to any party shall be deemed received on the day of delivery if delivered, with confirmation of receipt, by electronic facsimile, by courier or by hand during normal business hours, and the following day if delivered after normal business hours. Delivery of all notices shall be made to the following persons at the address provided or such other person or address as a party shall designate by written instrument provided to the other parties: [Remainder of Page Intentionally Left Blank] 32 -------------------------------------------------------------------------------- If to Buyer: John R. Allard, Chair NEXIQ Technologies, Inc. 1155 Elm Street Manchester, NH 03101 Facsimile: 603-627-3150 With a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton Professional Association P.O. Box 326 Manchester, New Hampshire 03105-0326 overnight delivery address: 900 Elm Street Manchester, New Hampshire 03101 Facsimile: 603-625-5650 If to Sellers: James C. Griffin Diversified Software Industries, Inc. 4702 Chandler Court Iowa City, IA 52245 Facsimile: 319/545-5315 With a copy to: Kathleen A. Kleiman Simmons, Perrine, Albright & Ellwood, P.L.C. 115 3rd Street S.E., Suite 1200 Cedar Rapids, IA 52401-1266 Facsimile: 319/366-0570 12.2 Entire Agreement. This Agreement constitutes the entire Agreement among the parties hereto with respect to the subject matter hereto and supersedes all prior correspondence, conversations and negotiations. 12.3 Interpretation Guidelines. In this Agreement: the use of any gender shall include all genders; the singular number shall include the plural and the plural the singular as the context may require; whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms; the words "include," "including," and "such as" shall each be construed as if followed by the phrases "without being limited to"; the words "herein," "hereof," "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular Section hereof unless expressly so stated; the section headings herein are for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof. 12.4 No Presumption Against Drafter. Each of the parties hereto has participated in the negotiation and drafting of this Agreement. In the event that there arises any ambiguity or question of intent or interpretation with respect to this Agreement, this Agreement shall be construed as if drafted jointly by all of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. 12.5 Expenses. Except as otherwise provided herein, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the negotiation, preparation, execution, delivery and performance of this Agreement and the consummation of the transaction contemplated hereby, including, without limitation, attorneys', accountants' and other professional fees and expenses. 33 -------------------------------------------------------------------------------- 12.6 Publicity; Confidentiality. Each Seller agrees to submit to the Buyer for approval prior to its release any advertising, press releases or other publicity relating to this Agreement and the transactions contemplated thereby, which approval shall not be unreasonably withheld, subject to SEC disclosure requirements. This Agreement and all Schedules and Exhibits hereto, and all information exchanged by the parties in connection with this Agreement will be maintained by the Sellers as pursuant to the confidentiality provisions of the Nondisclosure Agreement executed by the Buyer and the Company, attached hereto and fully incorporated herein as Exhibit 12.6. No press release or other publicity relating to this Agreement shall be made without the prior written consent of Buyer and the material participation in the discussions relating to such press release or publicity by Jim Griffin. 12.7 Assignment. Neither party may assign or otherwise transfer this Agreement or any of its rights or obligations hereunder to any third party without the prior without the prior written consent of the other parties, except for (i) an assignment in connection with the consolidation or reorganization of the Company with, or merger into, any other corporation, or the sale by the Buyer of all or substantially all of its assets or the assets of the Company; or (ii) an assignment by Buyer to an Affiliate or Subsidiary; provided that any such assignee shall have agreed in writing to assume the obligations of the assignor, to be bound by the terms of this Agreement, and to provide the other parties hereto with copies of such assumptions. If a party assigns this Agreement or any right created hereby without such an exception and without the prior written consent of the other parties, as the case may be, the assignment shall be null and void. 12.8 Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument and all of which together shall constitute a single document. Signatures and other longhand notations transmitted by electronic facsimile shall be deemed to be original for purposes of the construction and enforcement of this Agreement. 12.9 Modification. No modification of this Agreement shall be valid unless such modification is in writing and signed by Buyer and the Seller or Sellers to be bound by such modification. 12.10 Waiver. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the person or party against whom charged. 12.11 Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if the invalid or unenforceable provision was omitted. 12.12 Governing Law and Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Hampshire, without regard to conflict of laws principles. The parties, to the extent that they can legally do so, hereby consent to service of process, and to be sued, in the State of New Hampshire and consent to the jurisdiction of the courts of the State of New Hampshire and the United States District Court for the District of New Hampshire, as well as to the jurisdiction of all courts to 34 -------------------------------------------------------------------------------- which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of any of their obligations hereunder or with respect to the transactions contemplated hereby, and expressly waive any and all objections they may have to venue in such courts. [Remainder of Page Intentionally Left Blank] [Signature Pages Follow] 35 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have set their hands, duly authorized where applicable, as of the date and year first above written. WITNESS: SELLERS: Motorola, Inc. _________________________ By: __________________________________ Its: _________________________ ______________________________________ James C. Griffin, Jr. _________________________ ______________________________________ Robert Hering _________________________ ______________________________________ Dan Marquardt _________________________ ______________________________________ Hass Machlab _________________________ ______________________________________ William J. Callahan _________________________ ______________________________________ Ronald E. Stahlberg _________________________ ______________________________________ Gregory A. Dils _________________________ ______________________________________ Mark G. Brown 36 -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT SIGNATURE PAGE ________________________ ______________________________________ J. Jay Lash WITNESS: BUYER: NEXIQ Technologies, Inc. _________________________ By:____________________________________ John R. Allard, Chair COMPANY: _________________________ _______________________________________ James C. Griffin, Jr., President and CEO 37 -------------------------------------------------------------------------------- Exhibit 10.25 SIDE AMENDMENT TO STOCK PURCHASE AGREEMENT THIS SIDE AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment"), dated as of May 11, 2001, is entered into by and among NEXIQ Technologies, Inc., ("NEXIQ") a New Hampshire corporation (NEXIQ shall also be referred to as the "Buyer"), and Motorola, Inc. ("Motorola"), a Delaware corporation with an address of 6501 William Cannon Drive, West Austin, TX 78735; James C. Griffin, Jr. ("Griffin") who resides at 4702 Chandler Ct., Iowa City, IA 52245, Robert Hering ("Hering") who resides at 918 Bluffwood Drive, Iowa City, IA 52245; Dan Marquardt ("Marquardt") who resides at 2020 Diamond Ridge Road SE, Cedar Rapids, Iowa 52403; Hass Machlab ("Machlab") who resides at 2680 Glenn Hollow Court, Coralville, IA 52241; William J. Callahan ("Callahan") who resides at 620 Northwood Street, Iowa City, IA 52245; Ronald E. Stahlberg ("Stahlberg") who resides at 1616 5th St., #2, Coralville, IA 2241; Gregory A. Dils ("Dils") who resides at 352 Oriole Court, Tiffin, IA 52340; Mark G. Brown ("Brown") who resides at 1914 Bristol Drive, Iowa City, Iowa 52245; and J. Jay Lash ("Lash") who resides at 905 East 4th Street, Vinton, IA 52349 (Motorola, Griffin, Hering, Marquardt, Machlab, Callahan, Stahlberg, Dils, Brown and Lash are each a "Seller" and collectively referred to as the "Sellers"), and Diversified Software Industries, Inc. (the "Company"), an Iowa corporation. RECITALS: WHEREAS, the Parties have executed a certain Stock Purchase Agreement (the "Purchase Agreement") dated as of May 8, 2001; WHEREAS, the Parties now desire to make certain modifications, amendments and changes to the Purchase Agreement and to fully incorporate those modifications, amendments, and changes into the Purchase Agreement; WHEREAS, the Parties intend to remain fully and legally bound by and to the terms of the Purchase Agreement as modified hereby; NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Amendment and in the Purchase Agreement, the Parties hereto, intending to be legally bound, agree as follows: 1. This Amendment is not and shall not be deemed a prior correspondence, conversation or negotiation for the purposes of Section 12.2 of the Purchase Agreement, but rather it is and shall be deemed to be a written modification pursuant to Section 12.9 of the Purchase Agreement. 2. The Purchase Agreement is modified, amended and changed as shown below in Section 3 and this Amendment is hereby incorporated into and made a part of the Purchase Agreement. 3. The parties agree to the following amendments to the Purchase Agreement: -------------------------------------------------------------------------------- 3.1 Introductory Paragraph. The first line of the introductory paragraph of the Purchase Agreement shall be amended by deleting the reference to "8th" in the first line thereto and inserting "11th" in lieu thereof. 3.2 Section 1.10 of the Purchase Agreement. Section 1.10 of the Purchase Agreement is hereby amended by deleting the definition of "Knowledge" and inserting in lieu thereof the following definition: "1.10 Knowledge." The phrase "to the Buyer's knowledge" and phrases with similar language or effect shall mean the actual knowledge of a member of the Board of Directors of the Buyer or an executive officer of the Buyer. The phrases "to Seller's knowledge," "known by the Sellers" and phrases with similar language or effect shall mean the actual knowledge of any of the Sellers other than Motorola and with respect to Motorola shall mean the actual knowledge of any of the Board of Directors of the Company who are also employees of Motorola. The phrases "to Company's knowledge," "known by the Company" and phrases with similar language or effect shall mean the actual knowledge of a member of the Company's Board of Directors or an executive officer of the Company." 3.3 Section 2.3 of the Purchase Agreement. Section 2.3 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "2.3 The Closing. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 10:00 a.m. Eastern Time on May 11, 2001 via teleconference and facsimile machine (with counterparts of original executed documents sent via overnight mail), or at such other time, date or place as may be mutually agreeable to the Sellers and the Buyer (the "Closing Date"). Immediately following the Closing, via overnight mail, the Sellers shall deliver to the Buyer the share certificates of the Company representing the Shares, duly executed for transfer to the Buyer (or accompanied by duly executed stock transfer powers). No longer than ten (10) business days after the Closing, but using its best efforts, the Buyer (or its agent for the transfer and issuance of stock) shall deliver to the Sellers as soon as practicable after the Closing NEXIQ share certificates for the number of NEXIQ Shares representing in total the Purchase Price. If, at the Closing, any of the conditions specified in Section 8 shall not have been fulfilled, the Buyer shall, at its election, be relieved of all of its obligations under this Agreement and will thereby waive all other rights it may have by reason of such failure or such non-fulfillment. If, at the Closing, any of the conditions specified in Section 9 shall not have been fulfilled, the Sellers shall, at their election, be relieved of all obligations under this Agreement, and will thereby waive all other rights they may have by reason of such failure or such non-fulfillment." 2 -------------------------------------------------------------------------------- 3.4 Section 3.2.1 of the Purchase Agreement. Section 3.2.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.2.1 At any time after twelve (12) months from the date of this Agreement, one or more Sellers holding at least fifty percent (50%) of the Registrable Securities may request the Buyer to register under the Securities Act all or any portion of the Registrable Securities held by such requesting Sellers in the manner specified in such request, and upon receipt of such request the Buyer shall promptly deliver notice of such request to all Sellers holding Registrable Securities who shall then have thirty (30) days to notify the Buyer in writing of their desire to be included in such registration. The Buyer will use its best efforts to expeditiously effect the registration of all Registrable Securities whose Sellers request participation in such registration under the Securities Act, but only to the extent provided for in the following provisions of this Agreement; provided, however, that the Buyer shall not be required to effect registration pursuant to a request under this Section 3.2 more than one (1) time for the Sellers of the Registrable Securities as a group, and may register the Registrable Securities on Form S-3 under the Securities Act, if available; provided further, however, that a demand for registration pursuant to Section 3.2 shall not count as a registration permitted pursuant to Section 3.2 if either (a) the registration statement filed with respect to such registration is not declared effective by the SEC, or (b) the Sellers requesting registration of Registrable Securities pursuant to Section 3.2 do not register and sell at least 80% of the Registrable Securities they have requested be registered in such registration due to the Company's failure to keep the registration statement effective and to ensure that the prospectus included therein continues to satisfy the requirements of Section 10 of the Securities Act for the period provided in Section 3.4.1. Notwithstanding anything to the contrary contained herein, the right to demand registration under this Section 3.2 shall terminate after the effective date of a registration statement filed by the Buyer covering a firm commitment for an underwritten public offering in which the Sellers shall have been entitled to join and in which there shall have been effectively registered all Registrable Securities as to which registration shall have been requested." 3.5 Section 3.2.2 of the Purchase Agreement. Section 3.2.2 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.2.2 Whenever a requested registration pursuant to Section 3.2.1 above is for an underwritten public offering, only Registrable Securities which are to be included in the underwriting may be included in the registration, and, if the managing underwriter of such public offering determines in good faith that the number of Registrable Securities so included which are to be sold by the Sellers of the Registrable Securities should be limited due to market conditions and/or the necessity of including in such underwriting or registration securities to be sold for the account of the Buyer, then the Buyer may reduce the number of securities to be included in such offering to a number deemed satisfactory by the managing underwriter, provided that the securities to be excluded shall be determined in the following order: first; 3 -------------------------------------------------------------------------------- securities held by persons participating in such offering not having contractual, incidental or "piggyback" registration rights; and second, securities held by any person having contractual, incidental or "piggyback" registration rights subordinated and junior to the rights of the sellers of Registrable Securities; and third, securities held by any Seller participating in such registration pursuant to the exercise of demand registration rights pursuant to Section 3.2.1 above, as determined on a pro rata basis. Notwithstanding the foregoing, in the event that the underwriter or underwriters cut back the number of Registrable Securities required to be included by the Sellers in such demand registration by more than fifty percent (50%), then such registration will not be deemed to be a demand registration for purposes of this Section 3.2. Whenever a requested registration pursuant to Section 3.2.1 above is for an underwritten public offering, the Sellers of at least a majority of the Registrable Securities as to which registration has been requested may designate the managing underwriter(s) of such offering." 3.6 Section 3.2.3 of the Purchase Agreement. Section 3.2.3 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.2.3 If at the time of any request to register Registrable Securities pursuant to Section 3.2.1 above the Buyer is preparing or within thirty (30) days thereafter commences to prepare a registration statement for a public offering (other than a registration effected solely to implement an employee benefit plan, a reorganization or merger or acquisition, or a transaction to which Rule 145 of the Commission is applicable) which in fact is filed and becomes effective within ninety (90) days after the request, or is engaged in any activity which, in the good faith determination of the Buyer's board of directors, would be adversely affected by the requested registration to the material detriment of the Buyer, then the Buyer may at its option direct that such request be delayed for a period during which such filing would be materially detrimental, provided that the Buyer may not delay the filing for a period in excess of four (4) months from the effective date of such offering or the date of commencement of such other activity, as the case may be, such right to delay a request to be exercised by the Buyer not more than once in any twelve (12) month period. Nothing in this Section 3.2.3 shall preclude a seller of Registrable Securities from enjoying registration rights which it might otherwise possess under Section 3.3 hereof." 3.7 Section 3.3 of the Purchase Agreement. Section 3.3 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.3 Piggyback Registrations. If the Buyer at any time proposes to register any of its securities under the Securities Act (including pursuant to a demand of any stockholder of the Buyer exercising registration rights) for sale to the public 4 -------------------------------------------------------------------------------- (except with respect to registration statements on Form S-4 or S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give at least 20 days' advance written notice to all Sellers. Upon the written request of any of such Sellers of the Registrable Securities given within twenty (20) days after receipt by such Sellers of such notice, the Buyer will, subject to the limits contained in this Section 3.3, use its best efforts to cause all such Registrable Securities of said requesting Sellers to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent requisite to permit such sale or other disposition by such Seller; provided, however, that if the Buyer is advised in writing in good faith by any managing underwriter of the Buyer's securities being offered in a public offering pursuant to such registration statement that the amount to be sold by sellers other than the Buyer (collectively, "Selling Stockholders") is greater than the amount which can be marketed without materially and adversely affecting such offering, the Buyer may reduce the amount offered for the accounts of Selling Stockholders (including sellers of shares of Registrable Securities) pursuant to a contractual, incidental "piggy back" right to include such securities in a registration statement to a number deemed satisfactory by such managing underwriter; provided further, that no reduction shall be made in the amount of Registrable Securities offered for the accounts of the Sellers unless such reduction is imposed pro rata with respect to (i) all securities whose sellers have a contractual, incidental "piggy back" right to include such securities in the registration statement as to which inclusion has been requested pursuant to such right and (ii) any executive officer of the Buyer; and provided further, that there is first excluded from such registration statement all shares of Common Stock sought to be included therein by (x) any seller thereof, other than any executive officer of the Buyer, not having any such contractual, incidental or "piggyback" registration rights and (y) any seller thereof having contractual, incidental registration rights subordinated and junior to the rights of the Sellers." 3.8 Section 3.4.1 of the Purchase Agreement. Section 3.4.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.4.1 prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become effective within 90 days of filing and remain effective and, if the Commission issues a stop order suspending the effectiveness of the registration statement, use its best efforts to cause such stop order to be withdrawn promptly; provided, however, that notwithstanding any other provision of this Agreement, the Buyer shall not in any event be required to use its best efforts to maintain the effectiveness of any such registration statement for a period in excess of six (6) months;" 3.9 Section 3.4.2 of the Purchase Agreement. Section 3.4.2 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: 5 -------------------------------------------------------------------------------- "3.4.2 prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Seller or Sellers of such securities shall desire to sell or otherwise dispose of the same in accordance with the intended methods of disposition set forth in the Registration Statement;" 3.10 Section 3.4.3 of the Purchase Agreement. Section 3.4.3 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.4.3 (a) furnish to each Seller such number of copies of such Registration Statement, amendments or supplements thereto, and the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Seller may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Seller; (b ) provide a transfer agent and registrar for all Registrable Securities sold under the registration not later than the effective date of the registration statement;" 3.11 Section 3.4.5 of the Purchase Agreement. Section 3.4.5 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.4.5 promptly notify each Seller of the happening of any event which makes any statement made in any registration statement, supplement or amendment or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Buyer shall promptly prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;" 3.12 Section 3.4.6 of the Purchase Agreement. Section 3.4.6 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: 6 -------------------------------------------------------------------------------- "3.4.6 before filing the registration statement or prospectus or amendments or supplements thereto, furnish to one counsel selected by the Sellers copies of all such documents proposed to be filed which shall be subject to the reasonable approval of such counsel;" 3.13 Section 3.4.8 of the Purchase Agreement. Section 3.4.8 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.4.8 use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange or to be qualified and eligible for trading in any automated quotation system, if any on which the Common Stock of the Buyer is then listed;" 3.14 Section 3.4.10 of the Purchase Agreement. Section 3.4.10 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.4.10 enter into such agreements and take such other actions as Sellers of such Registrable Securities holding more than 50% of the shares so to be sold or underwriters, if any, shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities." 3.15 Section 3.5 of the Purchase Agreement. Section 3.5 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.5 Expenses. All expenses incurred in effecting the registrations provided for in Sections 3.1 and 3.2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Buyer and fees for all of the Sellers, underwriting expenses (other than expenses, fees, commissions, discounts and transfer taxes relating to the Registrable Securities), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 3.4.8 hereof (all of such expenses referred to as "Registration Expenses"), shall be paid by the Buyer; provided, that if an offering pursuant to any registration commenced pursuant to Section 3.2 above is abandoned by the Sellers more frequently than one (1) time in any twelve (12) month period (other than by reason of adverse information pertaining to the Buyer's business affairs or financial position unknown to the Sellers prior to the commencement of such registration proceedings, or by reason of the underwriters cutting back the number of Registrable Securities by more than fifty percent (50%) in a demand registration as provided in Section 3.2.2, in which event the Buyer shall bear all Registration Expenses), such Sellers shall bear pro rata any costs incurred by the Buyer in conjunction with such registration. In either event, the number of registrations to which the Sellers are entitled pursuant to Section 3.2 shall not be reduced thereby." 7 -------------------------------------------------------------------------------- 3.16 Section 3.7.1 of the Purchase Agreement. Section 3.7.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.7.1 The Buyer shall indemnify and hold harmless each of the Sellers, each underwriter (as defined in the Securities Act), and each other person who participates in the offering of such securities and each other person, if any, who controls (within the meaning of the Securities Act) such Seller, underwriter or participating person (individually and collectively the "Buyer Indemnified Person") against any losses, claims, damages or liabilities (collectively the "liability"), joint or several, to which such Buyer-Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. The Buyer shall reimburse each such Buyer-Indemnified Person in connection with investigating or defending any such liability; provided, however, that the Buyer shall not be liable to any Buyer-Indemnified Person in any such case to the extent that any such liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Buyer by such Buyer-Indemnified Person specifically for use therein; and provided further, that the Buyer shall not be required to indemnify any person against any liability which arises out of the failure of any person to deliver a prospectus as required by the Securities Act regardless of any investigation made by or on behalf of such Buyer-Indemnified Person and shall survive transfer of such securities by such Seller." 3.17 Section 3.7.2 of the Purchase Agreement. Section 3.7.2 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.7.2 Each Seller shall, by acceptance thereof, indemnify and hold harmless each other holder of any Registrable Securities, the Buyer, its directors and officers, each underwriter and each other person, if any, who controls the Buyer or such underwriter (individually and collectively the "Seller-Indemnified Person"), against any liability, joint or several, to which any such Seller-Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such Seller, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state 8 -------------------------------------------------------------------------------- therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Buyer by such indemnifying Seller specifically for use therein. Such Seller shall reimburse any Seller-Indemnified Person for any legal fees incurred in investigating or defending any such liability; provided, however, that such Seller's obligations hereunder shall be limited to an amount equal to the net proceeds to such Seller of Registrable Securities sold in any such registration; and provided further, that no Seller shall be required to indemnify any person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any person to deliver a prospectus as required by the Securities Act." 3.18 Section 3.8.1 of the Purchase Agreement. Section 3.8.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "3.8.1 Make in a timely manner and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act;" 3.19 Section 4.17 of the Purchase Agreement. Section 4.17 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "4.17 Financial Statements and Records. The Company has delivered to the Buyer the Company's financial statements, including the notes thereto, for the years ending June 30, 1999 and June 30, 2000 (the "Company's Balance Sheet Date") audited by McGladrey & Pullen, LLP, copies of which are attached hereto as Exhibit 4.17 (collectively, the "Company's Financial Statements"). The Company's Financial Statements fairly present the financial position of the Company as of the dates thereof and the results of operations for the periods covered thereby, and have been prepared in accordance with GAAP. The books and records of the Company fully and fairly reflect all of its transactions, properties, assets and liabilities in all material respects, except (i) liabilities that arise in the ordinary course of business after the applicable date of the Company Financial Statements, (ii) liabilities disclosed in Schedule 4.17; and/or (iii) liabilities arising in the ordinary course of business that are not required under GAAP to be reflected on the Company's Financial Statements. The Company's Financial Statements reflect all adjustments deemed necessary by the Company's auditors for a fair 9 -------------------------------------------------------------------------------- presentation of the financial information contained therein. The Company has delivered to the Buyer an internally prepared, unaudited and unreviewed balance sheet as of March 31, 2001, ("Closing Date Balance Sheet") attached hereto as Schedule 4.17 of the Disclosure Schedules. To the best of the Company's and the Sellers' knowledge, the Closing Date Balance Sheet fully and fairly reflect all of the Company's transactions, properties, assets and liabilities in all material respects, except (i) liabilities that arise in the ordinary course of business after the applicable date of the Closing Date Balance Sheet, or (ii) liabilities disclosed in Schedule 4.17." 3.20 Section 4.22.1 of the Purchase Agreement. Section 4.22.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "4.22.1 Schedule 4.22 of the Disclosure Schedules sets forth each employee benefit plan which the Company currently sponsors or to which the Company contributes as well as each employee benefit plan which the Company, or any predecessor company, sponsored or to which the Company contributed since January 1, 1995. The Company and each of the Sellers other than Motorola are not, and have has not been since January 1, 1995, an Affiliate of any other Person other than the Company. Schedule 4.22 of the Disclosure Schedules also sets forth any obligation of the Company with respect to severance or separation benefits to any employee." 3.21 Section 4.32 of the Purchase Agreement. Section 4.32 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "4.32 Relationships with Related Persons. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller or Affiliate of any Seller (other than with respect to Motorola), nor the Company has, or since July 1, 1998 has, had any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Company's business. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller or Affiliate of any Seller (other than with respect to Motorola), nor the Company owns, or since July 1, 1998 has owned, (of record or as beneficial owner) an equity interest, or any other equity or financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with the Company, or (ii) engaged in competition with the Company with respect to any line of the products or services of the Company (a "Competing Business") in any market presently served by the Company. Except as disclosed in Schedule 4.32 of the Disclosure Schedules, neither any Seller nor, an Affiliate of any Seller (other than with respect to Motorola) is a party to any contract with, or has any claim or right against, the Company." 3.22 Section 4.34 of the Purchase Agreement. Section 4.34 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: 10 -------------------------------------------------------------------------------- "4.34 Financial Projections; Business Plan. The financial projections heretofore supplied to Buyer, including, without limitation, the Company's Business Plan dated February 1, 2001, were prepared by the Company and the Sellers (other than Motorola) in good faith on the basis of assumptions which were reasonable when made and such financial projections are not intended to be projections or assurances of future performance to be relied upon." 3.23 Section 5.4 of the Purchase Agreement. The first paragraph of Section 5.4 of the Purchase Agreement is hereby amended by deleting such paragraph in its entirety and inserting in lieu thereof the following: "5.4 Legal, Valid and Binding Obligations; Authorized. This Agreement and any other documents executed by or on behalf of the Buyer in connection with the transactions contemplated hereby or thereby each constitutes the legal, valid and binding obligation of the Buyer or its Subsidiary, enforceable in accordance with the respective terms hereof and thereof, except as the same may be limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights generally and by equitable principles. The execution, delivery and performance of this Agreement and the other documents contemplated hereby by the Buyer, and the 1,000,000 nonstatutory stock options that will be granted to Griffin, Callahan, Lash, Dils, Brown, Stahlberg and Machlab, and the "replacement" nonstatutory stock options that will be granted to the Company's existing option holders upon the termination of Company's existing options pursuant to the Buyer's 2001 Nonstatutory Stock Incentive Plan (collectively, the "New Options") each granted in connection with and as a condition of each recipient executing a new or amended employment agreement with the Company:" 3.24 Section 5.5 of the Purchase Agreement. Section 5.5 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "5.5 No Conflicts. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated by this Agreement nor the grant of the New Options conflicts or will conflict with or results or will result in a breach of the terms, conditions or provisions of, or constitute, or will on the Closing Date constitute, a default under, the Articles of Incorporation or the By-Laws of the Buyer or its Subsidiary or, except as set forth on Schedule 5.5 of the Disclosure Schedules, a material breach or violation of or default under or grounds for termination of, or an event which with the lapse of time or notice and the lapse of time could cause a default under or breach or violation of, or grounds for termination of, any note, indenture, mortgage, license, title retention agreement or any other agreement or instrument to which the Buyer, is a party or by which the Buyer or any of its assets is bound, or would result in the creation of any lien, charge or other security interest or encumbrance upon any property or asset or right of the Buyer, or violate, require consent or filings under any existing law, order, rule regulation, writ, injunction or decree of any union or any government, 11 -------------------------------------------------------------------------------- governmental department, commission, board, bureau, agency, body or court, domestic or foreign, having jurisdiction over the Buyer or any of its properties. Except as set forth on Schedule 5.5 of the Disclosure Schedules, no third party consent, or governmental authorization, approval, order, license, permit, franchise or, and no registration, declaration or filing with any governmental authority is required, in connection with the execution, delivery and performance of this Agreement or the grant of the New Options by the Buyer." 3.25 Section 7 of the Purchase Agreement. Section 7 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "Notwithstanding anything to the contrary in this Agreement, the maximum liability of the Sellers and of the Buyer under this Agreement or for Claims asserted by Buyer or the Sellers for any other circumstances or legal theory, including, but not limited to, Claims for (i) any inaccuracy in or breach of any representation or warranty made by the Sellers to the Buyer, or Buyer to the Sellers herein or (ii) the breach by Sellers or Buyer of, or failure of Sellers or Buyer to comply with, any of the covenants or obligations under this Agreement to be performed by the Sellers or Buyer, as the case may be, shall be limited in the aggregate to Five Hundred Thousand Dollars ($500,000) in the case of the Buyer, and in the case of the Sellers, each Seller's Allocable Portion (the Seller's "Allocable Portion shall be determined by the percentage ownership of the Shares each Seller owned prior to the Closing as described in Exhibit A) of $500,000, except, however, that the liability of each Seller resulting from Fraud or a breach of such Seller's representations and warranties made with respect to title in Section 4.3 shall be several and not joint and shall be limited to the Allocable Portion of the Purchase Price received by such Seller; provided, however, that in no event shall Sellers be liable to Buyer for individual Claims of less than Ten Thousand Dollars ($10,000); and provided further that in no event shall Sellers be liable to Buyer in any respect or in any amount until the value of all Claims equals or exceeds Thirty Thousand Dollars ($30,000), in which event Sellers (subject to the minimum Claim requirement above) shall be liable for the entire amount of such Claims up to the maximum amount referred to in this Section 7." 3.26 Section 10.4 of the Purchase Agreement. Section 10.4 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "10.4 Tax Matters Cooperation. The Sellers shall reasonably cooperate with the Company in connection with its filing of tax returns required to be filed by the Company in any jurisdiction and with any audit, litigation or other proceeding with respect to Taxes related to the operation of the Company prior to Closing. The Buyer shall reasonably cooperate with the Sellers in connection with any audit, litigation or other proceeding with respect to Taxes related to the operation of the Company prior to Closing. Such cooperation shall include the retention and (upon the other party's reasonable request) the 12 -------------------------------------------------------------------------------- provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Sellers agree to provide Buyer with any tax returns required to be filed for periods prior to the Closing Date within a reasonable time prior to filing." 3.27 Section 12.1 of the Purchase Agreement. Section 12.1 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following: "12.1 Notice. All notices, requests, consents or other communications to be sent or given under this Agreement shall be in writing and shall be delivered by hand, overnight courier, certified mail or electronic facsimile, in each case with written confirmation of receipt. Notice to any party shall be deemed received on the day of delivery if delivered, with confirmation of receipt, by electronic facsimile, by courier or by hand during normal business hours, and the following day if delivered after normal business hours. Delivery of all notices shall be made to the following persons at the address provided or such other person or address as a party shall designate by written instrument provided to the other parties: If to Buyer: John R. Allard, Chair NEXIQ Technologies, Inc. 1155 Elm Street Manchester, NH 03101 Facsimile: 603-627-3150 With a copy to: William V.A. Zorn, Esq. McLane, Graf, Raulerson & Middleton Professional Association P.O. Box 326 Manchester, NH 03105-0326 overnight delivery address: 900 Elm Street Manchester, NH 03101 Facsimile: 603-625-5650 If to Sellers (other than Motorola): James C. Griffin Diversified Software Industries, Inc. 4702 Chandler Court Iowa City, IA 52245 Facsimile: 319-545-5315 With a copy to: Kathleen A. Kleiman Simmons, Perrine, Albright & Ellwood, P.L.C. 115 3rd Street S.E., Suite 1200 Cedar Rapids, IA 52401-1266 Facsimile: 319-366-0570 To Motorola: Motorola, Inc. 1303 E. Algonquin Road Schaumburg, IL 60196 Attention: General Counsel Facsimile: 847-576-3628 With a copy to: Winston & Strawn 35 West Wacker Drive Chicago, IL 60601 Attention: Oscar A. David Facsimile: 312-558-5700" 13 -------------------------------------------------------------------------------- 3.28 Section 12.6 of the Purchase Agreement. Section 12.6 of the Purchase Agreement is hereby amended by deleting such subsection in its entirety and inserting in lieu thereof the following "12.6 Publicity; Confidentiality. Each Seller agrees to submit to the Buyer for approval prior to its release any advertising, press releases or other publicity relating to this Agreement and the transactions contemplated thereby, which approval shall not be unreasonably withheld, subject to SEC disclosure requirements. This Agreement and all Schedules and Exhibits hereto, and all information exchanged by the parties in connection with this Agreement will be maintained by such Seller with respect to all such information received by such Seller from Buyer pursuant to the confidentiality provisions of the Nondisclosure Agreement executed by the Buyer and the Company, attached hereto and fully incorporated herein as Exhibit 12.6. No press release or other publicity relating to this Agreement shall be made without the prior written consent of Buyer and the material participation in the discussions relating to such press release or publicity by Jim Griffin and Motorola if Motorola will be mentioned in such press release or other publicity" 4. All terms and provisions of the Purchase Agreement not modified, amended or changed by this Amendment shall remain in full force and effect. [Signature Page Follows] 14 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have set their hands, duly authorized where applicable, as of the date and year first above written. WITNESS: SELLERS: Motorola: ________________________ By: _________________________ Its: _______________________ _____________________________ James C. Griffin, Jr. ________________________ _____________________________ Robert Hering ________________________ _____________________________ Dan Marquardt ________________________ _____________________________ Hass Machlab ________________________ _____________________________ William J. Callahan ________________________ _____________________________ Ronald E. Stahlberg ________________________ _____________________________ Gregory A. Dils ________________________ _____________________________ Mark G. Brown 15 -------------------------------------------------------------------------------- ________________________ _____________________________ J. Jay Lash WITNESS: BUYER: NEXIQ Technologies, Inc. ________________________ _____________________________ By: John R. Allard, Chair COMPANY: ________________________ _____________________________ James C. Griffin, Jr., President and CEO 16 --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXHIBIT 10.29 AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 7, 2001, among ACTIVISION, INC., and certain of its Domestic Subsidiaries THE LENDERS NAMED HEREIN, and PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent, Collateral Agent and Issuing Bank -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I   1 SECTION 1.01.   Defined Terms   1 SECTION 1.02.   Terms Generally   20 ARTICLE II   20 SECTION 2.01.   Commitments; Formula Amount   20 SECTION 2.02.   Loans   21 SECTION 2.03.   Procedure for Revolving Credit Borrowings   22 SECTION 2.04.   Disbursement of Loans   23 SECTION 2.05.   Manner of Borrowing and Payment   23 SECTION 2.06.   Evidence of Debt   24 SECTION 2.07.   Statement of Account   25 SECTION 2.08.   Fees   25 SECTION 2.09.   Interest on Loans   26 SECTION 2.10.   Default Interest   26 SECTION 2.11.   Termination and Reduction of Commitments   26 SECTION 2.12.   Repayment of Borrowings   27 SECTION 2.13.   Prepayment   27 SECTION 2.14.   Mandatory Prepayments   27 SECTION 2.15.   Illegality   28 SECTION 2.16.   Increased Costs   28 SECTION 2.17.   Basis For Determining Interest Rate Inadequate or Unfair   29 SECTION 2.18.   Capital Adequacy   30 SECTION 2.19.   Indemnity   30 SECTION 2.20.   Pro Rata Treatment   31 SECTION 2.21.   Sharing of Setoffs   31 SECTION 2.22.   Payments   31 SECTION 2.23.   Taxes   31 SECTION 2.24.   Assignment of Commitments Under Certain Circumstances; Duty to Mitigate   32 SECTION 2.25.   Defaulting Lender   33 SECTION 2.26.   Letters of Credit   34 ARTICLE III   40 SECTION 3.01.   Organization; Powers   40 SECTION 3.02.   Authorization   40 SECTION 3.03.   Enforceability   41 SECTION 3.04.   Governmental Approvals   41 SECTION 3.05.   Financial Statements   41 SECTION 3.06.   No Material Adverse Change   41 SECTION 3.07.   Title to Properties; Possession Under Leases   42 SECTION 3.08.   Subsidiaries   42 SECTION 3.09.   Litigation; Compliance with Laws   42 SECTION 3.10.   Agreements   42 SECTION 3.11.   Federal Reserve Regulations   42 SECTION 3.12.   Investment Company Act; Public Utility Holding Company Act   43 SECTION 3.13.   Use of Proceeds   43 SECTION 3.14.   Tax Returns   43 SECTION 3.15.   No Material Misstatements   43 SECTION 3.16.   Employee Benefit Plans   43 SECTION 3.17.   Environmental Matters   44 SECTION 3.18.   Insurance   44 -------------------------------------------------------------------------------- SECTION 3.19.   Security Documents   44 SECTION 3.20.   Location of Real Property and Leased Premises   45 SECTION 3.21.   Labor Matters   45 SECTION 3.22.   Solvency   46 SECTION 3.23.   Year 2000   46 SECTION 3.24.   Letters of Credit   46 ARTICLE IV   46 SECTION 4.01.   All Credit Events   46 SECTION 4.02.   Restatement Effective Date   47 ARTICLE V   48 SECTION 5.01.   Existence; Businesses and Properties   48 SECTION 5.02.   Insurance   48 SECTION 5.03.   Obligations and Taxes   49 SECTION 5.04.   Financial Statements, Reports, etc.   49 SECTION 5.05.   Litigation and Other Notices   51 SECTION 5.06.   Employee Benefits   52 SECTION 5.07.   Maintaining Records; Access to Properties and Inspections   52 SECTION 5.08.   Use of Proceeds   52 SECTION 5.09.   Compliance with Environmental Laws   52 SECTION 5.10.   Preparation of Environmental Reports   52 SECTION 5.11.   Audits   53 SECTION 5.12.   Further Assurances   53 SECTION 5.13   Government Receivables   53 SECTION 5.14   Intellectual Property   53 SECTION 5.15   Blocked Accounts   54 SECTION 5.16   Receivables   55 ARTICLE VI   56 SECTION 6.01.   Indebtedness   57 SECTION 6.02.   Liens   57 SECTION 6.03.   Sale and Lease-Back Transactions   58 SECTION 6.04.   Investments, Loans and Advances   58 SECTION 6.05.   Mergers, Consolidations, Sales of Assets and Acquisitions   61 SECTION 6.06.   Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends   62 SECTION 6.07.   Transactions with Affiliates   62 SECTION 6.08.   [Intentionally omitted]   62 SECTION 6.09.   Interest Coverage Ratio   62 SECTION 6.10.   Fixed Charge Coverage Ratio   63 SECTION 6.11.   [Intentionally omitted]   63 SECTION 6.12.   [Intentionally omitted]   63 SECTION 6.13.   Minimum Tangible Net Worth   63 SECTION 6.14.   Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc   63 SECTION 6.15.   Limitation on Creation of Subsidiaries   63 SECTION 6.16.   Business   64 SECTION 6.17.   Fiscal Year; Accounting Changes   64 ARTICLE VII   64 ARTICLE VIII   66 ARTICLE IX   69 -------------------------------------------------------------------------------- SECTION 9.01.   Notices   69 SECTION 9.02.   Survival of Agreement   70 SECTION 9.03.   Binding Effect   70 SECTION 9.04.   Successors and Assigns   70 SECTION 9.05.   Expenses; Indemnity   73 SECTION 9.06.   Right of Setoff   74 SECTION 9.07.   Applicable Law   74 SECTION 9.08.   Waivers; Amendment   75 SECTION 9.09.   [Intentionally Deleted]   75 SECTION 9.10.   Entire Agreement   75 SECTION 9.11.   WAIVER OF JURY TRIAL; CONSEQUENTIAL DAMAGES   76 SECTION 9.12.   Severability   76 SECTION 9.13.   Counterparts   76 SECTION 9.14.   Headings   76 SECTION 9.15.   Jurisdiction; Consent to Service of Process   76 SECTION 9.16.   Confidentiality   77 SECTION 9.17.   Delivery of Notes   77 -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT     AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 7, 2001, among ACTIVISION PUBLISHING, INC., a Delaware corporation ("Activision"), ACTIVISION, INC., a Delaware corporation ("Activision Holdings"), ACTIVISION VALUE PUBLISHING, INC., a Minnesota corporation (formerly Head Games Publishing, Inc.) ("Value") and EXPERT SOFTWARE, INC., a Delaware corporation ("Expert"; each of Activision, Activision Holdings, Value and Expert, a "Borrower" and collectively, "Borrowers"), the Lenders (as defined in Article I), PNC BANK, NATIONAL ASSOCIATION, a national banking association, as issuing bank (in such capacity, the "Issuing Bank"), and as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent") for the Lenders.     WHEREAS, the Borrowers, certain financial institutions, including the Lenders, and the Administrative Agent are parties to the Existing Credit Agreement (such term and each other capitalized term used but not defined herein having the meaning given it in Article I), and wish to amend and restate the Existing Credit Agreement on the terms set forth herein;     WHEREAS, in connection with such amendment and restatement, certain lenders under the Existing Credit Agreement and the Syndication Agent (as defined in the Existing Credit Agreement) will cease to be lenders to the Borrowers, the Term Loans (under and as defined in the Existing Credit Agreement) will be repaid in full, and the Total Revolving Credit Commitment will be reduced on the Restatement Effective Date.     Accordingly, the parties hereto agree as follows: ARTICLE I Definitions     SECTION 1.01.  Defined Terms.  As used in this Agreement, the following terms shall have the meanings specified below:     "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.     "ABR Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.     "Acquired Debt" shall mean Indebtedness of an Acquired Entity existing at the time of a Permitted Acquisition which was not incurred in contemplation of such Permitted Acquisition, is Indebtedness permitted under Section 6.01 and, if owed by a Domestic Subsidiary, the terms of such Indebtedness permit the Domestic Subsidiary to become a party to the Subsidiary Guarantee Agreement, the Pledge Agreement and the Security Agreement, to grant to the Collateral Agent a first priority Lien on its assets and to make loans, dividends and other distributions to Activision and, if owed by a Foreign Subsidiary, is not Guaranteed by any Loan Party.     "Acquired Entity" shall have the meaning set forth in Section 6.04(h).     "Activision" shall mean Activision Publishing, Inc., a Delaware corporation, formerly known as Activision, Inc.     "Activision Holdings" shall mean Activision, Inc., a Delaware corporation, formerly known as Activision Holdings, Inc.     "Adjusted EBITDA" of a person for any period shall mean (a) EBITDA for such period plus (b) the aggregate amortization with respect to Development Costs for such period which are not otherwise included as amortization expenses in calculating EBITDA in accordance with GAAP, minus (c) the principal amount of loans made during such period to officers and employees permitted under Section 6.04(n), to the extent not included in calculating EBITDA in accordance with GAAP. --------------------------------------------------------------------------------     "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves.     "Administrative Questionnaire" shall mean an Administrative Questionnaire in such form as may be supplied from time to time by the Administrative Agent.     "Advance Rates" shall have the meaning assigned to such term in Section 2.01(a).     "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided, however, that for purposes of Section 6.07, the term "Affiliate" shall also include any person that directly or indirectly owns 5% or more of any class of Equity Interests of the person specified or that is an officer or director of the person specified.     "Agent Fees" shall have the meaning assigned to such term in Section 2.08(b).     "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures.     "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Base Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Base Rate or the Federal Funds Rate, respectively. The term "Base Rate" shall mean the base commercial lending rate of PNC as publicly announced to be in effect from time to time, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate. This rate of interest is determined from time to time by PNC as a means of pricing some loans to its customers and is neither tied to any external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by PNC to any particular class or category of customers of PNC.     "Asset Sale" shall mean the sale, transfer or other disposition (by way of merger or otherwise, and including any casualty event or condemnation that results in the receipt of any insurance or condemnation proceeds) by any Borrower or any of the Subsidiaries to any person other than a Borrower or any Subsidiary Guarantor of (a) any Equity Interests of any of the Subsidiaries or (b) any other assets of a Borrower or any of its Subsidiaries (other than (i) inventory, excess, damaged, obsolete or worn out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business, (ii) assets transferred for an aggregate purchase price not exceeding $1,000,000 in any four consecutive fiscal quarters of the Borrowers, (iii) dispositions between or among Foreign Subsidiaries or (iv) license, distribution or development agreements entered into in the ordinary course of business which do not transfer all or substantially all of the rights owned by a Borrower or its Subsidiary), provided that any asset sale or series of related asset sales described in clause (b) above having a value not in excess of $250,000 shall be deemed not to be an "Asset Sale" for purposes of this Agreement.     "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form approved by the Administrative Agent. 2 --------------------------------------------------------------------------------     "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America.     "Blocked Accounts" shall have the meaning set forth in Section 5.15.     "Borrower Guarantee Agreement" shall mean the Borrower Guarantee Agreement substantially in the form of Exhibit M to the Existing Credit Agreement, made by the Borrowers in favor of the Collateral Agent for the benefit of the Secured Parties.     "Borrowers" shall mean Activision Holdings, Activision, Value, Expert and any other Subsidiary of Activision Holdings which becomes a Borrower hereunder.     "Borrowers' Account" shall have the meaning given such term in Section 2.07.     "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect.     "Borrowing Agent" shall mean Activision.     "Borrowing Base Availability" shall mean that amount determined under clauses (i) and (ii)(A) of the definition of Formula Amount contained in Section 2.01(a).     "Borrowing Request" shall mean a request by the Borrowing Agent on behalf of a Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C to the Existing Credit Agreement, or such other form as shall be approved by the Administrative Agent.     "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London and New York interbank markets.     "Capital Expenditures" shall mean, for any period and with respect to any person, the aggregate amount of all expenditures during such period by such person that (a) would be classified as capital expenditures in accordance with GAAP or are made in property that is the subject of a synthetic lease to which such person becomes a lessee party during such period but excluding any such expenditure made (i) to restore, replace or rebuild property to the condition of such property immediately prior to any damage, loss, destruction or condemnation of such property, to the extent such expenditure is made with insurance proceeds or condemnation awards relating to any such damage, loss, destruction or condemnation, (ii) with proceeds from the sale or exchange of property to the extent utilized to purchase functionally equivalent property or equipment or (iii) as the purchase price of any Permitted Acquisition; and (b) constitute Development Costs.     "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.     "Cash Collateral" shall mean money or Permitted Investments in the possession of the Collateral Agent (including in the Investment Account) as collateral hereunder or under any other Loan Document and in which the Collateral Agent has a first priority perfected Lien.     "Cash Components" shall mean, with respect to any Permitted Acquisition, the cash expenditures and (without duplication) Indebtedness (including Acquired Indebtedness) incurred in connection therewith.     "Casualty" shall have the meaning set forth in each of the Mortgages. 3 --------------------------------------------------------------------------------     "Casualty Proceeds" shall have the meaning set forth in each of the Mortgages.     "Change in Control" shall be deemed to have occurred if (a) any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended, as in effect on the date hereof) shall own directly or indirectly, beneficially or of record, shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Activision Holdings, (b) a majority of the seats (other than vacant seats) on the board of directors of Activision Holdings shall at any time be occupied by persons who were neither (i) nominated by the board of directors of Activision Holdings, nor (ii) appointed by directors so nominated, or (c) any change in control (or similar event, however denominated) with respect to Activision Holdings or any of its Subsidiaries shall occur under and as defined in any indenture or agreement in respect of Indebtedness in an aggregate principal amount in excess of $2,000,000 to which Activision Holdings or any of its Subsidiaries is a party, or (d) Activision ceases to be a wholly-owned Subsidiary of Activision Holdings, or (e) any Subsidiary of Activision which is a Borrower or UK Sub ceases to be a wholly-owned Subsidiary of Activision.     "Change in Law" shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15, by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.     "Closing Date" shall mean June 22, 1999.     "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.     "Collateral" shall mean all the "Collateral" as defined in any Security Document and shall also include any Mortgaged Properties, but shall exclude "Margin Stock" (as defined in Regulation U of the Board).     "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment.     "Commitment Fee" shall have the meaning assigned to such term in Section 2.08(a).     "Commitment Increase" shall have the meaning assigned to such term in Section 2.30.     "Condemnation" shall have the meaning set forth in each of the Mortgages.     "Condemnation Proceeds" shall have the meaning set forth in each of the Mortgages.     "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of Activision dated April 1999.     "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto.     "Convertible Subordinated Note Documents" shall mean the Convertible Subordinated Notes, the Convertible Subordinated Note Indenture and all other documents executed and delivered with respect to the Convertible Subordinated Notes or the Convertible Subordinated Note Indenture.     "Convertible Subordinated Note Indenture" shall mean the Indenture dated as of December 22, 1997, between Activision and State Street Bank and Trust Company of California, N.A., as trustee, as 4 -------------------------------------------------------------------------------- in effect on the Closing Date and as thereafter amended from time to time in accordance with the requirements hereof and thereof.     "Convertible Subordinated Notes" shall mean Activision's 63/4% Convertible Subordinated Notes due 2005 issued pursuant to the Convertible Subordinated Note Indenture.     "Credit Event" shall have the meaning assigned to such term in Section 4.01.     "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.     "Default Rate" shall have the meaning set forth in Section 2.10.     "Defaulting Lender" shall have the meaning set forth in Section 2.25(a).     "Depository Accounts" shall have the meaning set forth in Section 5.15.     "Development Costs" shall mean prepaid or guaranteed royalties paid to independent software developers, license fees paid to holders of intellectual property rights and expenses incurred for product development, in each case to the extent such amounts are capitalized in accordance with the Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".     "Dilution Reserve" shall mean the percentage of dilution of Receivables for the most recent 12 months as determined in the most recent audit by the Administrative Agent less 5% multiplied by the amount of Eligible Receivables.     "Dollars" or "$" shall mean lawful money of the United States of America.     "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia.     "EBITDA" for any person for any period shall mean the Net Income of such person for such period, to which shall be added back, to the extent deducted in calculating Net Income for such period (a) the Interest Expense of such person for such period, (b) all charges against income for foreign, Federal, state and local income taxes of such person for such period, (c) the aggregate depreciation expense of such person for such period, and (d) the aggregate amortization expense of such person for such period, each such component determined in accordance with GAAP.     "Eligible Inventory" shall mean and include, with respect to each Borrower, Inventory owned by such Borrower (excluding (a) work in process, (b) Inventory not located at a facility owned or leased by a Borrower in the U.S. or a warehouse located in the U.S., (c) Inventory on consignment and (d) components), valued at the lower of cost or market value, determined on a first-in-first-out basis, which is not, in the Administrative Agent's Permitted Discretion, obsolete, slow moving or unmerchantable and which the Administrative Agent, in its Permitted Discretion, shall not deem ineligible Inventory, based on such considerations as the Administrative Agent may from time to time in its Permitted Discretion deem appropriate, including, without limitation, whether the Inventory is subject to a perfected, first priority security interest in favor of the Collateral Agent, subject to no other Lien, and whether the Inventory conforms to all standards imposed by any governmental agency, division or department thereof which has regulatory authority over such goods or the use or sale thereof applicable. Eligible Inventory shall include all Inventory in-transit for which title has passed to the Borrower, which is insured to the full value thereof, under policies for which the Collateral Agent is a loss payee and for which the Administrative Agent shall have in its possession (a) all negotiable bills of lading properly endorsed and (b) all non-negotiable bills of lading issued in the Administrative Agent's name. 5 --------------------------------------------------------------------------------     "Eligible Receivables" shall mean and include with respect to each Borrower each Receivable of such Borrower arising in the ordinary course of such Borrower's business and which the Administrative Agent, in its Permitted Discretion, shall deem to be an Eligible Receivable, based on such considerations as the Administrative Agent may from time to time in its Permitted Discretion deem appropriate. A Receivable shall not be deemed eligible unless such Receivable is subject to the Collateral Agent's first priority perfected security interest and no other Lien (other than a Permitted Lien on terms acceptable to the Administrative Agent in its Permitted Discretion and for which adequate reserves have been established), and is evidenced by an invoice or other documentary evidence satisfactory to the Administrative Agent. In addition, no Receivable shall be an Eligible Receivable if:     (a) it arises out of a sale made by a Borrower to an Affiliate of such Borrower or to a Person controlled by an Affiliate of such Borrower;     (b) it is due or unpaid more than one hundred twenty (120) days after the original invoice date or more than sixty (60) days after the due date;     (c) fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Receivables hereunder;     (d) any covenant, representation or warranty contained in this Agreement or the Security Agreement with respect to such Receivable has been breached in any material respect;     (e) the Customer shall (i) apply for, suffer, or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or call a meeting of its creditors, (ii) admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, (iii) make a general assignment for the benefit of creditors, (iv) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to, or fail to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) take any action for the purpose of effecting any of the foregoing;     (f)  the sale is to a Customer not domiciled in the United States of America or Canada unless the sale is on letter of credit, guaranty or acceptance terms, or backed by credit insurance, in each case acceptable to the Administrative Agent in its Permitted Discretion;     (g) the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other similar repurchase or return basis (other than return rights customary in the Borrower's business) or is evidenced by chattel paper;     (h) the Administrative Agent believes, in its Permitted Discretion, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Customer's financial inability to pay;     (i)  the Customer is the United States of America or Canada, any state or province or any department, agency or instrumentality of any of them, unless the Borrower assigns its right to payment of such Receivable to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other applicable statutes or ordinances;     (j)  the goods giving rise to such Receivable have not been shipped and delivered to the Customer or the services giving rise to such Receivable have not been fully performed by the Borrower or the Receivable otherwise does not represent a final sale; 6 --------------------------------------------------------------------------------     (k) the Receivables of the Customer exceed a credit limit determined by the Administrative Agent, in its Permitted Discretion, to the extent such Receivable exceeds such limit;     (l)  the Receivable is subject to any unwaived offset, deduction, defense, dispute, or counterclaim, the Customer is also a creditor or supplier of a Borrower or the Receivable is contingent in any respect or for any reason;     (m) the Borrower has made any agreement with the Customer for any deduction therefrom, except for discounts or allowances made in the ordinary course of business, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;     (n) any return, rejection or repossession of the merchandise has occurred but only to the extent of the portion of the Receivable relating to the returned, rejected or repossessed goods;     (o) such Receivable is not payable to a Borrower;     (p) such Receivable is not otherwise satisfactory to the Administrative Agent in its Permitted Discretion;     (q) the Borrower has not observed and complied with all laws of the jurisdiction in which the Customer or the Receivable is located which, if not observed or complied with, would deny the Borrower access to the courts of such jurisdiction;     (r) the Receivable arises out of sales of Inventory for which the Borrower acts solely as a collection agent;     (s) Receivables from original equipment manufacturers or licensees unless such Receivables arise out of an invoice issued for shipment of goods on normal trade terms; or     (t)  the Receivable is owed by Kaboom.     "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law.     "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit.     "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. § 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. § 1251 et seq., the Clean Air Act 7 -------------------------------------------------------------------------------- of 1970, as amended 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. § 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. § 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. § 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq., and any similar or implementing state, local or foreign law, and all amendments or regulations promulgated under any of the foregoing.     "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law.     "Equity Interests" shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a person.     "Equity Issuance" shall mean any issuance or sale by Activision Holdings or any Subsidiary of any Equity Interests of Activision Holdings or any Subsidiary, as applicable, or any obligations convertible into or exchangeable for, or giving any Person a right, option or warrant to acquire, such Equity Interests or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to a Borrower or any Subsidiary, (b) any issuance of directors' qualifying shares, (c) sales or issuances of common stock of Activision Holdings to management or key employees of Activision Holdings or any Subsidiary or Kaboom under any employee stock option or stock purchase plan or employee benefit plan in existence from time to time or other stock options from time to time granted to employees or directors, or in connection with license, distribution or development or other similar agreements, (d) conversion of the Convertible Subordinated Notes into common stock of Activision Holdings, (e) issuance of common stock (or options or warrants to purchase common stock) of Activision Holdings as consideration for any Permitted Acquisition, and (f) other issuances of Equity Interests for non-cash or no consideration.     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.     "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with any Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.     "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by a Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or Multiemployer Plan; (g) the receipt by a Borrower or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from a Borrower or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) any Foreign Benefit Event.     "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. 8 --------------------------------------------------------------------------------     "Eurodollar Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.     "European Distribution Subsidiaries" shall mean Combined Distribution (Holdings) Limited, PDQ Distribution Limited, CentreSoft Limited, NBG EDV Handels und Verlags GmbH & Co. KG, Target Software Vertriebs GmbH, CD Contact Data GmbH, Contact Data N.V., and Contact Data Belgium NV and their respective successors and assignors and any other Foreign Subsidiary engaged primarily in the business of distributing a Borrower's and other persons' products in Europe.     "Event of Default" shall have the meaning assigned to such term in Article VII.     "Excluded Taxes" shall mean, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of a Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which a Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under Section 2.24(a)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.23(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 2.23(a).     "Existing Credit Agreement" shall mean the Credit Agreement dated as of June 21, 1999, among the Borrowers, the lenders party thereto, Credit Suisse First Boston, acting through its New York Branch, as Syndication Agent, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, as amended or otherwise modified from time to time prior to the Restatement Effective Date.     "Existing Letter of Credit" shall mean each letter of credit previously issued for the account of Activision or its Domestic Subsidiaries pursuant to the Existing Credit Agreement that is outstanding on the Restatement Effective Date.     "Expert" shall mean Expert Software, Inc., a Delaware corporation.     "Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transactions received by PNC from three Federal funds brokers of recognized standing selected by PNC.     "Fee Letter" shall mean the Fee Letter dated concurrently herewith, between Activision, the Administrative Agent and the Collateral Agent.     "Fees" shall mean the Commitment Fees, the Agent Fees, the L/C Participation Fees and the Issuing Bank Fees.     "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation.     "Fixed Charge Coverage Ratio" with respect to any person for any period shall mean the ratio of (a) Adjusted EBITDA of such person plus, in the case of any Borrower (and without duplication of any amounts included in the Borrowers' Net Income) the amount of dividends or loans or repayments of 9 -------------------------------------------------------------------------------- loans actually received from its Foreign Subsidiaries during such period less the amount of loans or capital contributions made to the Foreign Subsidiaries during such period to (b) Fixed Charges for such period.     "Fixed Charges" with respect to any person for any period shall mean, without duplication, the sum of (a) Interest Expense for such period, plus (b) payments on long term Indebtedness (including Capital Lease Obligations) of such person for such period, plus(c) Capital Expenditures made by such person during such period, plus (d) taxes paid in cash by such person during such period.     "Foreign Benefit Event" shall mean, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $2,000,000 (or the Dollar equivalent thereof in another currency) by a Borrower or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by the Borrower or any of its Subsidiaries, or the imposition on a Borrower or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $2,000,000 (or the Dollar equivalent thereof in another currency).     "Foreign Lender" shall mean any Lender that is organized under the laws of a jurisdiction other than that in which a Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.     "Foreign Pension Plan" shall mean any plan, fund (including any super annuating fund) or other similar program established or maintained outside the United States by a Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of such Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.     "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary.     "Formula Amount" shall have the meaning set forth in Section 2.01(a).     "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis.     "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.     "Granting Lender" shall have the meaning specified in Section 9.04(i).     "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or other obligation, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment of such Indebtedness or other 10 -------------------------------------------------------------------------------- obligation or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business.     "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.     "Hedging Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in interest or currency exchange rates and not entered into for speculation.     "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Hedging Agreements and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner. Prepaid or guaranteed royalties to independent software developers, license fees paid or guaranteed to holders of intellectual property rights and expenses incurred for product development, whether or not capitalized, are not Indebtedness hereunder.     "Indemnified Taxes" shall mean Taxes other than Excluded Taxes.     "Indemnity, Subrogation and Contribution Agreement" shall mean the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit D to the Existing Credit Agreement, among the Borrowers, the Subsidiary Guarantors and the Collateral Agent.     "Individual Formula Amount" shall mean, at the date of determination thereof, with respect to each Borrower an amount equal to: (a) up to the Receivables Advance Rate of the sum of Eligible Receivables of such Borrower less its Dilution Reserve, plus (b) up to the Inventory Advance Rate of the value of Eligible Inventory of such Borrower; plus (c) the product of (i) the aggregate amount of outstanding Trade L/C Exposure of such Borrower times (ii) the Inventory Advance Rate, plus (d) Cash Collateral of such Borrower, minus (e) such other reserves as the Administrative Agent in its Permitted Discretion deems proper and necessary from time to time.     "Intercompany Note" shall mean the demand promissory note in the original principal amount of approximately $23,000,000 from UK Sub to Activision evidencing the obligations of UK Sub to Activision, which is secured by the UK Charge Documents.     "Interest Coverage Ratio" with respect to any person for any period shall mean the ratio of Adjusted EBITDA of such person for such period to the Interest Expense of such person for such period. 11 --------------------------------------------------------------------------------     "Interest Expense" with respect to any person for any period shall mean the total cash interest expense of such person (including amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts) for such period determined in accordance with GAAP.     "Interest Payment Date" shall mean (a) with respect to any ABR Loan, the last Business Day of each month, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of a Eurodollar Borrowing or conversion of a Eurodollar Borrowing to an ABR Borrowing.     "Interest Period" shall mean, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrowing Agent may elect (or such other period thereafter as the Borrowing Agent may request and all the Lenders with Loans included in such Borrowing may agree); provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.     "Investment Account" shall mean a cash collateral account maintained by the Collateral Agent invested in Permitted Investments and under the control of the Collateral Agent.     "Inventory" with respect to any person shall mean and include all of its now owned or hereafter acquired goods, merchandise and other personal property, wherever located, to be furnished under any contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in its business or used in selling or furnishing such goods, merchandise and other personal property, and all documents of title or other documents representing them.     "Inventory Advance Rate" shall have the meaning set forth in Section 2.01(a)(ii) hereof.     "Issuing Bank" shall mean as the context may require, (a) PNC Bank, National Association, with respect to Letters of Credit issued by it, (b) with respect to each Existing Letter of Credit, the Lender that issued such Existing Letter of Credit, (c) any other Lender that may become an Issuing Bank pursuant to Section 2.26(h) or (j), with respect to Letters of Credit issued by such Lender, or (d) collectively, all the foregoing.     "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.08(c).     "Joinder Agreement" shall mean a Borrower Joinder Agreement substantially in the form attached hereto as Exhibit E to the Existing Credit Agreement executed by Activision Holdings or any Domestic Subsidiary which becomes a Borrower hereunder.     "Kaboom" shall mean Kaboom.com, Inc., a Delaware corporation, and a wholly-owned subsidiary of Activision Holdings.     "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.26.     "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. 12 --------------------------------------------------------------------------------     "L/C Exposure" shall mean at any time of determination, the sum of (a) the Trade L/C Exposure and (b) the Standby L/C Exposure and "L/C Exposure" of a Borrower shall mean the sum of (a) the Trade L/C Exposure with respect to Trade Letters of Credit issued for the account of such Borrower and the Standby L/C Exposure with respect to Standby Letters of Credit issued for the account of such Borrower.     "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.06(c).     "Lenders" shall mean (a) the financial institutions listed on Schedule 2.01 (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance.     "Letter of Credit" shall mean Trade Letters of Credit, Standby Letters of Credit and any Existing Letter of Credit.     "LIBO Rate" shall mean for any Eurodollar Borrowing for the then current Interest Period relating thereto the interest rate per annum determined by PNC by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by PNC in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the eurodollar rate two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Eurodollar Borrowing and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Reserve Percentage.     "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.     "Loan Documents" shall mean this Agreement, the Letters of Credit, the Borrower Guarantee Agreement, the Subsidiary Guarantee Agreement, the Security Documents, the Indemnity, Subrogation and Contribution Agreement, any Joinder Agreement and any and all agreements, instruments and documents now or hereafter executed by a Borrower or a Subsidiary Guarantor and delivered to the Administrative Agent, the Issuing Bank or any Lender in connection with this Agreement or the Existing Credit Agreement.     "Loan Parties" shall mean the Borrowers and the Subsidiary Guarantors.     "Loans" shall mean the Revolving Loans.     "Margin Stock" shall have the meaning assigned to such term in Regulation U.     "Master Note" shall mean any demand promissory note evidencing loans from a Loan Party to a Foreign Subsidiary.     "Material Adverse Effect" shall mean a material adverse effect on (a) the condition, operations, assets, business or prospects of the Loan Parties, taken as a whole, or on Activision Holdings and its Subsidiaries, taken as a whole; (b) the ability of the Loan Parties taken as a whole to pay or perform the Obligations in accordance with the terms thereof; (c) the value of the Collateral or the Collateral Agent's Liens on the Collateral or the priority of such Liens; (d) the validity or enforceability of any Loan Document (other than with respect to a Subsidiary which is not a Material Subsidiary) or (e) the practical realization of the benefits of the Administrative Agent's, the Collateral Agent's and each Lender's rights and remedies under this Agreement and the other Loan Documents. 13 --------------------------------------------------------------------------------     "Material Contract" shall mean any and all contracts or agreements of a Borrower or any Domestic Subsidiary involving amounts remaining to be paid in excess of $1,000,000.     "Material Subsidiary" shall mean any Subsidiary which has assets with a book value in excess of $5,000 as of the date of determination.     "Merger Agreement" shall mean the Amended and Restated Agreement and Plan of Merger dated as of April 19, 1999, by and among Activision, Sub and Expert, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.     "Mortgaged Properties" shall mean the owned real properties and leasehold and subleasehold interests of the Loan Parties at the time subject to the Mortgages.     "Mortgages" shall mean the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to Section 5.12, each in form and substance satisfactory the Administrative Agent.     "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA.     "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received), net of (i) selling expenses (including reasonable broker's fees or commissions, legal fees, transfer and similar taxes and the Borrowers' good faith estimate of income taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale and which is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset or repayments of the Revolving Loans) and (b) with respect to any issuance or disposition of Indebtedness or any Equity Issuance, the cash proceeds thereof, net of all taxes and customary fees, commissions, costs and other expenses incurred in connection therewith. Notwithstanding the foregoing, Net Cash Proceeds shall not include any amounts received by the Borrowers or any Subsidiary in respect of any casualty or condemnation to the extent Borrower or such Subsidiary uses the amounts so received within 180 days of the receipt thereof to rebuild, restore or replace the property subject to such casualty or condemnation.     "Net Income" shall mean, for any period, net income or loss of the Loan Parties for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of that income is prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to the Subsidiary except to the extent that dividends or distributions are actually paid in compliance therewith, (b) the income (or loss) of any person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with a Loan Party or the date that person's assets are acquired by a Loan Party, and (c) the income of any Subsidiary which is not a wholly owned Subsidiary except to the extent that dividends or distributions are actually paid to a Loan Party.     "New Lenders" shall have the meaning assigned to such term in Section 2.30.     "Obligations" shall mean and include any and all of each Borrower's Indebtedness and/or liabilities to the Administrative Agent, the Collateral Agent, the Issuing Bank or Lenders or any corporation that directly or indirectly controls or is controlled by or is under common control with the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender of every kind, nature and description, direct or indirect, secured or unsecured, joint, several, joint and several, absolute or contingent, due or 14 -------------------------------------------------------------------------------- to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, regardless of how such indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, including, but not limited to, any and all of any Borrower's Indebtedness and/or liabilities under this Agreement, the other Loan Documents or under any other agreement between the Administrative Agent, the Collateral Agent, the Issuing Bank or Lenders and any Borrower and all obligations of any Borrower to the Administrative Agent, the Collateral Agent, the Issuing Bank or Lenders to perform acts or refrain from taking any action.     "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.     "Payment Office" shall mean initially Two Tower Center Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of the Administrative Agent, if any, which it may designate by notice to the Borrowing Agent and to each Lender to be the Payment Office.     "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.     "PNC" shall mean PNC Bank, National Association.     "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Annex 2 to the Security Agreement.     "Permitted Acquisition" shall have the meaning assigned to such term in Section 6.04(h).     "Permitted Discretion" means the Administrative Agent's reasonable and good faith judgment based upon any factor which the Administrative Agent believes in good faith (a) could reasonably be expected to adversely affect the value of any Collateral, the enforceability or priority of the Collateral Agent's Liens or the amount that the Lenders would be likely to receive upon a liquidation of the Collateral; (b) suggests that any report of Collateral or financial information is incomplete, inaccurate or misleading in any material respect; (c) could reasonably be expected to create a Default or Event of Default or increase the likelihood of an insolvency or bankruptcy proceeding. In exercising such judgment with respect to matters relating to the determination of Eligible Inventory and Eligible Receivables, changes in advance rates or the imposition, increase or reduction of reserves, the Administrative Agent may reasonably take into account factors included in the definitions of Eligible Inventory and Eligible Receivables, as well as changes in concentration of risk of Receivables, changes in collection history and dilution, changes in demand for and pricing of Inventory, and other changes in the value of the Inventory or Receivables that tend to increase the credit risk of lending to the Borrowers on the security of Inventory or Receivables. The burden of establishing lack of good faith shall be on the Borrowers.     "Permitted Investments" shall mean any of the following:     (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;     (b) investments in commercial paper maturing within 180 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Service or from Moody's Investors Service, Inc.;     (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank 15 -------------------------------------------------------------------------------- organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000;     (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria of clause (c) above; and     (e) such other investments that are acceptable to the Administrative Agent.     "person" shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision thereof.     "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrowers or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.     "Pledge Agreement" shall mean the Pledge Agreement, substantially in the form of Exhibit F to the Existing Credit Agreement, between the Borrowers, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties, together with any pledge or similar agreement required or advisable under the laws of any foreign jurisdiction to perfect the pledge the stock of the Foreign Subsidiaries.     "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment.     "Receivables" of a person shall mean and include all of its accounts, contract rights, instruments (including those evidencing indebtedness owed to it by its Affiliates), documents, chattel paper, general intangibles relating to accounts, drafts and acceptances, and all other forms of obligations owing to such person arising out of or in connection with the sale or lease of Inventory or the rendition of services, all guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to the Administrative Agent or Collateral Agent hereunder.     "Receivables Advance Rate" shall have the meaning set forth in Section 2.01(a)(i) hereof.     "Register" shall have the meaning given such term in Section 9.04(d).     "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.     "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.     "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.     "Related Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.     "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment.     "Remedial Action" shall mean (a)"remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily 16 -------------------------------------------------------------------------------- undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above.     "Repayment Date" shall have the meaning given such term in Section 2.12.     "Repurchase Amount" shall mean an amount equal to the sum of (i) the net cash proceeds received by Activision Holdings from the exercise of stock options or warrants since June 8, 2000 plus (ii) the net cash proceeds received by Activision Holdings since June 8, 2000 from any other Equity Issuances plus (iii) the value of the common stock of Activision Holdings issued since the Restatement Effective Date, or additional paid in capital since such date, as a result of the conversion of any Convertible Subordinated Notes less (iv) payments made since June 8, 2000 in connection with any repurchase or redemption of Convertible Subordinated Notes or capital stock; provided that no more than $10,000,000 of Revolving Loans may be used to fund the Repurchase Amount.     "Required Lenders" shall mean, at any time, Lenders having Loans, L/C Exposure and unused Revolving Credit Commitments representing at least a majority of the sum of all Loans outstanding, L/C Exposure and unused Revolving Credit Commitments at such time, subject, however, to the provisions of Section 2.25 with respect to Defaulting Lenders.     "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement.     "Restatement Effective Date" shall mean the date on which this Agreement becomes effective in accordance with its terms.     "Restructure Date" shall mean May 7, 2001.     "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans.     "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.11 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 2.30 or 9.04.     "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure.     "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment.     "Revolving Credit Maturity Date" shall mean June 21, 2002.     "Revolving Loans" shall mean the revolving loans made by the Lenders to the Borrowers pursuant to Section 2.01. Each Revolving Loan shall be a Eurodollar Loan or an ABR Loan.     "Schedule of Receivables" shall mean, as to each Borrower, a detailed aged trial balance of all then existing Receivables of such Borrower in form and substance satisfactory to the Administrative Agent, specifying in each case the names, addresses, face amount and dates of invoice(s) for each Customer obligated on a Receivable so listed and, if requested by the Administrative Agent, copies of proof of delivery and customer statements and the original copy of all documents, including, without limitation, repayment histories and present status reports, and such other matters and information relating to the status of the Receivables and/or the Customers so scheduled as the Administrative Agent may from time to time reasonably request. 17 --------------------------------------------------------------------------------     "Schedule of Payables" shall mean, as to each Borrower, a detailed aged listing of such Borrower's existing accounts payable, specifying the names of each creditor and the amount owed to such creditor and such matters and information relating to the status of such Borrower's accounts payable so scheduled as the Administrative Agent may from time to time reasonably request.     "Seasonal Advance" shall have the meaning set forth in Section 2.01.     "Secured Parties" shall have the meaning assigned to such term in the Security Agreement.     "Security Agreement" shall mean the Security Agreement, substantially in the form of Exhibit G to the Existing Credit Agreement, among the Borrowers, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties.     "Security Documents" shall mean the Mortgages, the Security Agreement, the Pledge Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.12.     "Settlement Date" shall mean the Restatement Effective Date and thereafter Wednesday of each Week unless such day is not a Business Day in which case it shall be the next succeeding Business Day.     "SPC" shall have the meaning specified in Section 9.04(i).     "Standby L/C Exposure" shall mean, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding Standby Letters of Credit and (b) the aggregate amount that has been drawn under any Standby Letter of Credit but for which the Issuing Bank or the Lenders, as the case may be, have not been reimbursed by the Borrowers at such time.     "Standby Letter of Credit" shall mean (a) each irrevocable letter of credit issued pursuant to Section 2.26(a) under which the Issuing Bank agrees to make payments for the account of a Borrower, on behalf of such Borrower, in respect of obligations of such Borrower incurred pursuant to contracts made or performances undertaken or to be undertaken or like matters relating to contracts to which a Borrower is or proposes to become a party in the ordinary course of such Borrower's business and (b) each Existing Letter of Credit.     "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate, or other fronting office making or holding a Loan) is subject with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.     "Sub" shall mean Expert Acquisition Corp., a Delaware corporation.     "Subordinated Debt" shall mean unsecured Indebtedness of Activision which has a maturity date at least one year after the Revolving Credit Maturity Date, no principal payments due prior to one year after the Revolving Credit Maturity Date and is otherwise on terms and conditions set forth on Exhibit K to the Existing Credit Agreement.     "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, 18 -------------------------------------------------------------------------------- owned, controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent and that is consolidated with such person in accordance with GAAP.     "Subsidiary" shall mean any subsidiary of Activision Holdings, excluding, however, Kaboom and any of its subsidiaries.     "Subsidiary Guarantee Agreement" shall mean the Subsidiary Guarantee Agreement, substantially in the form of Exhibit H to the Existing Credit Agreement, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties.     "Subsidiary Guarantor" shall mean each Subsidiary listed on Schedule 1.01(a), and each other Subsidiary that is or becomes a party to the Subsidiary Guarantee Agreement.     "Tangible Net Worth" for any person shall mean, at a particular date (a) the aggregate amount of all assets of such person as may be properly classified as such in accordance with GAAP consistently applied, excluding such assets as are properly classified as intangible assets under GAAP and assets evidencing any receivable from or investments in any Affiliate less (b) the sum of (i) the aggregate amount of all liabilities of such person and (ii) the sum of Development Costs and the value of warrants issued by Activision Holdings, to the extent that such amount exceeds $40,000,000.     "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.     "Terminating Lender" shall mean a party that is a "Lender" under the Existing Credit Agreement as of the Restatement Effective Date but not a Lender hereunder.     "Total Debt" at any time and with respect to any person shall mean the total Indebtedness of such person at such time (excluding Indebtedness of the type described in clause (i) of the definition of such term).     "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time.     "Trade L/C Exposure" shall mean, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding Trade Letters of Credit, (b) the aggregate unpaid amount of all accepted usance drafts drawn under Letters of Credit and (c) the aggregate amount that has been drawn under any Trade Letter of Credit but for which the Issuing Bank or the Lenders, as the case may be, have not been reimbursed by the Borrowers at such time.     "Trade Letter of Credit" shall mean each sight or usance commercial documentary letter of credit issued by the Issuing Bank for the account of a Borrower pursuant to Section 2.26(a) for the purchase of goods in the ordinary course of business.     "Transactions" shall have the meaning assigned to such term in Section 3.02.     "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate.     "UK Sub" shall mean Activision UK, Ltd., a corporation organized under the laws of England and Wales.     "UK Charge Documents" shall mean the various pledge and security agreements securing the Intercompany Note.     "Undrawn Availability" at a particular date shall mean an amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Total Revolving Credit Commitment minus (b) the sum of (i) the 19 -------------------------------------------------------------------------------- Aggregate Revolving Credit Exposure, plus (ii) all amounts due and owing to the Loan Parties' trade creditors which are outstanding more than 60 days after the due date, plus (iii) fees and expenses for which Borrowers are liable but which have not been paid or charged to Borrowers' Account.     "Week" shall mean the time period commencing with the opening of business on a Wednesday and ending on the end of business the following Tuesday.     "wholly owned subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person.     "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.     SECTION 1.02.  Terms Generally.  The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrowing Agent notifies the Administrative Agent that the Borrowers wish to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies the Borrowing Agent that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrowers' compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrowers and the Required Lenders. ARTICLE II The Credits     SECTION 2.01.  Commitments; Formula Amount.  (a)  Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Revolving Loans to the Borrowers, at any time and from time to time on or after the Restatement Effective Date and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding the lesser of (x) such Lender's Revolving Credit Commitment and (y) such Lender's Pro Rata Percentage of an amount equal to the sum of the following (the "Formula Amount"):      (i) up to 85%, subject to the provisions of Section 2.01(c) hereof ("Receivables Advance Rate"), of the sum of (A) Eligible Receivables of the Borrowers less (B) the Dilution Reserve, plus 20 --------------------------------------------------------------------------------     (ii) up to the lesser of (A) the sum of (a) the lesser of (x) 50%, subject to the provisions of Section 2.01(c) hereof, of the value of Eligible Inventory of the Borrowers and (y) 85%, subject to the provisions of Section 2.01(c) hereof, of the orderly liquidation value of Eligible Inventory of Borrowers, as determined by appraisals satisfactory to Administrative Agent (in either case, the "Inventory Advance Rate" and together with the Receivables Advance Rate, the "Advance Rates") and (b) the product of (x) the Trade L/C Exposure for Inventory for which title has not yet passed to the Borrower times (y) the Inventory Advance Rate, or (B) the greater of (a) $15,000,000 or (b) forty percent (40%) of the Borrowing Base Availability in the aggregate at any one time, minus     (iii) the L/C Exposure, plus     (iv) from August 15 to November 15, an amount not in excess of $5,000,000 (any Revolving Loan under this clause (iv), a "Seasonal Advance"); plus     (v) Cash Collateral; minus     (vi) such other reserves as the Administrative Agent may deem proper and necessary from time to time in its Permitted Discretion.     (b) Each Revolving Credit Lender agrees, severally and not jointly, to make Revolving Loans to each Borrower in aggregate amounts outstanding at any time not greater than such Lender's Pro Rata Percentage of such Borrower's Individual Formula Amount less such Borrower's L/C Exposure.     (c) The Advance Rates may be increased (subject to consents required by Section 9.08) or decreased by the Administrative Agent at any time and from time to time in the exercise of its Permitted Discretion; provided, however, that (i) any decrease in any Advance Rate shall only be effective on the fifth day after the Administrative Agent has given the Borrowing Agent notice of such decrease and (ii) any increase or decrease in the Receivables Advance Rate shall only apply to Eligible Receivables created and assigned to the Administrative Agent after such change in Advance Rate becomes effective, but any increase or decrease in the Inventory Advance Rate shall apply to all Eligible Inventory whether then owned or thereafter acquired. Each Borrower consents to any such increases or decreases and acknowledges that decreasing the Advance Rates or increasing the reserves may limit or restrict Revolving Loans or Letters of Credit requested by the Borrowing Agent.     (d) For purposes of calculating the Formula Amount, Individual Formula Amount, Eligible Inventory, and Eligible Receivables, the Receivables and Inventory acquired in any Permitted Acquisition shall not be included until such time as the Administrative Agent has performed an audit with results satisfactory to it in its Permitted Discretion.     SECTION 2.02.  Loans.  (a)  Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.03(a), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 or (ii) equal to the remaining available balance of the applicable Commitments.     (b) Subject to Sections 2.15 and 2.17, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrowing Agent may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not 21 -------------------------------------------------------------------------------- affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrowers shall not be entitled to request any Borrowing that, if made, would result in more than five Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings made by a Borrower having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.     (c) Notwithstanding any other provision of this Agreement, the Borrowing Agent shall not be entitled to request any Revolving Credit Borrowing if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date.     SECTION 2.03.  Procedure for Revolving Credit Borrowings.  (a) The Borrowing Agent on behalf of any Borrower may notify the Administrative Agent prior to 1:00 p.m., New York time, on a Business Day of a Borrower's request to make, on that day, a Revolving Credit Borrowing hereunder. Should any amount required to be paid as interest hereunder, or as fees or other charges under this Agreement or any other agreement with the Administrative Agent, the Collateral Agent or Lenders, or any L/C Disbursement, or with respect to any other Obligation, become due, same shall be deemed a request for a Revolving Credit Borrowing as of the date such payment is due, in the amount required to pay in full such interest, fee, charge or Obligation under this Agreement or any other agreement with the Administrative Agent, the Collateral Agent or Lenders, and such request shall be irrevocable. The Administrative Agent is hereby irrevocably authorized, in its sole discretion, to make Revolving Loans from time to time, or to charge Borrowers' Account, to pay any interest, fees or other amounts (including any L/C Disbursement) for which payment is due under this Agreement, or at any time after the occurrence of an Event of Default to cash collateralize the L/C Exposure.     (b) Notwithstanding the provisions of Section 2.03(a) above, in the event a Borrower desires to make a Eurodollar Borrowing, the Borrowing Agent shall give the Administrative Agent at least three (3) Business Days' prior written notice, specifying (i) the date of the proposed Borrowing (which shall be a Business Day), (ii) the amount on the date of such Revolving Credit Borrowing, which amount shall be an integral multiple of $1,000,000, and (iii) the duration of the first Interest Period therefor. No Eurodollar Borrowing shall be made available to the Borrowers during the continuance of a Default or an Event of Default.     (c) The Borrowing Agent shall elect the initial Interest Period applicable to a Eurodollar Borrowing by its notice of borrowing given to the Administrative Agent pursuant to Section 2.03 (a) or by its notice of conversion given to the Administrative Agent pursuant to Section 2.03(d), as the case may be. The Borrowing Agent shall elect the duration of each succeeding Interest Period by giving irrevocable written notice to the Administrative Agent of such duration not less than three (3) Business Days prior to the last day of the then current Interest Period applicable to such Eurodollar Borrowing. If the Administrative Agent does not receive timely notice of the Interest Period elected by the Borrowing Agent, the applicable Borrower shall be deemed to have elected to convert to an ABR Loan, subject to Section 2.03(d) hereinbelow.     (d) Provided that no Default or Event of Default shall have occurred and be continuing, the Borrowing Agent may, on the last Business Day of the then current Interest Period applicable to any outstanding Eurodollar Loan, or on any Business Day with respect to ABR Loans, convert any such Loan into a Loan of another type in the same aggregate principal amount; provided that any conversion of a Eurodollar Loan shall be made only on the last Business Day of the then current Interest Period applicable to such Eurodollar Loan. If a Borrower desires to convert a Loan, the Borrowing Agent shall give the Administrative Agent not less than three (3) Business Days' prior written notice to convert from an ABR Loan to a Eurodollar Loan or one (1) Business Day's prior written notice to convert from a Eurodollar Loan to an ABR Loan, specifying the date of such conversion, the Loans to be converted and if the conversion is from an ABR Loan to a Eurodollar 22 -------------------------------------------------------------------------------- Loan, the duration of the first Interest Period therefor. After giving effect to each such conversion, there shall not be outstanding more than five (5) Eurodollar Borrowings, in the aggregate.     SECTION 2.04.  Disbursement of Loans.  All Loans shall be disbursed from whichever office or other place the Administrative Agent may designate from time to time and, together with any and all other Obligations of the Borrowers to the Administrative Agent, the Collateral Agent or Lenders, shall be charged to the Borrowers' Account on the Administrative Agent's books. The Borrowers may use the Revolving Loans by borrowing, prepaying and reborrowing, all in accordance with the terms and conditions hereof. The proceeds of each Revolving Credit Borrowing requested by a Borrower or deemed to have been requested by or on behalf of a Borrower under Section 2.03(a) hereof shall, with respect to requested Revolving Credit Borrowings to the extent Lenders make such Revolving Credit Borrowings, be made available to such Borrower on the day so requested by way of credit to such Borrower's operating account at PNC, in immediately available federal funds or other immediately available funds or, with respect to Revolving Credit Borrowings deemed to have been requested by the Borrowers, be disbursed to the Administrative Agent to be applied to the outstanding Obligations giving rise to such deemed request.     SECTION 2.05.  Manner of Borrowing and Payment.  (a)  Each Revolving Credit Borrowing shall be advanced according to the applicable Pro Rata Percentages of the Revolving Credit Lenders.     (b) Each payment (including each prepayment) by a Borrower on account of the principal of and interest on the Revolving Loans shall be applied to the Revolving Loans of such Borrower according to the applicable Pro Rata Percentages of the Revolving Credit Lenders. Except as expressly provided herein, all payments (including prepayments) to be made by the Borrowers on account of principal, interest and fees shall be made without set off or counterclaim and shall be made to the Administrative Agent on behalf of the Lenders to the Payment Office, in each case on or prior to 1:00 P.M., New York time, in Dollars and in immediately available funds.     (c) (i) Notwithstanding anything to the contrary contained in Sections 2.03 or 2.05 (a) and (b) hereof, commencing with the first Business Day following the Restatement Effective Date, each Revolving Loan shall be advanced by the Administrative Agent and each payment by the Borrowers on account of Revolving Loans shall be applied first to those Revolving Loans advanced by the Administrative Agent. On or before 1:00 P.M., New York time, on each Settlement Date commencing with the first Settlement Date following the Restatement Effective Date, the Administrative Agent and Lenders shall make certain payments as follows: (I) if the aggregate amount of new Revolving Loans made by the Administrative Agent during the preceding Week (if any) exceeds the aggregate amount of repayments applied to outstanding Revolving Loans during such preceding Week, then each Lender shall provide the Administrative Agent with immediately available funds in an amount equal to its applicable Pro Rata Percentage of the difference between (w) such Revolving Loans and (x) such repayments and (II) if the aggregate amount of repayments applied to outstanding Revolving Loans during such Week exceeds the aggregate amount of new Revolving Credit Loans made during such Week, then the Administrative Agent shall provide each Lender with immediately available funds in an amount equal to its applicable Pro Rata Percentage of the difference between (y) such repayments and (z) such Revolving Loans.     (ii) Each Lender shall be entitled to earn interest at the rate applicable to the rate on the outstanding Revolving Loans which it has funded.     (iii) Promptly following each Settlement Date, the Administrative Agent shall submit to each Lender a certificate with respect to payments received and Revolving Loans made during the Week immediately preceding such Settlement Date. Such certificate of the Administrative Agent shall be conclusive in the absence of manifest error. 23 --------------------------------------------------------------------------------     (d) Unless the Administrative Agent shall have been notified by telephone, confirmed in writing, by any Lender that such Lender will not make the amount which would constitute its applicable Pro Rata Percentage of the Revolving Loans available to the Administrative Agent, the Administrative Agent may (but shall not be obligated to) assume that such Lender shall make such amount available to the Administrative Agent on the next Settlement Date and, in reliance upon such assumption, make available to the Borrowers a corresponding amount. The Administrative Agent will promptly notify the Borrowing Agent of its receipt of any such notice from a Lender. If such amount is made available to the Administrative Agent on a date after such next Settlement Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Rate (computed on the basis of a year of 360 days) during such period as quoted by the Administrative Agent, times (ii) such amount, times (iii) the number of days from and including such Settlement Date to the date on which such amount becomes immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive, in the absence of manifest error. If such amount is not in fact made available to the Administrative Agent by such Lender within three (3) Business Days after such Settlement Date, the Administrative Agent shall be entitled to recover such an amount, with interest thereon at the rate per annum then applicable to such Revolving Loans hereunder, on demand from the applicable Borrower; provided, however, that the Administrative Agent's right to such recovery shall not prejudice or otherwise adversely affect the Borrower's rights (if any) against such Lender.     SECTION 2.06.  Evidence of Debt.  (a)  Each Borrower hereby unconditionally and jointly and severally promises to pay to the Administrative Agent on the Revolving Credit Maturity Date (or earlier termination of the Revolving Credit Commitments) for the account of each Revolving Credit Lender, the then unpaid principal amount of each Revolving Loan made by such Lender to Borrowers.     (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement.     (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrowers or any Subsidiary Guarantor and each Lender's share thereof.     (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Loans in accordance with their terms.     (e) Any Lender may request that Loans made by it hereunder be evidenced by a promissory note. In such event, the Borrowers shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in a form and substance reasonably acceptable to the Administrative Agent and the Borrowers. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. 24 --------------------------------------------------------------------------------     SECTION 2.07.  Statement of Account.  (a)  The Administrative Agent shall maintain, in accordance with its customary procedures, a loan account ("Borrowers' Account") in the name of the Borrowers in which shall be recorded the date and amount of each Borrowing, each L/C Disbursement and the date and amount of each payment in respect thereof; provided, however, the failure by the Administrative Agent to record the date and amount of any Borrowing or L/C Disbursement shall not adversely affect the Administrative Agent or any Lender. Each month, the Administrative Agent shall send to the Borrowing Agent a statement showing the accounting for the Borrowings made, payments made or credited in respect thereof, and other transactions between the Administrative Agent and the Borrowers during such month. The monthly statements shall be deemed correct and binding upon the Borrowers in the absence of manifest error and shall constitute an account stated between Lenders and Borrowers unless the Administrative Agent receives a written statement of the Borrowers' specific exceptions thereto within thirty (30) days after such statement is received by the Borrowers. The records of the Administrative Agent with respect to Borrowers' Account shall be conclusive evidence absent manifest error of the amounts of Loans and other charges thereto and of payments applicable thereto.     (b) Any sums expended by the Administrative Agent or any Lender due to a Borrower's failure to perform or comply with its obligations under this Agreement or any Loan Document may be charged to Borrowers' Account as a Revolving Loan and added to the Obligations.     SECTION 2.08.  Fees.  (a)  The Borrowers jointly and severally agree to pay to each Lender, through the Administrative Agent, on the last day of March, June, September and December in each year and on each date on which any Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to 1/4 of 1% per annum on the daily unused amount of the Commitments of such Lender during the preceding quarter (or other period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which the Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Commitment of such Lender shall expire or be terminated as provided herein.     (b) The Borrowers jointly and severally agree to pay to the Administrative Agent and Collateral Agent, for its own account, the fees set forth in the Fee Letter at the times and in the amounts specified therein (the "Agent Fees").     (c) The Borrowers jointly and severally agree to pay (i) to each Revolving Credit Lender, through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Credit Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to (x) in the case of the Standby L/C Exposure, 2.75% per annum, and (y) in the case of the Trade L/C Exposure, 1.375% per annum, and (ii) to the Issuing Bank with respect to each Letter of Credit a fronting, issuance and drawing fee equal to .25% per annum on the face amount of all outstanding Letters of Credit, payable quarterly in arrears and on the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. 25 --------------------------------------------------------------------------------     (d) On the Restatement Effective Date, the Borrowers jointly and severally agree to pay the Administrative Agent for the ratable benefit of the Lenders an accommodation fee of $150,000.     (e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances.     SECTION 2.09.  Interest on Loans.  (a)  Subject to the provisions of Section 2.10, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate is determined by reference to the Base Rate and over a year of 360 days at all other times and calculated from and including the date of such Borrowing to but excluding the date of repayment thereof) at a rate per annum equal to the Alternate Base Rate plus 1.25%.     (b) Subject to the provisions of Section 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus 2.25%.     (c) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.     (d) In no event whatsoever shall interest and other charges charged hereunder exceed the highest rate permissible under law. In the event interest and other charges as computed hereunder would otherwise exceed the highest rate permitted under law, such excess amount shall be first applied to any unpaid principal balance owed by the Borrowers, and if the then remaining excess amount is greater than the previously unpaid principal balance, Lenders shall promptly refund such excess amount to the Borrowers and the provisions hereof shall be deemed amended to provided for such permissible rate.     SECTION 2.10.  Default Interest.  Upon and after the occurrence of an Event of Default and during the continuation thereof, (i) the Obligations other than Eurodollar Loans shall bear interest at the rate otherwise applicable to ABR Loans plus two percent (2%) per annum and (ii) Eurodollar Loans shall bear interest at the rate otherwise applicable to Eurodollar Loans plus two percent (2%) per annum (as applicable, the "Default Rate").     SECTION 2.11.  Termination and Reduction of Commitments.  (a)  The Revolving Credit Commitments, and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date.     (b) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Administrative Agent, the Borrowers may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the sum of the Aggregate Revolving Credit Exposure at the time.     (c) Each reduction in the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrowers shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. 26 --------------------------------------------------------------------------------     SECTION 2.12.  Repayment of Borrowings.  (a)  The Revolving Loans shall be due and payable in full on the Revolving Credit Maturity Date subject to earlier prepayment as herein provided.     (b) With respect to any deposits in any lockbox or Blocked Account, the Borrowers recognize that the amounts evidenced by checks, notes, drafts or any other items of payment relating to and/or proceeds of Collateral may not be collectible by the Administrative Agent on the date received. In consideration of the Administrative Agent's agreement to conditionally credit Borrowers' Account as of the Business Day on which the Administrative Agent receives those items of payment, the Borrowers agree that, in computing the charges under this Agreement, all items of payment shall be deemed applied by the Administrative Agent on account of the Obligations on the Business Day the Administrative Agent receives such payments via wire transfer or electronic depository check. The Administrative Agent is not, however, required to credit Borrowers' Account for the amount of any item of payment which is unsatisfactory to the Administrative Agent and the Administrative Agent may charge Borrowers' Account for the amount of any item of payment which is returned to the Administrative Agent unpaid.     (c) All payments of principal, interest and other amounts payable hereunder, or under any of the other Loan Documents, shall be made to the Administrative Agent at the Payment Office not later than 1:00 P.M. (New York Time) on the due date therefor in lawful money of the United States of America in federal funds or other funds immediately available to the Administrative Agent. The Administrative Agent shall have the right to effectuate payment on any and all Obligations due and owing hereunder by charging Borrowers' Account or by making Revolving Loans as provided in Section 2.02(a) hereof.     (d) Borrowers shall pay principal, interest, and all other amounts payable hereunder, or under any related agreement, without any deduction whatsoever, including, but not limited to, any deduction for any setoff or counterclaim.     SECTION 2.13.  Prepayment.  (a)  The Borrowers shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) in the case of Eurodollar Loans, or written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) on or prior to the date of prepayment in the case of ABR Loans, to the Administrative Agent before 1:00 p.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000.     (b) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrowers to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.13 shall be subject to Section 2.19 but otherwise without premium or penalty. All prepayments under this Section 2.13 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment.     SECTION 2.14.  Mandatory Prepayments.  (a)  In the event of any termination of all the Revolving Credit Commitments in accordance with this Agreement, the Borrowers shall, on the effective date of such termination, repay or prepay all outstanding Revolving Credit Borrowings and replace all outstanding Letters of Credit and/or deposit an amount equal to 105% of the L/C Exposure in cash in a cash collateral account established with the Collateral Agent for the benefit of the Secured Parties and/or provide an irrevocable letter of credit in form and substance reasonably acceptable to the Administrative Agent from a bank reasonably acceptable to the Administrative Agent. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the effective date of such reduction, the Administrative Agent shall notify the Borrowers and the Revolving Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment after 27 -------------------------------------------------------------------------------- giving effect to such reduction or termination, then the Borrowers shall, on the effective date of such reduction or termination, repay or prepay Revolving Credit Borrowings and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess.     (b) If on any date the Aggregate Revolving Credit Exposure shall exceed the Formula Amount, or the Revolving Loans to a Borrower plus the L/C Exposure of such Borrower shall exceed the Individual Formula Amount, the Borrowers shall on such date repay or prepay Revolving Credit Borrowings and/or replace or cash collateralize outstanding L/C Exposure in an amount sufficient to eliminate such excess. Any such excess amount shall constitute part of the Obligations and be secured by the Collateral.     (c) Without duplication of any prepayment or repayment required under Section 2.14(b), not later than the third Business Day following the completion of any Asset Sale, Activision shall repay or prepay the Revolving Credit Borrowings and/or cash collateralize outstanding L/C exposure in an amount equal to the lesser of (i) any prepayment required under Section 2.14(b) as a result of such Asset Sale and (ii) 50% of the Net Cash Proceeds of such Asset Sale, and the Revolving Credit Commitments shall be permanently reduced by any amount repaid or prepaid under this Section 2.14(c).     (d) The Borrowing Agent shall deliver to the Administrative Agent, at the time of each prepayment required under this Section 2.14, (i) a certificate signed by a Financial Officer of the Borrowing Agent setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.14 shall be subject to Section 2.19, but shall otherwise be without premium or penalty.     SECTION 2.15.  Illegality.  Notwithstanding any other provision hereof, if any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender (for purposes of this subsection (g), the term "Lender" shall include any Lender and the office or branch where any Lender or any corporation or bank controlling such Lender makes or maintains any Eurodollar Loans) to make or maintain its Eurodollar Loans, the obligation of Lenders to make Eurodollar Loans hereunder shall forthwith be canceled and the Borrower shall, if any affected Eurodollar Loans are then outstanding, promptly upon request from the Administrative Agent, either pay all such affected Eurodollar Loans or convert such affected Eurodollar Loans into ABR Loans. If any such payment or conversion of any Eurodollar Loan is made on a day that is not the last day of the Interest Period applicable to such Eurodollar Loan, the Borrowers shall pay the Administrative Agent upon the Administrative Agent's request, such amount or amounts as may be necessary to compensate Lenders for any loss or expense sustained or incurred by Lenders in respect of such Eurodollar Loan as a result of such payment or conversion, including (but not limited to) any interest or other amounts payable by Lenders to lenders of funds obtained by Lenders in order to make or maintain such Eurodollar Loan. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by any Lender to the Borrowing Agent shall be conclusive absent manifest error.     SECTION 2.16.  Increased Costs.  In the event that any applicable law, treaty or governmental regulation, or any change therein or in the interpretation or application thereof, or compliance by any Lender (for purposes of this Section 3.7, the term "Lender" shall include the Administrative Agent or any Lender and any corporation or bank controlling the Administrative Agent or any Lender) and the office or branch where the Administrative Agent or any Lender (as so defined) makes or maintains any 28 -------------------------------------------------------------------------------- Eurodollar Loans with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority, shall:     (a) subject the Administrative Agent or any Lender to any tax of any kind whatsoever not currently applicable with respect to this Agreement or any Loan Document or change the basis of taxation of payments to the Administrative Agent or any Lender of principal, fees, interest or any other amount payable hereunder or under any Loan Documents (except for any imposition or changes in the rate of tax on the overall net income of the Administrative Agent or any Lender by the jurisdiction in which it maintains its principal office);     (b) impose, modify or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, Loans or loans by, or other credit extended by, any office of the Administrative Agent or any Lender, including (without limitation) pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or     (c) impose, modify or hold applicable on the Administrative Agent or any Lender or the London interbank Eurodollar market any other condition with respect to this Agreement or any Loan Document; and the result of any of the foregoing is to increase the cost to the Administrative Agent or any Lender of making, renewing or maintaining its Loans hereunder by an amount that the Administrative Agent or such Lender reasonably deems to be material or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of any of the Loans by an amount that the Administrative Agent or such Lender reasonably deems to be material, then, in any case the Borrowers shall promptly pay the Administrative Agent or such Lender, upon its demand, such additional amount as will compensate the Administrative Agent or such Lender for such additional cost or such reduction, as the case may be, provided that the foregoing shall not apply to increased costs which are reflected in the Adjusted LIBO Rate. The Administrative Agent or such Lender shall certify the amount of such additional cost or reduced amount to the Borrowers, and such certification shall be conclusive absent manifest error.     SECTION 2.17.  Basis For Determining Interest Rate Inadequate or Unfair.  In the event that the Administrative Agent or any Lender shall have determined that:     (a) reasonable means do not exist for ascertaining the LIBO Rate for any Interest Period; or     (b) Dollar deposits in the relevant amount and for the relevant maturity are not available in the London interbank Eurodollar market, with respect to an outstanding Eurodollar Loan, a proposed Eurodollar Borrowing, or a proposed conversion of an ABR Loan into a Eurodollar Loan; then the Administrative Agent shall give the Borrowing Agent prompt written, telephonic or telegraphic notice of such determination. If such notice is given, (i) any such requested Eurodollar Loan shall be made as an ABR Borrowing, unless the Borrowing Agent shall notify the Administrative Agent no later than 10:00 a.m. (New York City time) two (2) Business Days prior to the date of such proposed Borrowing, that its request for such Borrowing shall be canceled, (ii) any ABR Loan or Eurodollar Loan which was to have been converted to an affected type of Eurodollar Loan shall be continued as or converted into an ABR Loan, or, if the Borrowing Agent shall notify the Administrative Agent, no later than 10:00 a.m. (New York City time) two (2) Business Days prior to the proposed conversion, shall be maintained as an unaffected type of Eurodollar Loan and (iii) any outstanding affected Eurodollar Loans shall be converted into an ABR Loan, or, if Borrower shall notify the Administrative Agent, no later than 10:00 a.m. (New York City time) two (2) Business Days prior to the last Business Day of the then current Interest Period applicable to such affected Eurodollar Loan, shall be converted into an unaffected type of Eurodollar Loan on the last Business Day of the then current Interest Period for such affected Eurodollar Loans. Until such notice has been withdrawn, 29 -------------------------------------------------------------------------------- Lenders shall have no obligation to make an affected type of Eurodollar Loan or maintain outstanding affected Eurodollar Loans and the Borrowers shall not have the right to convert an ABR Loan or an unaffected type of Eurodollar Loan into an affected type of Eurodollar Loan.     SECTION 2.18.  Capital Adequacy.  In the event that the Administrative Agent or any Lender shall have determined that any applicable law, rule, regulation or guideline 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 compliance by the Administrative Agent or any Lender (for purposes of this Section 2.18, the term "Lender" shall include the Administrative Agent or any Lender and any corporation or bank controlling the Administrative Agent or any Lender) and the office or branch where the Administrative Agent or any Lender (as so defined) makes or maintains any Eurodollar Loans with 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 the Administrative Agent or any Lender's capital as a consequence of its obligations hereunder to a level below that which the Administrative Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Administrative Agent's and each Lender's policies with respect to capital adequacy) by an amount deemed by the Administrative Agent or any Lender to be material, then, from time to time, the Borrowers shall pay upon demand to the Administrative Agent or such Lender such additional amount or amounts as will compensate the Administrative Agent or such Lender for such reduction. In determining such amount or amounts, the Administrative Agent or such Lender may use any reasonable averaging or attribution methods. The protection of this Section shall be available to the Administrative Agent and each Lender regardless of any possible contention of invalidity or inapplicability with respect to the applicable law, regulation or condition. A certificate of the Administrative Agent or a Lender setting forth such amount or amounts as shall be necessary to compensate the Administrative Agent or such Lender with respect to this Section 2.18 when delivered to the Borrowing Agent shall be conclusive absent manifest error.     SECTION 2.19.  Indemnity.  The Borrowers shall jointly and severally indemnify the Administrative Agent, the Collateral Agent and each Lender against any loss or expense that the Administrative Agent, the Collateral Agent and such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrowing Agent hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.19 shall be delivered to the Borrowers and shall be conclusive absent manifest error. 30 --------------------------------------------------------------------------------     SECTION 2.20.  Pro Rata Treatment.  Each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees and L/C Participation Fees, each reduction of the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount.     SECTION 2.21.  Sharing of Setoffs.  Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against any Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid principal portion of its Revolving Loans and participations in L/C Disbursements shall be proportionately less than the unpaid principal portion of the Revolving Loans and participations in L/C Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Revolving Loans and L/C Exposure, as the case may be of such other Lender, so that the aggregate unpaid principal amount of the Revolving Loans and L/C Exposure and participations in Revolving Loans and L/C Exposure held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Revolving Loans and L/C Exposure then outstanding as the principal amount of its Revolving Loans and L/C Exposure prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Revolving Loans and L/C Exposure outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.21 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrowers expressly consent to the foregoing arrangements and agree that any Lender holding a participation in a Revolving Loan or L/C Disbursement deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrowers to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrowers in the amount of such participation.     SECTION 2.22.  Payments.  Except as otherwise expressly provided herein, whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable.     SECTION 2.23.  Taxes.  (a)  Any and all payments by or on account of any obligation of the Borrowers or any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if a Borrower or any Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or such Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Loan Party shall 31 -------------------------------------------------------------------------------- make such deductions and (iii) the Borrower or such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.     (b) In addition, the Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.     (c) The Borrowers shall jointly and severally indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrowers or any Loan Party hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrowing Agent by a Lender, or by the Administrative Agent on its behalf or on behalf of a Lender, shall be conclusive absent manifest error.     (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers or any other Loan Party to a Governmental Authority, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.     (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrowing Agent (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrowers as will permit such payments to be made without withholding or at a reduced rate, provided that such Foreign Lender has received written notice from the Borrowing Agent advising it of the availability of such exemption or reduction and supplying all applicable documentation.     SECTION 2.24.  Assignment of Commitments Under Certain Circumstances; Duty to Mitigate.  (a)  In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.16, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrowers are required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.23, the Borrowers may, at their sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Administrative Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrowers shall have received the prior written consent of the Administrative Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing Bank), which consent shall not unreasonably be withheld, and (z) the Borrowers or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including 32 -------------------------------------------------------------------------------- any amounts under Section 2.15 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.16 or notice under Section 2.15 or the amounts paid pursuant to Section 2.23, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.23, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder.     (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.16, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrowers are required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.23, then such Lender or the Issuing Bank shall use reasonable efforts (which shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrowers or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.16 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.23, as the case may be, in the future. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer.     SECTION 2.25.  Defaulting Lender.  (a)  Notwithstanding anything to the contrary contained herein, in the event any Lender (x) has refused (which refusal constitutes a breach by such Lender of its obligations under this Agreement) to make available its portion of any Revolving Credit Borrowing or reimbursement for drawings under Letters of Credit or (y) notifies either the Administrative Agent or the Borrowers that it does not intend to make available its portion of any Revolving Credit Borrowing or reimbursement (if the actual refusal would constitute a breach by such Lender of its obligations under this Agreement) (each, a "Lender Default" ), all rights and obligations hereunder of such Lender (a "Defaulting Lender") as to which a Lender Default is in effect and of the other parties hereto shall be modified to the extent of the express provisions of this Section 2.25 while such Lender Default remains in effect.     (b) Revolving Credit Borrowings shall be incurred pro rata from Lenders (the "Non-Defaulting Lenders") which are not Defaulting Lenders based on their respective Pro Rata Percentages, and no Pro Rata Percentage of any Lender or any Pro Rata Percentage of any Revolving Credit Borrowings required to be advanced by any Lender shall be increased as a result of such Lender Default. Amounts received in respect of principal of any type of Revolving Loans shall be applied to reduce the applicable Revolving Loans of each Lender pro rata based on the aggregate of the outstanding Revolving Loans of that type of all Lenders at the time of such application; provided that such amount shall not be applied to any Revolving Loans of a Defaulting Lender at any time when, and to the extent that, the aggregate amount of Revolving Loans of any Non-Defaulting Lender exceeds such Non-Defaulting Lender's Pro Rata Percentage of all Revolving Loans then outstanding. 33 --------------------------------------------------------------------------------     (c) A Defaulting Lender shall not be entitled to give instructions to the Administrative Agent or the Collateral Agent or to approve, disapprove, consent to or vote on any matters relating to this Agreement and the Loan Documents. All amendments, waivers and other modifications of this Agreement and the Loan Documents may be made without regard to a Defaulting Lender and, for purposes of the definition of "Required Lenders", a Defaulting Lender shall be deemed not to be a Lender and not to have Loans outstanding.     (d) Other than as expressly set forth in this Section 2.25, the rights and obligations of a Defaulting Lender (including the obligation to indemnify the Administrative Agent or the Collateral Agent) and the other parties hereto shall remain unchanged. Nothing in this Section 2.25 shall be deemed to release any Defaulting Lender from its obligations under this Agreement and the Loan Documents, shall alter such obligations, shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice any rights which Borrowers, the Administrative Agent, the Collateral Agent or any Lender may have against any Defaulting Lender as a result of any default by such Defaulting Lender hereunder.     (e) In the event a Defaulting Lender retroactively cures to the satisfaction of the Administrative Agent the breach which caused a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as a Lender under this Agreement.     SECTION 2.26.  Letters of Credit.  (a)  The Borrowing Agent on behalf of a Borrower may request the issuance of a Letter of Credit for its own account or the account of a Borrower, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement.     (b) In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrowing Agent shall hand deliver or telecopy to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) the Administrative Agent's form of letter of credit application or the Issuing Bank's form of Letter of Credit Application, completed to the satisfaction of the Administrative Agent or the Issuing Bank, respectively, or a notice identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrowers shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (i) the L/C Exposure shall not exceed the lesser of $80,000,000 and the Total Revolvling Credit Commitment, (ii) the Aggregate Revolving Credit Exposure shall not exceed the lesser of (x) the Total Revolving Credit Commitment, and (y) the Formula Amount in effect at such time and (iii) the outstanding principal amount of Revolving Loans of any Borrower plus such Borrower's L/C Exposure shall not exceed the Borrower's Individual Formula Amount.     If the Issuing Bank is not the Administrative Agent, the Administrative Agent will notify the Issuing Bank via phone, confirmed by telecopy, of changes in availability to issue Letters of Credit under the facility, and the Issuing Bank will notify the Administrative Agent via phone, confirmed by telecopy, of any changes in outstanding balances of Letters of Credit it has issued. No new Letter of Credit shall be issued, and no existing Letter of Credit shall be amended, renewed or 34 -------------------------------------------------------------------------------- extended, by the Issuing Bank until the Administrative Agent shall have approved, via phone, confirmed by telecopy, such issuance, amendment, renewal or extension.     (c) No Letter of Credit shall be issued with a stated expiration date or latest maturity date of the accepted draft if a usance letter of credit later than the earlier of (i) the close of business on the date that is five Business Days prior to the Revolving Credit Maturity Date and (ii) the close of business on the date that is (x) 270 days after the date of issuance of such Letter of Credit in the case of a Trade Letter of Credit and (y) 12 months after the date of issuance of such Letter of Credit in the case of a Standby Letter of Credit. Each Letter of Credit shall, among other things, (i) provide for the payment of sight drafts or acceptances of usance drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described therein and (ii) have an expiry date or latest maturity date in the case of usance drafts not later than five Business Days prior to the Revolving Credit Maturity Date. Each Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and any amendments or revision thereof adhered to by the Issuing Bank and, to the extent not inconsistent therewith, the laws of the State of New York.     (d) By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrowers (or, if applicable, another party pursuant to its obligations under any other Loan Document). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.     (e) All disbursements or payments with respect to Letters of Credit shall be deemed to be Revolving Credit Borrowings consisting of ABR Loans and shall bear interest at the ABR Rate.     (f)  The Borrowers' obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of:      (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;     (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document;     (iii) the existence of any claim, setoff, defense or other right that a Borrowers, any other party guaranteeing, or otherwise obligated with, such Borrowers, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; 35 --------------------------------------------------------------------------------     (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;     (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and     (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrowers' obligations hereunder.     Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or willful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Issuing Bank's gross negligence or willful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute willful misconduct or gross negligence of the Issuing Bank.     (g) The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Administrative Agent and the Borrowing Agent of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement.     (h) The Issuing Bank may resign at any time by giving 90 days' prior written notice to the Administrative Agent, the Lenders and the Borrowers but such resignation shall not be effective until a successor is appointed. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrowers shall pay all accrued and unpaid fees pursuant to Section 2.08(c)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form 36 -------------------------------------------------------------------------------- satisfactory to the Borrowers and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit.     (i)  If any Event of Default shall occur and be continuing, the Borrowers shall, on the Business Day the Borrowing Agent receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) of an Event of Default and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Revolving Credit Lenders, an amount in cash equal to 105% of the L/C Exposure as of such date or provide one or more letters of credit, in form and substance reasonably satisfactory to the Administrative Agent and from a bank acceptable to the Administrative Agent for such amount in lieu of or to replace such cash deposit. Such deposit or letter of credit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made at the option and sole discretion of the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrowers for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrowers within three Business Days after all Events of Default have been cured or waived.     (j)  The Borrowers may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an issuing bank pursuant to this paragraph (k) shall be deemed (in addition to being a Lender) to be the Issuing Bank with respect to Letters of Credit issued or to be issued by such Lender, and all references herein and in the other Loan Documents to the term "Issuing Bank" shall, with respect to such Letters of Credit, be deemed to refer to such Lender in its capacity as Issuing Bank.     (k) The Existing Letters of Credit shall be deemed to be Letters of Credit issued hereunder, and on the Restatement Effective Date each Revolving Credit Lender shall be deemed to have been granted and acquired a participation therein pursuant to paragraph (d) above.     (l)  In connection with the issuance of any Letter of Credit, the Borrowers shall jointly and severally indemnify, save and hold the Administrative Agent, each Lender and each Issuing Bank harmless from any loss, cost, expense or liability, including, without limitation, payments made by 37 -------------------------------------------------------------------------------- the Administrative Agent, any Lender or any Issuing Bank and expenses and reasonable attorneys' fees incurred by the Administrative Agent, any Lender or Issuing Bank arising out of, or in connection with, any Letter of Credit to be issued or created for any Borrower. The Borrowers shall be bound by the Administrative Agent's or any Issuing Bank's regulations and good faith interpretations of any Letter of Credit issued or created for Borrowers' Account, although this interpretation may be different from its own; and neither the Administrative Agent, nor any Lender, nor any Issuing Bank nor any of their correspondents shall be liable for any error, negligence, or mistakes, whether of omission or commission, in following the applicable Borrowers' instructions or those contained in any Letter of Credit or of any modifications, amendments or supplements thereto or in issuing or paying any Letter of Credit, except for the Administrative Agent's, any Lender's, any Issuing Bank's or such correspondents' willful misconduct or gross negligence.     (m) If the Administrative Agent is not the Issuing Bank of any Letter of Credit, Borrower shall authorize and direct the Issuing Bank to deliver to the Administrative Agent all instruments, documents, and other writings and property received by the Issuing Bank pursuant to the Letter of Credit and to accept and rely upon the Administrative Agent's instructions and agreements with respect to all matters arising in connection with the Letter of Credit and the application therefor     (n) In connection with all Letters of Credit issued or caused to be issued by the Administrative Agent under this Agreement, each Borrower hereby appoints the Administrative Agent, or its designee, as its attorney, with full power and authority (i) to sign and/or endorse such Borrower's name upon any warehouse or other receipts, letter of credit applications and acceptances; (ii) to sign such Borrower's name on bills of lading; (iii) to clear Inventory through the United States of America Customs Department ("Customs") in the name of such Borrower or the Administrative Agent or the Administrative Agent's designee, and to sign and deliver to Customs officials powers of attorney in the name of such Borrower for such purpose; and (iv) to complete in such Borrower's name or the Administrative Agent's, or in the name of the Administrative Agent's designee, any order, sale or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof. Neither the Administrative Agent nor its attorneys will be liable for any acts or omissions nor for any error of judgment or mistakes of fact or law, except for the Administrative Agent's or its attorney's willful misconduct. This power, being coupled with an interest, is irrevocable as long as any Letters of Credit remain outstanding.     SECTION 2.27.  Borrowing Agency Provisions.  (a)  Each Borrower hereby irrevocably designates the Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower or Borrowers, and hereby authorizes the Administrative Agent to pay over or credit all loan proceeds hereunder in accordance with the request of the Borrowing Agent.     (b) The handling of this credit facility as a co-borrowing facility with a borrowing agent in the manner set forth in this Agreement is solely as an accommodation to the Borrowers and at their request. Neither the Administrative Agent, the Collateral Agent, nor any Lender shall incur liability to any Borrower as a result thereof. To induce the Administrative Agent, the Collateral Agent and Lenders to do so and in consideration thereof, each Borrower hereby indemnifies the Administrative Agent, the Collateral Agent and each Lender and holds the Administrative Agent, the Collateral Agent and each Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against the Administrative Agent, the Collateral Agent or any Lender by any Person arising from or incurred by reason of the handling of the financing arrangements of the Borrowers as provided herein, reliance by the Administrative Agent, the Collateral Agent or any Lender on any request or instruction from the Borrowing Agent or any other action taken by the Administrative Agent, the Collateral Agent or any Lender 38 -------------------------------------------------------------------------------- with respect to this Section 2.27, except due to willful misconduct or gross (not mere) negligence by the indemnified party.     (c) Subject to Section 2.29, all Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted by the Administrative Agent, the Collateral Agent or any Lender to any Borrower, failure of the Administrative Agent, the Collateral Agent or any Lender to give any Borrower notice of borrowing or any other notice, any failure of the Administrative Agent, the Collateral Agent or any Lender to pursue or preserve its rights against any Borrower, the release by Agent or any Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by the Administrative Agent, the Collateral Agent or any Lender to the other Borrowers or any Collateral for such Borrower's Obligations or the lack thereof.     SECTION 2.28.  Waiver of Subrogation.  Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other person directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers' property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.     SECTION 2.29.  Borrower Guarantee Agreement.  The Obligations of the Borrowers as joint and several obligors shall be subject to all the terms, conditions, waivers and agreements contained in the Borrower Guarantee Agreement.     SECTION 2.30.  Increases in Total Revolving Credit Commitment.  The Borrowers have requested that the Total Revolving Credit Commitment be increased to $100,000,000, and the Administrative Agent has agreed to use its best efforts to find one or more additional financial institutions ("New Lenders") to become parties to this Agreement with Revolving Credit Commitments not in excess of $22,000,000 in the aggregate (the "Commitment Increase"). Such New Lenders shall be selected by the Administrative Agent and the Borrowers shall pay to the Administrative Agent such customary fees and expenses in connection with syndicating the Commitment Increase as may be necessary, in the reasonable judgment of the Administrative Agent, to achieve a successful syndication, and no portion of such fees shall be allocable to any Lender other than the Administrative Agent and any New Lender. The Administrative Agent shall have no liability to the Borrowers or the Lenders if the Administrative Agent is unable to successfully syndicate the Commitment Increase. If the Administrative Agent is able to successfully syndicate the Commitment Increase, the Commitment Increase (or so much thereof as shall have been syndicated, as notified to the Borrowers and the Lenders by the Administrative Agent) shall become effective on the date specified by the Administrative Agent; provided, however, that (i) no Default or Event of Default shall exist on such date, both before and after giving effect to the Commitment Increase, (ii) the New Lenders shall have entered into one or more joinder agreements, in form and substance satisfactory to the Administrative Agent, to become Lenders hereunder, (iii) the Borrowers shall have paid all fees and expenses in connection with the syndication and arrangement of the Commitment Increase, (iv) the Borrowers shall have executed and delivered to the Administrative Agent for the benefit of the New Lenders promissory notes in the amount of the respective portion of the Commitment Increase, and (v) the Borrowers shall have delivered or caused to be delivered to the Administrative Agent such legal opinions, certificates and other documents as the Administrative Agent may reasonably request. On the effective date of the Commitment Increase, subject to the satisfaction of the foregoing conditions, (x) Schedule 2.01 shall be amended to reflect the reallocated Revolving Credit Commitments, and 39 -------------------------------------------------------------------------------- (y) each New Lender shall become a Lender hereunder and under the other Loan Documents. In no event shall the Total Revolving Credit Commitments exceed $100,000,000 without the consent of all Lenders.     SECTION 2.31  Realignment of the Revolving Credit Commitments on the Restatement Effective Date.  In order to effect a realignment of the Revolving Credit Commitments of the Lenders, after the Terminating Lenders shall have ceased to become parties to this Agreement, the Borrowers and each Lender agree as follows, notwithstanding the provisions of any Loan Document:     (a) On the Restatement Effective Date, each outstanding Eurodollar Loan owing to each Lender and each Terminating Lender shall be converted to an ABR Loan, and the Borrowers agree to pay to each Lender and each Terminating Lender any amount that may be owing under the Existing Credit Agreement as a result of any conversion on any date other than the last day of an Interest Period. On the Restatement Effective Date, the Borrowers shall pay all accrued interest on any Eurodollar Loan so converted, and any accrued fees under the Existing Credit Agreement.     (b) On the Restatement Effective Date, subject to the satisfaction of the conditions in this Agreement, the Administrative Agent, the Lenders and the Terminating Lenders shall, among themselves, purchase or sell such interests in the Revolving Loans and Revolving Credit Commitments in such amounts as shall be necessary so that, after giving effect thereto, the Revolving Loans and Revolving Credit Commitments will be held by the Lenders ratably in proportion to the Revolving Credit Commitments of all Lenders set forth on Schedule 2.01. The Borrowers shall take such actions as the Administrative Agent may reasonably request (including the execution and delivery of new promissory notes) to facilitate the realignment of the Revolving Credit Commitments.     (c) Upon completion of the foregoing realignment, each outstanding Revolving Loan under the Existing Credit Agreement shall be a Revolving Loan outstanding under this Agreement, and shall be comprised of Revolving Loans made by each Lender in proportion to its Pro Rata Percentage of the Total Revolving Credit Commitment. ARTICLE III Representations and Warranties     The Borrowers represent and warrant to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that:     SECTION 3.01  Organization; Powers.  The Borrowers and each of the Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated hereby to which it is or will be a party and, in the case of the Borrowers, to borrow hereunder.     SECTION 3.02  Authorization.  The execution, delivery and performance by each Loan Party of each of the Loan Documents and the consummation of the transactions contemplated by the Loan Documents (including the borrowings hereunder) (collectively, the "Transactions") (i) have been duly authorized by all requisite corporate and, if required, stockholder action and (ii) will not (x) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of any Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any indenture, agreement or other instrument to which 40 -------------------------------------------------------------------------------- any Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (y) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture, agreement or other instrument or (z) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by any Borrowers or any Subsidiary (other than any Lien created hereunder or under the Security Documents).     SECTION 3.03  Enforceability.  This Agreement has been duly executed and delivered by each Borrower and constitutes, and each other Loan Document when executed and delivered by the each Loan Party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms.     SECTION 3.04  Governmental Approvals.  No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (i) the filing of Uniform Commercial Code financing statements and filings with the United States Patent and Trademark Office and the United States Copyright Office, (ii) recordation of the Mortgages and (iii) such as have been made or obtained and are in full force and effect.     SECTION 3.05  Financial Statements.  (a)  The Borrowers have heretofore furnished to the Lenders Activision's consolidated balance sheets and statements of income, stockholder's equity and cash flows (i) as of and for the fiscal year ended March 31, 1998, audited by and accompanied by the opinion of KPMG Peat Marwick LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended December 31, 1998, certified by its chief financial officer. Such financial statements present fairly the financial condition and results of operations and cash flows of Activision and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of Activision and its consolidated Subsidiaries as of the dates thereof required to be disclosed therein in accordance with GAAP. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.     (b) Activision has heretofore delivered to the Lenders its unaudited pro forma consolidated balance sheet and statements of income, stockholder's equity and cash flows as of March 31, 1999, prepared giving effect to the Transactions as if they had occurred, with respect to such balance sheet, on such date and, with respect to such other financial statements, on the first day of the 12-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Borrowers, based on the assumptions used to prepare the pro forma financial information contained in the Confidential Information Memorandum (which assumptions are believed by the Borrowers on the date hereof and on the Restatement Effective Date to be reasonable), are based on the best information available to the Borrowers as of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions and presents fairly on a pro forma basis the estimated consolidated financial position of Activision and its consolidated Subsidiaries as of such date and for such period, assuming that the Transactions had actually occurred at such date or at the beginning of such period, as the case may be.     SECTION 3.06  No Material Adverse Change.  There has been no material adverse change in the business, results of operations, property, condition (financial or otherwise) or prospects of the Borrowers and the Subsidiaries, taken as a whole, since December 31, 1998. 41 --------------------------------------------------------------------------------     SECTION 3.07  Title to Properties; Possession Under Leases.  (a)  Each of the Borrowers and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and tangible assets (including all Mortgaged Property), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.02.     (b) Each of the Borrowers and the Subsidiaries has complied in all material respects with all obligations under all material leases or warehousing agreements to which it is a party and all such leases or warehousing agreements are in full force and effect. Each of the Borrowers and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases.     (c) No Borrower has received any notice of, nor has any knowledge of, any pending or contemplated condemnation proceeding affecting the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation.     (d) No Borrower nor any of the Subsidiaries is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein.     SECTION 3.08  Subsidiaries.  Schedule 3.08 sets forth as of the Restatement Effective Date a list of all Subsidiaries and the percentage ownership interest of the Borrowers or their Subsidiaries therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.08 are fully paid and non-assessable and are owned by the applicable Borrower or Subsidiary, directly or indirectly, free and clear of all Liens, other than Liens in favor of the Collateral Agent and Liens disclosed in Schedule 6.02.     SECTION 3.09  Litigation; Compliance with Laws.  (a)  Except as set forth on Schedule 3.09, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrowers, threatened against or affecting any Borrower or any Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.     (b) Neither any Borrower nor any of the Subsidiaries or any of their respective material properties or assets is in violation of, nor will the continued operation of their material properties and assets as currently conducted violate, any law, rule or regulation (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting the Mortgaged Property, or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.     SECTION 3.10  Agreements.  (a)  Neither any Borrower nor any of the Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect.     (b) Neither any Borrower nor any of the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any Material Contract, where such default could reasonably be expected to result in a Material Adverse Effect.     SECTION 3.11  Federal Reserve Regulations.  (a)  Neither the Borrowers nor any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. 42 --------------------------------------------------------------------------------     (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.     SECTION 3.12  Investment Company Act; Public Utility Holding Company Act.  Neither any Borrower nor any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.     SECTION 3.13  Use of Proceeds.  The Borrowers will use the proceeds of the Loans only for working capital and other general corporate purposes and will request the issuance of Letters of Credit only to support obligations incurred in the ordinary course of business. In no event may any Seasonal Advance be used to purchase any Equity Interests of Activision Holdings or any of its Subsidiaries (or options, warrants or other rights to acquire such Equity Interests) or to make any investments under Section 6.04(l) hereof.     SECTION 3.14  Tax Returns.  Each of the Borrowers and the Subsidiaries has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which the applicable Borrowers or such Subsidiary, as applicable, shall have set aside on its books adequate reserves.     SECTION 3.15  No Material Misstatements.  None of (a) the Confidential Information Memorandum or (b) any other written information, report, financial statement, exhibit or schedule furnished by the Borrowers to the Administrative Agent or any Lender in connection with the Loan Documents or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, the Borrowers represent only that they acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule.     SECTION 3.16  Employee Benefit Plans.  (a)  Each of the Borrowers and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Borrowers or any of their ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed the fair market value of the assets of all such underfunded Plans.     (b) Each Foreign Pension Plan is in compliance in all material respects with all requirements of law applicable thereto and the respective requirements of the governing documents for such plan except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Pension Plan, none of the Borrowers, any Affiliates or any of their directors, officers, employees or agents has engaged in a transaction that subjects any Borrower or any of its Subsidiaries, directly or indirectly, to a material tax or civil penalty. With respect to each Foreign Pension Plan, reserves have been established in the financial statements furnished to the Lenders in respect of any unfunded liabilities in accordance with 43 -------------------------------------------------------------------------------- applicable law and prudent business practice or, where required, in accordance with ordinary accounting practices in the jurisdiction in which such Foreign Pension Plan is maintained. The aggregate unfunded liabilities, with respect to such Foreign Pension Plans could not reasonably be expected to result in a Material Adverse Effect. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against any Borrower or any of its Affiliates with respect to any Foreign Pension Plan that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.     SECTION 3.17  Environmental Matters.  Except as set forth in Schedule 3.17:     (a) The properties owned or operated by the Borrowers and the Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect;     (b) The Properties and all operations of the Borrowers and the Subsidiaries are in compliance, and in the last six years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect;     (c) There have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Borrowers or the Subsidiaries, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect;     (d) Neither any Borrowers nor any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of any Borrowers or the Subsidiaries or with regard to any person whose liabilities for environmental matters any Borrower or any Subsidiary has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could reasonably be expected to result in a Material Adverse Effect, nor do the Borrowers or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; and     (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Borrowers or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect.     SECTION 3.18  Insurance.  Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Borrowers or by the Borrowers for their Subsidiaries as of the date hereof and the Restatement Effective Date. As of each such date, such insurance is in full force and effect and all premiums have been duly paid. The Borrowers and their Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice.     SECTION 3.19  Security Documents.  (a)  The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Pledge Agreement) and, when the Collateral is delivered to the Collateral Agent (or in the case of Foreign Subsidiaries in Germany, the Netherlands and the United Kingdom, when pledge agreements complying with applicable foreign laws are executed and delivered), the Pledge Agreement shall constitute a fully perfected first priority Lien on, and 44 -------------------------------------------------------------------------------- security interest in, all right, title and interest of the pledgors thereunder in such Collateral, in each case prior and superior in right to any other person.     (b) The Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and, when financing statements in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral (other than the Intellectual Property, as defined in the Security Agreement), in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02.     (c) When the Security Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in the Security Agreement), in each case prior and superior in right to any other person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a lien on registered trademarks, trademark applications and copyrights acquired by the grantors after the date hereof).     (d) The Mortgages are effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien on all of the Loan Parties' right, title and interest in and to the Mortgaged Property thereunder and the proceeds thereof, and when the Mortgages are filed in the appropriate offices in the jurisdictions in which the Mortgaged Properties are located the Mortgages shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Mortgaged Property and the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to the rights of persons pursuant to Liens expressly permitted by Section 6.02.     (e) The UK Charge Documents are effective to create in favor of Activision a legal, valid and enforceable security interest in and charge over the personal property assets of UK Sub described therein and, when Form 395 is filed in the Companies House in the United Kingdom, such UK Charge Documents shall constitute a fully perfected Lien on, and security interest on all right, title and interest of UK Sub in such personal property assets prior and superior in right to any other person.     SECTION 3.20  Location of Real Property and Leased Premises.  (a)  Schedule 3.20(a) lists completely and correctly as of the Restatement Effective Date all real property owned by the Loan Parties and the addresses thereof. The Loan Parties own in fee all the real property set forth on Schedule 3.20(a).     (b) Schedule 3.20(b) lists completely and correctly as of the Restatement Effective Date all real property leased by the Loan Parties and all locations of Collateral and the addresses thereof. The Loan Parties have valid leases in or valid warehouse agreements with respect to all the real property set forth on Schedule 3.20(b) except to the extent set forth on such Schedule.     SECTION 3.21  Labor Matters.  As of the date hereof and the Restatement Effective Date, there are no strikes, lockouts or slowdowns against any Borrower or any Subsidiary pending or, to the knowledge of the Borrowers, threatened. The hours worked by and payments made to employees of any Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrowers or any Subsidiary, or for which any claim may be made against any Borrowers or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have 45 -------------------------------------------------------------------------------- been paid or accrued as a liability on the books of such Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Borrower or any Subsidiary is bound.     SECTION 3.22  Solvency.  Immediately after the consummation of the Transactions to occur on the Restatement Effective Date and immediately following the making of each Loan and after giving effect to the application of the proceeds of each Loan, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Restatement Effective Date.     SECTION 3.23  Year 2000.  No further programming or reprogramming is required to permit the proper functioning, in and following the year 2000, of (a) the Borrowers' and their Subsidiaries' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Borrowers' or their Subsidiaries' systems interface). The cost to the Borrowers and their Subsidiaries of the reasonably foreseeable consequences of the year 2000 to the Borrowers and their Subsidiaries (including reprogramming errors and the failure of others' systems or equipment) will not result in a Material Adverse Effect. The computer and management information systems of the Borrowers and their Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrowers and its Subsidiaries to conduct their business without Material Adverse Effect.     SECTION 3.24  Letters of Credit.  The Existing Letters of Credit are the only letters of credit issued for the account of the Borrowers or any of its Domestic Subsidiaries that are outstanding immediately prior to the Restatement Effective Date. ARTICLE IV Conditions of Lending     The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions:     SECTION 4.01  All Credit Events.  On the date of each Borrowing, and on the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a "Credit Event"):     (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.26(b).     (b) The representations and warranties set forth in Article III hereof and in each other Loan Document shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall have been true and correct as of such earlier date. 46 --------------------------------------------------------------------------------     (c) The Borrowers and each other Loan Party shall be in compliance in all material respects with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Credit Event, no Event of Default or Default shall have occurred and be continuing, or would exist after giving effect to the Loan to be made or Letter of Credit to be issued on such date.     Each Credit Event shall be deemed to constitute a representation and warranty by the Borrowers on the date of such Credit Event as to the matters specified in paragraphs (b) and (c) of this Section 4.01.     SECTION 4.02  Restatement Effective Date.  On the Restatement Effective Date (or, as specifically indicated below, prior to the date hereof):     (a) This Agreement shall have been executed and delivered by each Lender and each Borrower, and the Administrative Agent shall have received satisfactory evidence of such execution and delivery.     (b) The Borrower shall have executed and delivered to each Lender requesting the issuance of a promissory note a note payable to the order of such Lender in the amount of its Revolving Credit Commitment.     (c) The Administrative Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of Robinson Silverman Pearce Aronsohn & Berman LLP, counsel for the Loan Parties, (A) dated the Restatement Effective Date, (B) addressed to the Issuing Bank, the Administrative Agent, the Collateral Agent and the Lenders, and (C) covering such matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and the Borrowers hereby request such counsel to deliver such opinions.     (d) All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Loan Documents shall be satisfactory to the Lenders, to the Issuing Bank and to the Administrative Agent.     (e) The Administrative Agent shall have received (i) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Restatement Effective Date and certifying (A) that the certificate or articles of incorporation and bylaws of such Loan Party have not been amended since June 8, 2000 (or attaching any amendments since such date), and (B) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (ii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (i) above; and (iii) such other documents as the Lenders, the Issuing Bank or the Administrative Agent may reasonably request.     (f)  The Administrative Agent shall have received a certificate, dated the Restatement Effective Date and signed by an officer of the Borrowers, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01.     (g) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Restatement Effective Date, including, any amounts owing under Section 2.31 as a result of the realignment of the Revolving Credit Commitments and, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder or under any other Loan Document.     (h) Each of the Subsidiary Guarantors shall have duly executed and delivered to the Collateral Agent a consent to this Agreement. 47 --------------------------------------------------------------------------------     (i)  The Term Loans (under and as defined in, the Existing Credit Agreement), and all accrued interest thereon, shall have been paid in full.     (j)  The Administrative Agent shall have received all other documents, agreements and certificates as the Administrative Agent or any Lender shall reasonably request. ARTICLE V Affirmative Covenants     The Borrowers covenant and agree with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each Borrower will, and will cause each of the Subsidiaries to:     SECTION 5.01  Existence; Businesses and Properties.  (a)  Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05.     (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated or in a manner reasonably related to present operations; comply in all material respects with all applicable laws, rules, regulations (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Mortgaged Properties) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.     SECTION 5.02  Insurance.  The Loan Parties shall bear the full risk of any loss of any nature whatsoever with respect to the Collateral. At the cost and expense of the Loan Parties in amounts and with carriers reasonably acceptable to the Administrative Agent, the Loan Parties shall (a) keep all insurable properties and properties in which any Loan Party has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the business of the Loan Parties including, without limitation, business interruption insurance and marine and air cargo insurance, (b) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the business of the Loan Parties insuring against larceny, embezzlement or other criminal misappropriation of insured's officers and employees who may either singly or jointly with others at any time have access to the assets or funds of such Loan Party either directly or through authority to draw upon such funds or to direct generally the disposition of such assets; (c) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (d) maintain all such worker's compensation or similar insurance as may be required under the laws of any state or jurisdiction in which such Loan Party is engaged in business; (e) furnish the Administrative Agent with (i) copies of all policies and evidence of the maintenance of such policies by the renewal thereof at least thirty (30) days before any expiration date, and (ii) appropriate loss payable endorsements in form and substance reasonably satisfactory to the Administrative Agent, naming the Administrative Agent as a co-insured and loss payee as its interests 48 -------------------------------------------------------------------------------- may appear with respect to all insurance coverage referred to in clause (a), and providing (A) that all proceeds thereunder shall be payable to the Administrative Agent, (B) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (C) that such policy and loss payable clauses may not be canceled, amended or terminated unless at least thirty (30) days' prior written notice is given to the Administrative Agent. In the event of any loss thereunder, the carriers named therein hereby are directed by the Administrative Agent and the applicable Loan Party to make payment for such loss to the Administrative Agent and not to such Loan Party and Administrative Agent jointly. If any insurance losses are paid by check, draft or other instrument payable to any Loan Party and the Administrative Agent jointly, the Administrative Agent may endorse such Loan Party's name thereon and do such Loan Party other things as the Administrative Agent may deem advisable to reduce the same to case. Following the occurrence of an Event of Default, the Administrative Agent is hereby authorized to adjust and compromise claims under insurance coverage referred to in clauses (a), and (b). All loss recoveries received by the Administrative Agent upon any such insurance prior to the occurrence of an Event of Default shall be applied to the Revolving Loans. Any surplus shall be paid by the Administrative Agent to Borrowers or applied as may be otherwise required by law.     SECTION 5.03  Obligations and Taxes.  Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrowers shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien and, in the case of a Mortgaged Property, there is no risk of forfeiture of such property.     SECTION 5.04  Financial Statements, Reports, etc.  In the case of the Borrowers, furnish to the Administrative Agent and each Lender:     (a) within 90 days after the end of each fiscal year, the consolidated and consolidating balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of Activision Holdings and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, and the balance sheet and related statement of income, stockholders' equity and cash flows showing the financial condition of Kaboom as of the close of such fiscal year and the results of its operations during such year. The consolidated financial statements shall be audited by PriceWatershouseCoopers or other independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of Activision Holdings and its consolidated Subsidiaries on a consolidated basis, or of Kaboom, as the case may be, in accordance with GAAP. In addition, Development Costs and the amortization of Development Costs for such year shall be identified explicitly in the audited financial statements or in the notes thereto;     (b) within 45 days after the end of each fiscal quarter of each fiscal year, the consolidated and consolidating balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of Activision Holdings and its consolidated Subsidiaries, and of the Loan Parties, as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, and the balance sheet and related statement of income, stockholders' equity and cash flows 49 -------------------------------------------------------------------------------- showing the financial condition of Kaboom as of the close of such fiscal quarter and the results of its operations during such fiscal quarter and the then elapsed portion of the fiscal year, each certified by a Financial Officer of Activision Holdings or Kaboom, as the case may be, as fairly presenting the financial condition and results of operations of the Loan Parties and Activision Holdings and its consolidated Subsidiaries, or of Kaboom, as the case may be, in accordance with GAAP, subject to normal year-end audit adjustments;     (c) within 20 days after the end of each month, the consolidated and consolidating balance sheet and related statements of income, stockholder's equity and cash flows showing the financial condition of the Loan Parties and of Activision Holdings and its consolidated Subsidiaries as of the close of such fiscal month and the results of its operations and the operations of such Subsidiaries and of the Loan Parties during such fiscal month and the then elapsed portion of such fiscal year, all certified by one of its Financial Officers as fairly presenting the financial condition and results of operations of the Loan Parties and of Activision Holdings and its consolidated Subsidiaries in accordance with GAAP, subject to normal year-end audit adjustments;     (d) concurrently with the delivery of financial statements under paragraph (b) above, a report in reasonable detail of amounts accrued and paid during such quarter for royalties and fees under license, distribution or development agreements, in a form reasonably satisfactory to the Administrative Agent.     (e) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate of the accounting firm (in the case of paragraph (a)) or Financial Officer (in the case of paragraph (b)) opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in Sections 6.09, 6.10, and 6.13;     (f)  within 90 days of the Restructure Date, an inventory appraisal, from an appraiser acceptable to the Administrative Agent and in form and substance satisfactory to the Administrative Agent;     (g) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Activision Holdings or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be;     (h) promptly after the receipt thereof by any Borrower or any of its Subsidiaries, a copy of any "management letter" (whether in draft or final form) received by any such person from its certified public accountants and the management's responses thereto; and     (i)  each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) above, the Borrowers shall deliver to the Administrative Agent a certificate of a Financial Officer of the Borrowers (i) setting forth the information required pursuant to Sections 1-4, 6 and 9 of the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed 50 -------------------------------------------------------------------------------- of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period).     (j)  on or before the fifteenth (15th) day of each month as and for the prior month (a) a Schedule of Receivables, (b) a Schedule of Payables and (c) Inventory reports; provided, however, that during the period from September 1 to December 1 of each year, the foregoing information shall be provided on each Thursday as and for the prior Week; and (d) a schedule, in form and substance satisfactory to the Administrative Agent, of all Convertible Subordinated Notes converted to common stock, and all repurchases or redemptions of Convertible Subordinated Notes and common stock during such month and cumulatively. In addition, the Borrowers will deliver to the Administrative Agent at least once every two weeks (or more frequently at the option of the Borrowers) or as the Administrative Agent may require, (i) confirmatory assignment schedules, (ii) remittance schedules and (iii) schedules of credits to Receivables, each certified as complete and correct by a Financial Officer of the Borrowers. Borrowers shall also deliver to the Administrative Agent at such intervals as the Administrative Agent may require: (i) copies of Customer invoices (ii) evidence of shipment or delivery and (iii) such further schedules, documents and/or information regarding the Collateral as the Administrative Agent may require including, without limitation, trial balances and test verifications. The Administrative Agent shall have the right to confirm and verify all Receivables by any manner and through any medium it considers advisable and do whatever it may deem reasonably necessary to protect its interests hereunder. The items to be provided under this Section are to be in form reasonably satisfactory to the Administrative Agent and executed by the Borrowers and delivered to the Administrative Agent from time to time solely for the Administrative Agent's convenience in maintaining records of the Collateral, and any Borrower's failure to deliver any of such items to the Administrative Agent shall not affect, terminate, modify or otherwise limit the Collateral Agent's Lien with respect to the Collateral.     (k) no later than forty-five (45) days after the beginning of each fiscal year commencing with the fiscal year ending March 31, 2001, a month by month projected operating budget and cash flow of Activision Holdings and of the Loan Parties for such fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), such projections to be accompanied by a certificate signed by a Financial Officer of the Borrowers to the effect that such projections have been prepared on the basis of sound financial planning practice consistent with past budgets and financial statements and that such officer has no reason to question the reasonableness of any material assumptions on which such projections were prepared; provided that Borrowers will deliver a preliminary projected operating budget and cash flow for the fiscal year ending March 31, 2003 by April 1, 2002. In addition, concurrently with the delivery of the financial statements referred to in clauses (a), (b) and (c) above the Borrowers will deliver a written report summarizing all material variances from the budgets submitted by the Borrowers and a discussion and analysis by management with respect to such variances.     (l)  promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrowers or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.     SECTION 5.05  Litigation and Other Notices.  Furnish to the Administrative Agent, the Issuing Bank and each Lender prompt written notice of the following:     (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; 51 --------------------------------------------------------------------------------     (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against any Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect;     (c) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect;     (d) any event of default or event which, with notice or lapse of one or both would constitute an event of default under the Convertible Subordinated Note Documents or any agreement with respect to Subordinated Debt;     (e) all matters materially affecting the value, enforceability or collectibility of any portion of the Collateral, including, without limitation, any Loan Party's reclamation or repossession of, or the returns to any Loan Party of, a material amount of goods or claims or disputes asserted by any Customer or other obligor; and     (f)  any breach or default under any agreement under which a Loan Party is the licensee or distributor or any notice of intent to terminate any such agreement.     SECTION 5.06  Employee Benefits.  (a)  Comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within 10 days after any Responsible Officer of any Borrower or any ERISA Affiliate knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrowers in an aggregate amount exceeding $1,000,000, a statement of a Financial Officer of the Borrowers setting forth details as to such ERISA Event and the action, if any, that the Borrowers propose to take with respect thereto.     SECTION 5.07  Maintaining Records; Access to Properties and Inspections.  Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of the Borrowers or any Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent or any Lender to discuss the affairs, finances and condition of the Borrowers or any Subsidiary with the officers thereof and independent accountants therefor.     SECTION 5.08  Use of Proceeds.  Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in Section 3.13.     SECTION 5.09  Compliance with Environmental Laws.  Comply, and cause all lessees and other persons occupying its Properties to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that neither any Borrowers nor any of the Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances.     SECTION 5.10  Preparation of Environmental Reports.  If a Default caused by reason of a breach of Section 3.17 or 5.09 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of the Borrowers, an environmental site assessment report for the Properties which are the 52 -------------------------------------------------------------------------------- subject of such Default prepared by an environmental consulting firm acceptable to the Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties.     SECTION 5.11  Audits.  From time to time upon the request of the Collateral Agent or the Required Lenders through the Administrative Agent, permit the Collateral Agent or the Lenders to conduct evaluations and appraisals of (a) the Borrowers' practices in the computation of the Borrowing Base and (b) the assets included in the Borrowing Base. In connection therewith, Borrowers shall pay the costs of the Collateral Agent's auditors in accordance with the Agent's Fee Letter.     SECTION 5.12  Further Assurances.  Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Security Documents and the UK Charge Documents. The Borrowers will cause any subsequently acquired or organized Domestic Subsidiary which is a Material Subsidiary and any other Domestic Subsidiary which becomes a Material Subsidiary to execute a Subsidiary Guarantee Agreement, Indemnity Subrogation and Contribution Agreement and each applicable Security Document in favor of the Collateral Agent. If any new Domestic Subsidiary is to become a Borrower hereunder, it will execute and deliver a Joinder Agreement and the Borrower Guarantee Agreement, Indemnity, Subrogation and Contribution Agreement and the Security Agreement; provided, however, that any new Borrower's Receivables and Inventory may not be included in calculating the Formula Amount or Individual Formula Amount until the Administrative Agent has completed its audit with respect thereto with results satisfactory to it in its Permitted Discretion. In addition, from time to time, the Borrowers will, at their cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of the assets and properties of the Loan Parties as the Administrative Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by substantially all the assets of the Borrowers and their Domestic Subsidiaries (including real and other properties acquired subsequent to the Closing Date)). Such security interests and Liens will be created under the Security Documents and other security agreements, mortgages, deeds of trust and other instruments and documents in form and substance satisfactory to the Collateral Agent, and the Borrowers shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section. The Borrowers agree to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien.     SECTION 5.13  Government Receivables.  Notify the Administrative Agent immediately if any Receivables arise out of contracts between any Borrower and the United States, any state or any department, agency or instrumentality of any of them and take all steps necessary to protect the Collateral Agent's interest in the Collateral under the Federal Assignment of Claims Act or other applicable state or local statutes or ordinances and deliver to the Administrative Agent appropriately endorsed any instrument or chattel paper connected with any Receivable arising out of contracts between any Loan Party and the United States, any state or any department, agency of instrumentality of any of them.     SECTION 5.14  Intellectual Property.  (a)  Each Loan Party shall register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those intellectual property rights listed on the exhibits to the Security Agreement within thirty (30) days of the date of this Agreement. Each Loan Party shall 53 -------------------------------------------------------------------------------- register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those additional material intellectual property rights developed or acquired by such Loan Party from time to time in connection with any product prior to the sale or licensing of such product to any third party, including without limitation revisions or additions to the intellectual property rights listed on such exhibits, when such Loan Party reasonably determines that such registration is appropriate; provided that such Loan Party shall in any case register such additional patents, and/or copyrights as are developed or obtained in connection with any product accounting for more than five percent (5%) of such Loan Party's gross revenues in any calendar quarter. Notwithstanding the foregoing, each Loan Party shall only be required to register trademarks when such Loan Party reasonably determines that such registration is appropriate.     (b) Each Loan Party shall execute and deliver such additional instruments and documents from time to time as the Collateral Agent shall reasonably request to perfect the Collateral Agent's security interest in the Collateral consisting of Intellectual Property (as defined in the Security Agreement).     (c) Each Loan Party shall (i) protect, defend and maintain the validity and enforceability of the Intellectual Property, (ii) use commercially reasonable efforts to detect infringements of the Intellectual Property and promptly advise the Administrative Agent in writing of material infringements detected, and (iii) not allow any Intellectual Property to be abandoned, forfeited or dedicated to the public without the written consent of the Required Lenders, which shall not be unreasonably withheld.     (d) The Collateral Agent shall have the right, but not the obligation, to take, at Borrowers' sole expense, any actions that Borrowers are required to take under this Section, but fail to take, after fifteen (15) days' notice to Borrowers. Borrowers shall reimburse and indemnify the Administrative Agent for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section.     SECTION 5.15  Blocked Accounts.  All proceeds of Collateral shall, at the direction of the Administrative Agent, be deposited by the Loan Parties into a lock box account, dominion account or such other "blocked account" ("Blocked Accounts") with PNC or another bank reasonably acceptable to the Administrative Agent, that enters into a Lock Box Agreement with the Administrative Agent in form and substance acceptable to the Administrative Agent. Each Loan Party shall issue to the institution with which the Blocked Accounts are maintained an irrevocable letter of instruction directing said bank to transfer such funds so deposited in accordance with a notice from the Administrative Agent to the Administrative Agent, either to any account maintained by the Administrative Agent at said bank or by wire transfer to appropriate account(s) of the Administrative Agent. All funds deposited in such Blocked Accounts shall immediately become the property of the Administrative Agent and Borrowers shall obtain the agreement by such bank to waive any offset rights against the funds so deposited (except any rights of PNC as a Lender hereunder). Neither the Administrative Agent, the Collateral Agent nor any Lender assumes any responsibility for such "blocked account" arrangement, including without limitation, any claim of accord and satisfaction or release with respect to deposits accepted by any bank thereunder. Alternatively, the Administrative Agent may establish depository accounts (the "Depository Accounts") in the name of the Administrative Agent at a bank or banks for the deposit of such funds and the Loan Parties shall deposit all proceeds of Collateral or cause same to be deposited, in kind, in such Depository Accounts in lieu of depositing same to the Blocked Accounts. 54 --------------------------------------------------------------------------------     All funds in the Blocked Accounts or Depository Accounts shall be transferred daily to the Administrative Agent to be applied to outstanding Revolving Loans which are ABR Loans, and applied to the Obligations as they become due. Any funds remaining after such application may be transferred, if all ABR Loans and all other Obligations then due have been paid in full, to the Investment Account to be held as Cash Collateral hereunder and applied to the Obligations as they become due. From time to time the Administrative Agent shall, upon the request of the Borrowing Agent, transfer funds from the Investment Account to Borrower's operating account, but Borrowers may not make investments in Permitted Investments other than those held in the Investment Account unless no Revolving Loans are outstanding and, after any transfer of funds from the Investment Account, Undrawn Availability is at least $10,000,000 or such lesser amount to which the Administrative Agent otherwise consents.     SECTION 5.16  Receivables.  (a)  Each of the Receivables shall be a bona fide and valid account representing a bona fide indebtedness incurred by the Customer therein named and each of the Receivables proposed to be included as an Eligible Receivable is for a fixed sum as set forth in the invoice relating thereto (provided immaterial or unintentional invoice errors shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery of goods upon stated terms of a Borrower, or work, labor or services theretofore rendered by a Borrower as of the date each Receivable is created. Same shall be due and owing in accordance with the applicable Borrower's standard terms of sale without dispute, setoff or counterclaim except as may be stated on the Schedules of Receivables delivered by Borrowers to the Administrative Agent.     (b) Each Customer, to the best of each Borrower's knowledge, as of the date each Receivable is created, is and will be solvent and able to pay all Receivables on which the Customer is obligated in full when due or with respect to such Customers of any Borrower who are not solvent such Borrower has set up on its books and in its financial records bad debt reserves adequate to cover such Receivables.     (c) Each Borrower's chief executive office is located at the addresses set forth on Schedule 3.20(a) or (b) hereto. Until written notice is given to the Administrative Agent by the Borrowing Agent of any other office at which any Borrower keeps its records pertaining to Receivables, all such records shall be kept at such executive office.     (d) Until any Borrower's authority to do so is terminated by the Administrative Agent (which notice the Administrative Agent may give at any time following the occurrence of an Event of Default), each Borrower will, at such Borrower's sole cost and expense, but on the Administrative Agent's behalf and for the Administrative Agent's account, collect as the Administrative Agent's property and in trust for the Administrative Agent all amounts received on Receivables, and shall not commingle such collections with any Borrower's funds or use the same except to pay Obligations. Each Borrower shall, upon request, deliver to the Administrative Agent, or deposit in the Blocked Account, in original form and on the date of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness.     (e) At any time following the occurrence of an Event of Default, the Administrative Agent shall have the right to send notice of the assignment of, and the Collateral Agent's security interest in, the Receivables to any and all Customers or any third party holding or otherwise concerned with any of the Collateral. Thereafter, the Collateral Agent shall have the sole right to collect the Receivables, take possession of the Collateral, or both. The Collateral Agent's actual collection expenses, including, but not limited to, stationery and postage, telephone and telegraph, secretarial and clerical expenses and the salaries of any collection personnel used for collection, may be charged to Borrowers' Account and added to the Obligations.     (f)  The Collateral Agent shall have the right to receive, endorse, assign and/or deliver in the name of the Collateral Agent or any Borrower any and all checks, drafts and other instruments for the payment of money relating to the Receivables, and each Borrower hereby waives notice of 55 -------------------------------------------------------------------------------- presentment, protest and non-payment of any instrument so endorsed. Each Borrower hereby constitutes the Collateral Agent or its designee as such Borrower's attorney with power (i) to endorse such Borrower's name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral; (ii) to sign such Borrower's name on any invoice or bill of lading relating to any of the Receivables, drafts against Customers, assignments and verifications of Receivables; (iii) to send verifications of Receivables to any Customer; (iv) to sign such Borrower's name on all financing statements or any other documents or instruments deemed necessary or appropriate by the Collateral Agent to preserve, protect, or perfect the Collateral Agent's interest in the Collateral and to file same; (v) following an Event of Default, to demand payment of the Receivables; (vi) following an Event of Default, to enforce payment of the Receivables by legal proceedings or otherwise; (vii) following an Event of Default, to exercise all of Borrowers' rights and remedies with respect to the collection of the Receivables and any other Collateral; (viii)following an Event of Default, to settle, adjust, compromise, extend or renew the Receivables; (ix) following an Event of Default, to settle, adjust or compromise any legal proceedings brought to collect Receivables; (x) following an Event of Default, to prepare, file and sign such Borrower's name on a proof of claim in bankruptcy or similar document against any Customer, (xi) following an Event of Default, to prepare, file and sign such Borrower's name on any notice of Lien., assignment or satisfaction of Lien or similar document in connection with the Receivables; and (xii) to do all other acts and things necessary to carry out this Agreement. All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or of law, unless constituting willful misconduct or gross (not mere) negligence; this power being coupled with an interest is irrevocable while any of the Obligations remain unpaid. The Collateral Agent shall have the right at any time following the occurrence of an Event of Default to change the address for delivery of mail addressed to any Borrower to such address as the Collateral Agent may designate and to receive, open and dispose of all mail addressed to any Borrower.     (g) Neither the Administrative Agent, the Collateral Agent nor any Lender shall, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Receivables or any instrument received in payment thereof, or for any damage resulting therefrom. Following the occurrence of an Event of Default the Administrative Agent may, without notice or consent from any Borrower, sue upon or otherwise collect, extend the time of payment of, compromise or settle for cash, credit or upon any terms any of the Receivables or any other securities, instruments or insurance applicable thereto and/or release any obligor thereof. The Collateral Agent is authorized and empowered to accept following the occurrence of an Event of Default the return of the goods represented by any of the Receivables, without notice to or consent by any Borrower, all without discharging or in any way affecting any Borrower's liability hereunder.     (h) No Borrower will, without the Administrative Agent's consent, compromise or adjust any material amount of the Receivables or extend the time for payment thereof or accept any material returns of merchandise or grant any additional discounts, allowances or credits thereon except for those compromises, adjustments, returns, discounts, credits and allowances as have been heretofore customary in the business of such Borrower. ARTICLE VI Negative Covenants     The Borrowers covenant and agree with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder 56 -------------------------------------------------------------------------------- have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, no Borrower will nor will it cause or permit any of the Subsidiaries to:     SECTION 6.01  Indebtedness.  Incur, create, assume or permit to exist any Indebtedness, except:     (a) Indebtedness for borrowed money existing on the Closing Date and set forth in Schedule 6.01, but not any extensions, renewals or replacements of such Indebtedness (unless otherwise permitted under this Section 6.01);     (b) Indebtedness created hereunder and under the other Loan Documents;     (c) Indebtedness evidenced by Capital Lease Obligations, or secured pursuant to Section 6.02(h), in each case so long as the aggregate principal amount of all Indebtedness permitted to be outstanding under this paragraph (c) shall not exceed $5,000,000;     (d) Indebtedness in favor of a Lender (or an Affiliate thereof) under one or more Hedging Agreements approved by the Administrative Agent (such approval not to be unreasonably withheld);     (e) intercompany Indebtedness of Activision and its Subsidiaries to the extent permitted by Sections 6.04(e), (g) and (o);     (f)  Indebtedness with respect to any surety bonds required in the ordinary course of business of the Borrowers and the Subsidiaries, provided that such Indebtedness shall not at any time exceed $250,000 in the aggregate;     (g) Indebtedness of the European Distribution Subsidiaries in an aggregate principal amount not to exceed $50,000,000 (or the equivalent thereof) at any time outstanding, provided that such Indebtedness shall not be Guaranteed by any Loan Party other than through one or more Letters of Credit issued hereunder to support such Indebtedness in a face amount not in excess of $9,000,000;     (h) Indebtedness of Foreign Subsidiaries (other than the European Distribution Subsidiaries) in an aggregate principal amount not to exceed $15,000,000 (or the equivalent thereof) at any time outstanding, provided such Indebtedness shall not be Guaranteed by any Loan Party;     (i)  other unsecured Indebtedness of the Borrowers and the Subsidiaries in an aggregate principal amount not to exceed $5,000,000 at any time outstanding;     (j)  Subordinated Debt in an aggregate principal amount which does not exceed at the time of incurrence $15,000,000 in outstanding principal amount; and     (k) Acquired Debt in connection with a Permitted Acquisition.     SECTION 6.02  Liens.  Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except:     (a) Liens on property or assets of the Borrowers and its Subsidiaries existing on the date hereof and set forth in Schedule 6.02; provided that such Liens shall secure only those obligations which they secure on the date hereof and may not encumber Receivables;     (b) any Lien created under the Loan Documents;     (c) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; provided that the Lien shall have no effect on the priority of the Liens under the Loan Documents or the value of the Collateral and a stay of enforcement of any such Lien shall be in effect; 57 --------------------------------------------------------------------------------     (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03;     (e) Liens (other than any Lien imposed by ERISA), pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations;     (f)  deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;     (g) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrowers or any of its Subsidiaries;     (h) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrowers or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 90 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed 85% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrowers or any Subsidiary;     (i)  Liens on assets of Foreign Subsidiaries; provided that (i) such Liens do not extend to, or encumber, assets of the Borrowers or any of its Domestic Subsidiaries and (ii) such Liens secure only Indebtedness incurred by such Foreign Subsidiaries pursuant to Section 6.01 (g), (h) or (k); and     (j)  Liens granted to licensors by a Loan Party which encumber only the licensed intellectual property and inventory produced thereunder (but not any Receivables from the sale, distribution or licensing thereof), are subordinated to the Liens of the Collateral Agent on terms and conditions satisfactory to the Collateral Agent and expressly permit the Liens granted by the Loan Documents and the exercise of remedies thereunder.     SECTION 6.03  Sale and Lease-Back Transactions.  Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred unless (a) the sale of such property is permitted by Section 6.05 and (b) the Capital Lease Obligations arising therefrom are permitted by Section 6.01(c).     SECTION 6.04  Investments, Loans and Advances.  Purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except:     (a) investments by the Borrowers existing on the date hereof in the Equity Interests of the Subsidiaries and the investment by Activision Holdings in Kaboom existing on the date hereof in an amount not in excess of $1,000; 58 --------------------------------------------------------------------------------     (b) Permitted Investments held in the Investment Account and, if Undrawn Availability is at least $10,000,000 and there are no outstanding Revolving Loans (or such lesser amount to which the Administrative Agent consents), other Permitted Investments;     (c) Receivables owing to any Borrower or any of its Subsidiaries arising from sales of Inventory under usual and customary terms in the ordinary course of business;     (d) advances not to exceed $500,000 outstanding at any time to employees of the Borrowers and the Subsidiaries to meet expenses incurred by such employees in the ordinary course of business;     (e) any wholly owned Subsidiary may make intercompany loans to a Borrower or any other wholly owned Subsidiary and any Borrower may make intercompany loans and advances to any wholly owned Subsidiary; provided that any promissory notes evidencing such intercompany loans shall be pledged (and delivered) by the applicable Borrower or the respective wholly owned Domestic Subsidiary that is the lender of such intercompany loan as Collateral pursuant to the Pledge Agreement; provided further that (i) any Borrower or any Domestic Subsidiaries may make loans to and repay loans from any Foreign Subsidiaries pursuant to this paragraph (e) only if, after giving effect thereto, the outstanding principal amount of all loans made by Foreign Subsidiaries to Activision during any Fiscal Year shall exceed the principal of loans made by any Borrower and its Domestic Subsidiaries during such period and as of the end of each Fiscal Year the outstanding principal amount of loans made by Foreign Subsidiaries shall exceed the outstanding principal amount of loans made by the Borrowers and their Domestic Subsidiaries by at least $4,000,000 and (ii) any loans made by any Foreign Subsidiaries to any Borrower or any of its Domestic Subsidiaries pursuant to this paragraph (e) shall be unsecured and subordinated to the obligations of the Loan Parties pursuant to subordination provisions in substantially the form of Exhibit J to the Existing Credit Agreement; and any loans made by any Loan Party to any Foreign Subsidiary shall be evidenced by one or more revolving Master Notes pledged to the Collateral Agent pursuant to the Pledge Agreement.     (f)  the Borrowers may establish Subsidiaries to the extent permitted by Section 6.15;     (g) the Borrowers and the Domestic wholly owned Subsidiaries may make additional loans and advances to, or other investments in, Foreign Subsidiaries of the Borrowers with the prior written consent of the Required Lenders;     (h) a Borrower or any wholly owned Subsidiary may acquire substantially all the assets of, or more than 50% of the Equity Interests of, a person (such assets or such person referred to herein as the "Acquired Entity" and any acquisition completed under this subsection 6.04(h) is a "Permitted Acquisition"); provided that each of the following conditions is satisfied:      (i) the Acquired Entity shall be a going concern and shall be in a line of business reasonably related to that of the Borrowers and their Subsidiaries as conducted during the current and most recent calendar year;     (ii) the Acquired Entity shall have approved such transaction;     (iii) the Borrowers shall have delivered to the Administrative Agent at least 5 Business Days prior to consummation of the acquisition a certificate of a Financial Officer demonstrating, in reasonable detail, that, at the time of such transaction (A) both before and after giving effect thereto, no Event of Default or Default shall have occurred and be continuing or shall exist, (B) the Borrowers are in compliance with the covenants set forth in Sections 6.09, 6.10, and 6.13 as of the last day of the most recent fiscal quarter preceding such acquisition, and would be in compliance on a pro forma basis with such covenants as of the last day of the month preceding such acquisition, and (C) all calculations necessary to 59 -------------------------------------------------------------------------------- determine compliance with the conditions in clauses (vi) or (vii) below. All pro forma calculations required to be made pursuant to this subsection 6.04(h) shall (i) include only those adjustments that would be permitted or required by Regulation S-X, (ii) be based on reasonably detailed written assumptions which accompany the certificate and shall be acceptable to the Administrative Agent, and (iii) be certified by a Financial Officer as having been prepared in good faith based upon reasonable assumptions;     (iv) the Borrowers shall comply with Sections 5.12, 6.15 and the relevant provisions of the other Loan Documents with respect to the Acquired Entity and its assets or any new Subsidiary formed to effect the acquisition;     (v) the Borrowers shall have delivered to the Lenders consolidating financial statements for each Borrower, each Subsidiary and the Acquired Entity for the most recent fiscal year and fiscal quarter prior to the date of acquisition in question, and the financial statements of the Acquired Entity for the most recent fiscal year prior to the date of acquisition in question audited by an independent certified public accountant; provided that if the total amount expended (including the value of any Equity Issuance) is less than $30,000,000 and the Cash Components for such acquisition are less than $15,000,000, the Borrowers shall not be required to deliver financial statements for the Acquired Entity audited by an independent certified public accountant to the extent such statements have not been delivered to the Borrowers or their subsidiaries;     (vi) for any acquisition in which the Cash Components are no more than $4,000,000 for any individual acquisition or $13,000,000 in the aggregate since the Closing Date, (a) the Fixed Charge Coverage Ratio of the Loan Parties for the four quarters ending on the last day of the most recent fiscal quarter preceding such acquisition was, and the Fixed Charge Coverage Ratio of the Loan Parties for the 12 months ending on the last day of the month preceding such acquisition (such last day of the preceding month or such last day of the preceding fiscal quarter, a "Measurement Date"), would be, on a pro forma basis, at least 1.0 to 1.0 and (b) after giving effect to the acquisition, the actual Undrawn Availability at closing (calculated for these purposes without including the Inventory or Receivables of the Acquired Entity) is at least the lesser of (x) $5,000,000 and (y) 10% of the sum of the amounts calculated under clauses (i), (ii) and (v) of the definition of Formula Amount or if the Administrative Agent has completed its audit of the Acquired Entity with results satisfactory to the Administrative Agent in its Permitted Discretion, the actual Undrawn Availability at closing calculated for the Borrowers and the Acquired Entity is at least $10,000,000;    (vii) for any acquisition other than an acquisition described in clause (vi), (a) the Cash Components may be no more than $15,000,000 for any acquisition, no more than $40,000,000 in any twelve month period, and no more than $60,000,000 since the Closing Date; (b) the Fixed Charge Coverage Ratio of the Loan Parties for the four quarters ending the last day of the most recent fiscal quarter preceding such acquisition was, and the Fixed Charge Coverage Ratio of the Loan Parties for the 12 months ending on the last day of the month preceding such acquisition would be, on a pro forma basis, at least the higher of (x) 1.1 to 1.0 or (y) the ratio required by Section 6.10; and (c) after giving effect to the acquisition, the pro forma average daily Undrawn Availability at closing (calculated for these purposes without including the Inventory or Receivables of the Acquired Entity) for the most recent January to June period would be greater than $15,000,000 or, if the Administrative Agent has completed its audit of the Acquired Entity with results satisfactory to the Administrative Agent in its Permitted Discretion, the actual Undrawn Availability at closing calculated for the Borrowers and the Acquired Entity is at least $20,000,000; 60 --------------------------------------------------------------------------------    (viii) any Indebtedness incurred in connection with the acquisition, including any Acquired Debt and any Subordinated Debt, must be permitted under Section 6.01; and     (ix) in no event may any Equity Issuance in connection with any acquisition exceed a number of shares of Activision common stock (or equivalents) equal to 40% of the issued and outstanding common stock of Activision on such date and all Equity Issuances shall be of common equity or equivalents;     (i)  the Borrowers may enter into Hedging Agreements to the extent permitted in Section 6.01(d);     (k) Activision and the Subsidiaries may consummate the Transactions;     (l)  the Borrowers may make investments in persons not constituting subsidiaries provided that (i) such person is in a line of business reasonably related to the business of the Borrowers and their Subsidiaries, (ii) prior and after giving effect to such investment, Undrawn Availability (without giving effect to clause (iv) of the definition of "Formula Amount" in Section 2.01) is an amount of at least 10% of the Formula Amount (without giving effect to such clause (iv)), (iii) after giving effect to the investment and any Revolving Loans made on the acquisition date, no Seasonal Advance is outstanding and the Loan Parties are in compliance with the financial covenants contained in this Agreement, (iv) the Cash Component of any single investment or series of related investments shall not exceed $5,000,000, (v) the Cash Component(s) of all such investments in persons not constituting subsidiaries shall not exceed $15,000,000 in any twelve month period, and (vi) all capital stock or other equity interests acquired by a Borrower or any other Loan Party shall be pledged to the Collateral Agent.     (m) the Borrowers and their Subsidiaries may make advance payments of royalties under license or distribution agreements in the ordinary course of business;     (n) Activision may make loans to directors and employees in connection with the granting of stock options or as incentive or bonus compensation; and     (o) loans from Activision to UK Sub evidenced by the Intercompany Note may remain outstanding.     In no event may any Loan Party make any investment in Kaboom after the Restatement Effective Date.     SECTION 6.05  Mergers, Consolidations, Sales of Assets and Acquisitions.  (a)  Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of the assets of any Borrower (whether now owned or hereafter acquired) or any Equity Interest of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that (i) the Borrowers and any Subsidiary may purchase and sell Inventory in the ordinary course of business, (ii) the Borrowers or any wholly owned Subsidiary may make acquisitions permitted under Section 6.04 above, (iii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (x) any wholly owned Subsidiary may merge into a Borrower in a transaction in which the Borrower is the surviving corporation and (y) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Subsidiary in a transaction in which the surviving entity is a wholly owned Subsidiary and no person other than a Borrower or a wholly owned Subsidiary receives any consideration, provided that if any such merger described in this clause (y) shall involve a Domestic Subsidiary, the surviving entity of such merger shall be a Domestic Subsidiary; and (iv) any Subsidiary which is not a Material Subsidiary may be wound up and dissolved. 61 --------------------------------------------------------------------------------     (b) Engage in any Asset Sale unless (i) such Asset Sale is for consideration at least 85% of which is cash, (ii) such consideration is at least equal to the fair market value of the assets being sold, transferred, leased or disposed of, (iii) the fair market value of all assets sold, transferred, leased or disposed of pursuant to this paragraph (b) and Section 6.05 of the Existing Credit Agreement shall not exceed (x) $10,000,000 in any fiscal year or (y) $20,000,000 in the aggregate and (iv) the Net Cash Proceeds are applied as required by Section 2.14.     SECTION 6.06  Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends.   (a)  Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any of its Equity Interests or set aside any amount for any such purpose; provided, however, that any wholly owned Subsidiary may declare and pay dividends or make other distributions to the holders of its Equity Interests, but other Subsidiaries which are not wholly owned may not make dividends or distributions and provided further that, as long as no Default or Event of Default shall have occurred and be continuing or result therefrom, after the Restatement Effective Date, Activision Holdings may purchase or redeem its capital stock for an aggregate amount which, if added to any funds used to redeem or purchase Convertible Subordinated Notes permitted under Section 6.14(b), does not exceed the Repurchase Amount. In no event may any Seasonal Advance be used to make any purchase or redemption of its stock hereunder.     (b) Permit its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (i) pay any dividends or make any other distributions on its Equity Interests or (ii) make or repay any loans or advances to a Borrower or the parent of such Subsidiary except (w) for such encumbrances or restrictions existing under or by reason of (A) applicable law, (B) this Agreement and the other Loan Documents, (C) the Convertible Subordinated Note Documents, (x) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of a Borrower or a Subsidiary of a Borrower, (y) customary provisions restricting assignment of any agreement entered into by a Borrower or a Subsidiary in the ordinary course of business, and (z) any holder of a Lien permitted by Section 6.02 may restrict the transfer of the asset or assets subject thereto.     SECTION 6.07  Transactions with Affiliates.  Except for transactions by or among Loan Parties, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that:     (a) a Borrower or any Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to such Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties;     (b) dividends may be paid to the extent provided in Section 6.06;     (c) loans may be made and other transactions may be entered into between and among the Borrowers, the Subsidiaries and their respective Affiliates to the extent permitted by Sections 6.01 and 6.04;     (d) a Borrower or any Subsidiary may pay reasonable compensation to officers and directors in the ordinary course of business.     SECTION 6.08.  [Intentionally omitted].       SECTION 6.09  Interest Coverage Ratio.  Permit the Interest Coverage Ratio for (a) the six-month period ending September 30, 1999, (b) the nine-month period ending December 31, 1999 or (c) any 62 -------------------------------------------------------------------------------- period of four consecutive fiscal quarters thereafter, in each case taken as one accounting period, ended on the last day of the applicable fiscal quarter to be less than 5.00 to 1.00 for the Loan Parties on a consolidated basis.     SECTION 6.10  Fixed Charge Coverage Ratio.  Permit the Fixed Charge Coverage Ratio of the Loan Parties on a consolidated basis for any period of four consecutive fiscal quarters in each case taken as one accounting period, ending on the last day of any fiscal quarter ending during any period set forth below to be less than 1.0 to 1.0:     SECTION 6.11.  [Intentionally omitted]       SECTION 6.12.  [Intentionally omitted]       SECTION 6.13  Minimum Tangible Net Worth.  (a)  Permit Tangible Net Worth of the Loan Parties on a consolidated basis at any date set forth below to be less than the amount set forth opposite such date: Fiscal Quarter --------------------------------------------------------------------------------   Amount -------------------------------------------------------------------------------- June 30, 2000   $ 36,000,000 September 30, 2000   $ 40,000,000 December 31, 2000   $ 47,000,000 March 31, 2001   $ 52,000,000 June 30, 2001   $ 55,000,000 September 30, 2001   $ 60,000,000 December 31, 2001   $ 70,000,000 March 31, 2002   $ 78,000,000     SECTION 6.14  Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc.  (a)  Amend or modify, or permit the amendment or modification of, any provision of existing Indebtedness or of any agreement (including any purchase agreement, indenture, loan agreement or security agreement) relating thereto other than any amendments or modifications to Indebtedness which do not in any way materially adversely affect the interests of the Lenders, (b) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Convertible Subordinated Notes, any Subordinated Debt, the Intercompany Note or any other Indebtedness that is expressly subordinated to the Obligations; provided, however, that, as long as no Default or Event of Default shall have occurred and be continuing or shall result therefrom, after the Restatement Effective Date Activision Holdings may redeem or purchase the Convertible Subordinated Notes for an aggregate amount which, if added to any funds used to redeem or purchase capital stock of Activision Holdings permitted under Section 6.06(a) hereof, does not exceed the Repurchase Amount, but no Seasonal Advance may be used for such redemption or purchase; (c) amend or modify, or permit the amendment or modification of, the Merger Agreement or any of the operating agreements entered into in connection therewith or any tax sharing agreement, in each case except for amendments or modifications which are not in any way adverse in any material respect to the interests of the Lenders or (d) amend, modify or change its Certificate of Incorporation (including by the filing or modification of any certificate of designation) or By-laws, or any agreement entered into by it, with respect to its Equity Interests (including any shareholders' agreement), or enter into any new agreement with respect to its Equity Interests, other than any amendments, modifications or changes pursuant to this clause (d) or any such new agreements pursuant to this clause (d) which do not in any way materially adversely affect the interests of the Lenders.     SECTION 6.15  Limitation on Creation of Subsidiaries.  Establish or create any additional Subsidiaries; provided that the Borrowers may establish or create one or more Subsidiaries of the 63 -------------------------------------------------------------------------------- Borrowers so long as (a) 100% of the Equity Interests of any new Domestic Subsidiary owned by a Loan Party (or all the Equity Interests of any new Foreign Subsidiary that is owned by any Loan Party, except that not more than 65% of the voting Equity Interests of any such Foreign Subsidiary shall be required to be so pledged) is upon the creation or establishment of any such new Subsidiary pledged and delivered to the Collateral Agent for the benefit of the Secured Parties under the Pledge Agreement and (b) upon the creation or establishment of any such new Domestic Subsidiary such Domestic Subsidiary becomes a party to the applicable Security Documents in accordance with Section 5.12 and the other Loan Documents.     SECTION 6.16  Business.  With respect to Activision Holdings, engage in any business other than owning Equity Interests in Activision and Kaboom and, subject to compliance with Section 5.12 hereof, such other Subsidiaries as may be organized from time to time and with respect to Activision and other Subsidiaries, engage (directly or indirectly) in any business other than the businesses in which Activision and its Subsidiaries are engaged on the Closing Date and other businesses reasonably related thereto.     SECTION 6.17  Fiscal Year; Accounting Changes.  Change its fiscal year end to a date other than March 31 or make any change in accounting treatment and reporting practices except as required by GAAP.     SECTION 6.18  Minimum Undrawn Availability.  Other than during the period from August 15 to November 15 in each year, permit Undrawn Availability at any time to be less than an amount equal to 5% of the Formula Amount. ARTICLE VII Events of Default     In case of the happening of any of the following events ("Events of Default"):     (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;     (b) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;     (c) default shall be made in the payment of any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days;     (d) default shall be made in the due observance or performance by any Borrowers or any Subsidiary of any covenant, condition or agreement contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;     (e) default shall be made in the due observance or performance by any Borrower or any Subsidiary or by UK Sub in any UK Charge Document of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days;     (f)  any Loan Party or UK Sub shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $2,000,000, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, 64 -------------------------------------------------------------------------------- covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity;     (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Borrower or any Subsidiary, or of a substantial part of the property or assets of any Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Subsidiary or for a substantial part of the property or assets of any Borrower or a Subsidiary or (iii) the winding-up or liquidation of any Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;     (h) any Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Subsidiary or for a substantial part of the property or assets of any Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;     (i)  one or more judgments for the payment of money in an aggregate amount in excess of $250,000 be rendered against any Borrower, any Loan Party or any combination thereof, unless the same shall be contested in good faith, the Borrowers have established reserves reasonably satisfactory to the Administrative Agent and enforcement shall be effectively stayed, satisfied, or discharged within forty (40) days or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrowers or any Loan Party to enforce any such judgment;     (j)  an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Borrowers and their ERISA Affiliates in an aggregate amount exceeding $2,000,000;     (k) any security interest purported to be created by any Security Document or UK Charge Document shall cease to be, or shall be asserted by any Borrowers or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Pledge Agreement and except to the extent that such loss is covered by a lender's title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy;     (l)  any of the Obligations shall cease to constitute "Senior Indebtedness" under and as defined in the Convertible Subordinated Note Indenture, any Subordinated Debt, the Intercompany Note or any Master Note; 65 --------------------------------------------------------------------------------     (m) there shall have occurred a Change in Control;     (n) issuance of a notice of Lien, levy, assessment, injunction or attachment against a material portion of the property of any Loan Party or UK Sub, or any portion of the Collateral shall be seized or taken by any Governmental Agency or the title or right of any Loan Party which is the owner of any material portion, or the Collateral shall have become the subject matter of any litigation which, in the opinion of the Required Lenders, could reasonably be expected upon final determination, to result in the impairment or loss of the security provided by the Security Documents;     (o) termination (other than as a result of any Asset Sale, merger or liquidation of a Subsidiary permitted hereunder) or breach of any Subsidiary Guarantee Agreement, or any Subsidiary Guarantor attempts to terminate, challenge the validity of, or its liability under, any such Subsidiary Guarantee Agreement or UK Sub attempts to challenge the validity of, or its liability under the Intercompany Note or any UK Charge Document; then, and in every such event (other than an event with respect to any Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrowing Agent, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to any Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding.     The Administrative Agent shall have the right in its sole discretion to determine which rights, Liens, security interests or remedies the Administrative Agent may at any time pursue, relinquish, subordinate, or modify or to take any other action with respect thereto and such determination will not in any way modify or affect any of the Administrative Agent's or Collateral Agent's or Lenders' rights hereunder. ARTICLE VIII The Administrative Agent and the Collateral Agent     In order to expedite the transactions contemplated by this Agreement, PNC Bank, National Association, is hereby appointed to act as Administrative Agent and Collateral Agent on behalf of the Lenders and the Issuing Bank (for purposes of this Article VIII, the Administrative Agent and the Collateral Agent are referred to collectively as the "Agents"). Each of the Lenders and each assignee of any such Lender, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including without limitation, collection of the Obligations) the Agents shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from 66 -------------------------------------------------------------------------------- acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders (or as otherwise required by Section 9.08(b)), and such instructions shall be binding; provided, however, that the Agents shall not be required to take any action which exposes either of them to liability or which is contrary to this Agreement or the other Loan Documents or applicable law unless the Agents are furnished with an indemnification reasonably satisfactory to each of them with respect thereto. The Administrative Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrowers of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrowers or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents.     Agents shall have no duties or responsibilities except those expressly set forth in the Loan Documents. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or in any Loan Document or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrowers or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any of the other Loan Documents, or to inspect the properties, books or records of the Borrowers or any other Loan Party. The duties of the Agents as respects the Loans to the Borrowers shall be mechanical and administrative in nature; the Agents shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agents any obligations in respect of this Agreement except as expressly set forth herein.     The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders (or as otherwise required by Section 9.08(b)) and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of actual knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrowers or any other Loan Party on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of its obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by any other Lender or the Issuing Bank or the Borrowers or any other Loan Party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in 67 -------------------------------------------------------------------------------- accordance with the advice of such counsel and the term "Lender" or any similar term shall, unless the context clearly otherwise indicates, include the Administrative Agent and the Collateral Agent in its individual capacity as a Lender.     The Agents shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before making of the Loans or at any time or times thereafter except as shall be provided by the Borrowers pursuant to the terms of this Agreement. The Agents shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any agreement, document, certificate or a statement delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document, or of the financial condition of Borrowers, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the other Loan Documents or the financial condition of the Borrowers or any of its subsidiaries, or the existence of any Event of Default or any Default.     Either Agent may resign on sixty (60) days' written notice to each of the Lenders and the Borrowers and upon such resignation, the Required Lenders will promptly designate a successor Administrative Agent or Collateral Agent, as the case may be, reasonably satisfactory to the Borrowers.     Any such successor Administrative Agent or Collateral shall succeed to the rights, powers and duties of the Administrative Agent or Collateral Agent, and the term "the Administrative Agent" or "the Collateral Agent" shall mean such successor Agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent. After any Agent's resignation, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement.     If either Agent shall request instructions from Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, such Agent shall be entitled to refrain from such act or taking such action unless and until it shall have received instructions from the Required Lenders; and neither Agent shall incur liability to any person by reason of so refraining. Without limiting the foregoing, Lenders shall not have any right of action whatsoever against either Agent as a result of its acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders.     The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, order or other document or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to this Agreement and the Loan Documents and its duties hereunder, upon advice of counsel selected by it. The Agents may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by the applicable Agent with reasonable care.     No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder or under the other Loan Documents, unless it has received notice from a Lender or the Borrowers referring to this Agreement or the other Loan Documents, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that an Agent receives such a notice, it shall give notice thereof to the Lenders. The Agents shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until the Agents shall have received such directions, the Agents may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders. 68 --------------------------------------------------------------------------------     The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders.     With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or any Subsidiary or other Affiliate thereof as if it were not an Agent.     Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on the aggregate amount of its outstanding Revolving Credit Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrowers and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrowers or any other Loan Party, provided that no Lender shall be liable to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent or any of its directors, officers, employees or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and its directors, employees and agents, in each case, to the same extent and subject to the same limitations as provided above for the Agents.     Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous     SECTION 9.01  Notices.  Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:     (a) if to the Borrowers or the Borrowing Agent, to Activision, Inc. at 3100 Ocean Park Blvd., Santa Monica, California 90405, Attention of Chief Financial Officer (Telecopy No. 310-255-2191);     (b) if to the Administrative Agent, to PNC Bank, National Association, Two Tower Center Boulevard, East Brunswick, New Jersey 08816, Attention of Ryan Peak (Telecopy No. 732-220-4315) with a copy to PNC Bank, National Association, 2 North Lake Ave., Suite 940, Pasadena, California 91109, Attention of Albert Perez (Telecopy No. 626-432-4589); and 69 --------------------------------------------------------------------------------     (c) if to a Lender, to it at its address (or telecopy number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto.     Any party may change the directions for delivery of notices hereunder by notice delivered in accordance with this Section 9.01. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01.     SECTION 9.02  Survival of Agreement.  All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.16, 2.18, 2.19, 2.23 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank.     SECTION 9.03  Binding Effect.  This Agreement shall become effective when it shall have been executed by the Borrowers and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns.     SECTION 9.04  Successors and Assigns.  (a)  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrowers, the Administrative Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns.     (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate or Related Fund of such Lender, (x) the Borrowers and the Administrative Agent (and, in the case of any assignment of a Revolving Credit Commitment, the Issuing Bank) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed); provided, however, that the consent of the Borrowers shall not be required to any such assignment during the continuance of any Event of Default described in subsection (g) or (h) of Article VII, and (y) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 (or, if less, the entire remaining amount of such Lender's Commitment) or such lesser amount as the Borrowers and the Administrative Agent may from time to time agree (such agreement to be conclusively evidenced by the execution of the related Assignment and Acceptance by all the 70 -------------------------------------------------------------------------------- parties thereto), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together (except in the case of any assignment to an Affiliate or a Related Fund) with a processing and recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid).     (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Revolving Credit Commitment, and the outstanding balances of its Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrowers or any Subsidiary or the performance or observance by the Borrowers or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.     (d) The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrowers, the Administrative Agent, the Issuing Bank, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register 71 -------------------------------------------------------------------------------- shall be available for inspection by the Borrowers, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice.     (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrowers, the Issuing Bank and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders and the Issuing Bank. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e).     (f)  Each Lender may without the consent of the Borrowers, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.16 and 2.18 to the same extent as if they were Lenders and (iv) the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrowers relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans, increasing or extending the Commitments or releasing any Subsidiary Guarantor or all or any substantial part of the Collateral).     (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers; provided that, prior to any such disclosure of information designated by the Borrowers as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16.     (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.     (i)  Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making 72 -------------------------------------------------------------------------------- of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrowers and the Administrative Agent and without paying any processing fee therefore, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrowers and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC.     (j)  No Borrower shall assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void.     (k) In the event that Standard & Poor's Ratings Group, Moody's Investors Service, Inc., and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender becomes a Revolving Credit Lender, downgrade the long-term certificate deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have the right, but not the obligation, at its own expense, upon notice to such Lender and the Administrative Agent, to replace (or to request the Borrowers to use their reasonable efforts to assist in the replacement of) such Lender with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Revolving Credit Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder.     SECTION 9.05  Expenses; Indemnity.  (a)  The Borrowers jointly and severally agree to pay all out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, and the Issuing Bank in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the fees, charges and disbursements of counsel for the Administrative Agent and the Collateral Agent, and, in connection with any such 73 -------------------------------------------------------------------------------- enforcement or protection, the fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent or any Lender.     (b) The Borrowers jointly and severally agree to indemnify the Administrative Agent, the Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, officers, trustees, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by any Borrowers or any of the Subsidiaries, or any Environmental Claim related in any way to any Borrowers or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.     (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor.     SECTION 9.06  Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender or any affiliate of a Lender is hereby authorized at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or any affiliate of a Lender to or for the credit or the account of any Borrowers against any of and all the obligations of the Borrowers now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender and its affiliate under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.     SECTION 9.07  Applicable Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. 74 --------------------------------------------------------------------------------     SECTION 9.08  Waivers; Amendment.  (a)  No failure or delay of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances.     (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement or any Fees, without the prior written consent of each Lender affected thereby, (ii) change or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender, (iii) amend or modify the pro rata requirements of Section 2.20, the provisions of Section 9.04(i), the provisions of this Section, the definition of the term "Required Lenders" or release any Subsidiary Guarantor or all or any substantial part of the Collateral, without the prior written consent of each Lender (iv) amend or modify the protections afforded to an SPC pursuant to the provisions of Section 9.04(i) without the written consent of such SPC, or (v) increase the Advance Rates above the Advance Rates in effect on the Restatement Effective Date, without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent or the Issuing Bank, respectively.     (c) In the event that the Administrative Agent requests the consent of a Lender pursuant to this Section 9.08 and such Lender shall not respond or reply to the Administrative Agent in writing within 5 days of delivery of such request, such Lender shall be deemed to have consented to the matter that was the subject of the request. In the event that the Administrative Agent requests the consent of a Lender and such consent is denied, then PNC may, at its option, require such Lender to assign its interest in the Obligations to PNC or to another Lender or to any other Person designated by the Administrative Agent (the "Designated Lender") for a price equal to the then outstanding principal amount thereof plus accrued and unpaid interest and fees due such Lender, which interest and fees shall be paid when collected from Borrowers. In the event that PNC elects to require any Lender to assign its interest to PNC, or a Designated Lender, PNC will so notify such Lender in writing within 45 days following such Lender's denial, and such Lender will assign its interest to PNC or the Designated Lender no later than 5 days following receipt of such notice pursuant to an Assignment and Acceptance Agreement executed by such Lender, PNC or the Designated Lender, as appropriate, and the Administrative Agent.     SECTION 9.09.  [Intentionally Deleted]       SECTION 9.10  Entire Agreement.  This Agreement, the Fee Letter and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any 75 -------------------------------------------------------------------------------- other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.     SECTION 9.11  WAIVER OF JURY TRIAL; CONSEQUENTIAL DAMAGES.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. Neither the Administrative Agent, the Collateral Agent nor any Lender, nor any agent or attorney for any of them, shall be liable to any Borrowers or any other Loan Party for consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations.     SECTION 9.12  Severability.  In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.     SECTION 9.13  Counterparts.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.     SECTION 9.14  Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.     SECTION 9.15  Jurisdiction; Consent to Service of Process.  (a)  Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto 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. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to 76 -------------------------------------------------------------------------------- bring any action or proceeding relating to this Agreement or the other Loan Documents against any Borrowers or its properties in the courts of any jurisdiction.     (b) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.     (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.     SECTION 9.16  Confidentiality.  The Administrative Agent, the Collateral Agent, the Issuing Bank, and each of the Lenders agrees to keep confidential (and to use its best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to a potential assignee or participant of such Lender or any direct or indirect contractual counterparty in any swap agreement relating to the Loans or such potential assignee's or participant's or counterparty's advisors who need to know such Information (provided that any such potential assignee or participant or counterparty shall, and shall use its best efforts to cause its advisors to, keep confidential all such information on the terms set forth in this Section 9.16, (c) to the extent requested by any regulatory authority, (d) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (e) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (f) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from a source other than a Borrower. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) that are received from any Borrower and related to such Borrower, any Subsidiary, any shareholder of the Borrowers or any employee, customer or supplier of the Borrowers, other than any of the foregoing that were available to the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrowers, and which are in the case of Information provided after the date hereof, clearly identified at the time of delivery as confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration and term of this Agreement.     SECTION 9.17  Delivery of Notes .  Agent shall in good faith use commercially reasonable efforts to request and obtain from each Lender and Terminating Lender the delivery of any promissory note evidencing the Term Loan made by such Lender or Terminating Lender. After receipt thereof, the Administrative Agent shall immediately mark such promissory notes "cancelled" and return them to the Borrower as soon as reasonably practicable. Each Lender and the Administrative Agent on behalf of each of the Terminating Lenders hereby confirms the cancellation and release of the Borrower's obligations under such promissory notes and agrees to indemnify and hold harmless the Borrowers from any loss, damage, claim or liability (including reasonable fees and disbursements of its attorneys and all costs and expenses of enforcing this indemnity) arising out of the presentation of such promissory notes by any person or entity to whom such Lender or Terminating Lender transferred, 77 -------------------------------------------------------------------------------- assigned, pledged, hypothecated, created a security interest in or otherwise encumbered such promissory note or related to the loss or theft of such note. [The remainder of this page intentionally blank] 78 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     ACTIVISION, INC., a Delaware corporation     By      -------------------------------------------------------------------------------- Name: Title:     ACTIVISION PUBLISHING INC., a Delaware corporation     By      -------------------------------------------------------------------------------- Name: Title:     EXPERT SOFTWARE, INC., a Delaware corporation     By      -------------------------------------------------------------------------------- Name: Title:     ACTIVISION VALUE PUBLISHING, INC., a Minnesota corporation     By      -------------------------------------------------------------------------------- Name: Title: 79 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     PNC BANK, NATIONAL ASSOCIATION, individually and as Administrative Agent, Collateral Agent and Issuing Bank,     By      -------------------------------------------------------------------------------- Name: Title: 80 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     COMERICA BANK     By      -------------------------------------------------------------------------------- Name: Title: 81 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     GUARANTY BUSINESS CREDIT CORPORATION d/b/a Fidelity Funding     By      -------------------------------------------------------------------------------- Name: Title: 82 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     LASALLE BANK NATIONAL ASSOCIATION     By      -------------------------------------------------------------------------------- Name: Title: 83 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.     U.S. BANK NATIONAL ASSOCIATION     By      -------------------------------------------------------------------------------- Name: Title: 84 -------------------------------------------------------------------------------- Schedule 1.01(a)   Subsidiary Guarantors Schedule 2.01   Lenders and Commitments Schedule 3.08   Subsidiaries Schedule 3.09   Litigation Schedule 3.17   Environmental Matters Schedule 3.18   Insurance Schedule 3.20(a)   Real Property Owned In Fee Schedule 3.20(b)   Leased Real Property Schedule 6.01   Outstanding Indebtedness on Closing Date Schedule 6.02   Liens Existing on Restatement Effective Date 85 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.29 TABLE OF CONTENTS AMENDED AND RESTATED CREDIT AGREEMENT ARTICLE I Definitions ARTICLE II The Credits ARTICLE III Representations and Warranties ARTICLE IV Conditions of Lending ARTICLE V Affirmative Covenants ARTICLE VI Negative Covenants ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent and the Collateral Agent ARTICLE IX Miscellaneous

  Exhibit 10.42 SETTLEMENT AGREEMENT AND RELEASE      This Settlement Agreement and Release (“Agreement”) is entered into this 6th day of November, 2001 by Craig M. Siegler (“Plaintiff”) and Illinois Superconductor Corporation (now known as ISCO International, Inc.) (“ISCO”).      WHEREAS, Craig Siegler filed a certain lawsuit against ISCO in 1996 entitled Craig M. Siegler v. Illinois Superconductor Corporation, No. 96 CH 5824, in the Circuit Court of Cook County, Illinois (“the Lawsuit”);      WHEREAS, ISCO expressly denied and continues to deny Plaintiff’s allegations in the Lawsuit;      WHEREAS, following a jury verdict, judgment was entered against ISCO in the amount of $6,541,254.27 on October 19, 2001 (“the Judgment”);      WHEREAS, Plaintiff commenced supplementary proceedings in the Circuit Court of Cook County, Illinois against ISCO to enforce the Judgment, and caused a Citation to Discover Assets (“Citation”) to be served upon ISCO and its chief financial officer on or about October 23, 2001;      WHEREAS, the parties hereto desire to settle and compromise their disputes;      NOW THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:      1.     On or before November 6, 2001, ISCO agrees to pay to Plaintiff the sum of $4,925,000.00 (Four million nine hundred twenty-five thousand dollars) (the “Payment”) as full and final satisfaction of the Judgment plus interest. ISCO shall make the Payment by delivering funds by wire transfer to Plaintiff’s attorney, Myron M. Cherry, at the following address: “The PrivateBank and Trust Company, ABA Routing No. 071006486, For Credit To: Myron M. Cherry—Special Account”.      2.     Plaintiff agrees that, beginning on November 1, 2001, notwithstanding any restrictions on the transfer or disposition of ISCO’s property imposed by the Citation or by order of court, ISCO may enter into any transaction necessary to obtain funds to make the Payment described in this Agreement. Plaintiff will not ask the court to impose any penalty or sanction for any transfer or disposition of property by ISCO permitted by this Paragraph.      3.     Plaintiff Siegler does, for himself, his legal representatives, attorneys, heirs, successors, creditors, assigns, and any and all other persons or entities claiming by, through, or under Plaintiff Siegler, fully release and forever discharge ISCO (as defined below) of and from all manner of actions, causes of action, debts, dues, liabilities, controversies, claims, demands, rights, costs, expenses, compensation, or causes of action of any kind or nature --------------------------------------------------------------------------------   SETTLEMENT AGREEMENT AND RELEASE Page 2 of 5 whatsoever, asserted or unasserted, whether based on a tort, contract, statute, or other theory of recovery, whether legal or equitable, and whether for compensatory, punitive, statutory or other form of damage or relief which had existed from the creation of the world to the date of this Agreement relating to this case or any other circumstance, known or unknown, including, without limitation, the matters and things which were alleged, or which could have been alleged, in the Lawsuit; provided, however, the sole and only exception to the Release set forth in this paragraph is that it does not affect any contractual rights of Plaintiff Siegler, or contractual obligations of ISCO, which arise under the express terms of any written agreement which provides Plaintiff Siegler with the right to acquire common shares of ISCO.      4.     Defendant ISCO does, for itself, its legal representatives, attorneys, heirs, successors, creditors, assigns, and any and all other persons or entities claiming by, through, or under Defendant ISCO, as defined below, fully release and forever discharge Plaintiff Siegler, his legal representatives, attorneys, heirs, successors, creditors, and assigns, of and from all manner of actions, causes of action, debts, dues, liabilities, controversies, claims, demands, rights, costs, expenses, compensation, or causes of action of any kind or nature whatsoever, asserted or unasserted, whether based on a tort, contract, statute, or other theory of recovery, whether legal or equitable, and whether for compensatory, punitive, statutory or other form of damage or relief which had existed from the creation of the world to the date of this Agreement relating to this case or any other circumstance, known or unknown, including, without limitation, the matters and things which were alleged, or which could have been alleged, in the Lawsuit.      5.     As used in paragraph 3 and 4 above, ISCO includes Illinois Superconductor Corporation (now known as ISCO International, Inc.), a Delaware corporation, its legal representatives, successors, assigns, agents, attorneys, officers, directors, employees, shareholders, lenders, insurers, divisions, corporate parents, subsidiaries, and affiliates, and any and all other persons or entities claiming by, through, or under ISCO. This Agreement shall be binding in all respects upon, and shall inure to the benefit of, all such persons or entities.      6.     Plaintiff agrees that immediately upon delivery of the Payment, Plaintiff will execute and deliver to ISCO: (a) a stipulation of dismissal with prejudice and without costs, of the lawsuit entitled Craig M. Siegler v. Illinois Superconductor Corporation, No. 96 CH 5824 Circuit Court of Cook County, Illinois in the form attached hereto as Exhibit A; (b) a stipulation of dismissal with prejudice of the supplementary proceedings and the Citation, without costs, in the form attached hereto as Exhibit B; and (c) a satisfaction of judgment, in a form attached hereto as Exhibit C. Plaintiff further agrees to execute any and all other documents, if necessary, to obtain orders dismissing the Lawsuit and supplementary proceedings (including the Citation) with prejudice and without costs, if Exhibits A, B and C are not sufficient to effect a dismissal with prejudice of the Lawsuit and supplementary proceedings (including the Citation).      7. The parties to this Agreement recognize that any payments or agreements made pursuant to this Agreement are not an admission of any liability or responsibility for, or of the correctness of, any of the claims which were or may have been asserted in the Lawsuit, which liability, responsibility and correctness are hereby expressly denied by ISCO. --------------------------------------------------------------------------------   SETTLEMENT AGREEMENT AND RELEASE Page 3 of 5      8.     In any action brought by any party relating to an alleged breach of paragraphs 3, 4 or 6 of this Agreement, the prevailing party shall be entitled to his or its reasonable attorneys’ fees and costs.      9.     Any action to enforce the provisions of this Agreement, or relating to its breach, shall be brought in the Circuit Court of Cook County, Illinois, and solely for the purposes thereof, each of the parties hereto consents to the personal jurisdiction of that Court over him or it.      10.     The parties to this Agreement have consulted with counsel of their choice prior to entering into this Agreement.      11.     This Agreement constitutes the parties’ entire agreement and is a complete merger of all antecedent offers, counter-offers, negotiations, and agreements. Any representations which are not contained in this Agreement have not been, and are not now, relied upon in entering into this Agreement.      12.     This Agreement shall not be altered or modified except by the written consent of all of the parties.      13.     Each of the parties warrants that it has the power to settle and release fully and dismiss all actions, causes of action, debts, dues, liabilities, controversies, claims, and demands as set forth herein, and that it has not sold, assigned, transferred or otherwise disposed of the same to any third party. Each of the parties further warrants that its signatories are duly authorized and empowered to sign this Agreement on its behalf.      14.     Each party shall bear its own costs and attorneys’ fees in connections with this dispute.      15.     This Agreement shall be governed by Illinois law.      16.     The parties agree that this Agreement may be signed in counterparts. The parties also agree that this Agreement will become binding and effective upon the exchange of facsimile copies of the required signatures. The parties will thereafter exchange formal signed originals of this Agreement for their permanent records. --------------------------------------------------------------------------------   SETTLEMENT AGREEMENT AND RELEASE Page 4 of 5      WHEREFORE THE UNDERSIGNED HAVE EXECUTED THIS SETTLEMENT AGREEMENT AND RELEASE THIS 6th DAY OF NOVEMBER, 2001.                     /s/ CRAIG M. SIEGLER --------------------------------------------------------------------------------   Dated:   November 6, 2001 --------------------------------------------------------------------------------           CRAIG M. SIEGLER     WITNESS:             --------------------------------------------------------------------------------         --------------------------------------------------------------------------------   SETTLEMENT AGREEMENT AND RELEASE Page 5 of 5 ILLINOIS SUPERCONDUCTOR CORPORATION (NOW KNOWN AS ISCO INTERNATIONAL, INC.)         By: /s/ CHARLES F. WILLES   Date:   November 6, 2001 --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name: Charles F. Willes     --------------------------------------------------------------------------------     Title: Executive Vice President     --------------------------------------------------------------------------------       WITNESS:       --------------------------------------------------------------------------------    

Exhibit 10(v) GE Supplementary Pension Plan (Effective July 1, 2000)   Section I. Eligible Employees Each Employee who is assigned to the GE Executive or higher Career Band (or a position of equivalent responsibility as determined by the Pension Board), who has five or more years of Pension Qualification Service and who is a participant in the GE Pension Plan shall be eligible to participate, and shall participate, in this Supplementary Pension Plan to the extent of the benefits provided herein, provided that: > (a) the foregoing shall not apply to an Employee of a Company other than > General Electric Company which has not agreed to bear the cost of this Plan > with respect to its Employees, and > > (b) except as provided in Section V, an Employee who retires under the > optional retirement provisions of the GE Pension Plan before the first day of > the month following attainment of age 60, or an Employee who leaves the > Service of the Company before attainment of age 60, shall not be eligible for > a Supplementary Pension under this Plan. An employee of any other company who participates in the GE Pension Plan, though the employing company does not participate in the GE Pension Plan, shall be eligible for benefits under this Plan, provided that such employee meets the job position requirement specified above, and the employee's participation in the Supplementary Pension Plan is accepted by the Pension Board. An Employee who was eligible to participate in this Plan by virtue of his assigned position level or position of equivalent responsibility throughout any consecutive three years of the fifteen year period ending on the last day of the month preceding his termination of Service date for retirement and who meets the other requirements specified in this Section shall be eligible for the benefits provided herein even though he does not meet the eligibility requirements on the date his Service terminates. Section II. Definitions (a) Annual Estimated Social Security Benefit - The Annual Estimated Social Security Benefit shall mean the annual equivalent of the maximum possible Primary Insurance Amount payable, after reduction for early retirement, as an old-age benefit to an employee who retired at age 62 on January 1st of the calendar year in which occurred the Employee's actual date of retirement or death, whichever is earlier. Such Annual Estimated Social Security Benefit shall be determined by the Company in accordance with the Federal Social Security Act in effect at the end of the calendar year immediately preceding such January 1st. For determinations which become effective on or after January 1, 1978, if an Employee has less than 35 years of Pension Benefit Service, the Annual Estimated Social Security Benefit shall be the amount determined under the first paragraph of this definition hereof multiplied by a factor, the numerator of which shall be the number of years of the Employee's Pension Benefit Service to his date of retirement or death, whichever is earlier, and the denominator of which shall be 35. The Annual Estimated Social Security Benefit as so determined shall be adjusted to include any social security, severance or similar benefit provided under foreign law or regulation as the Pension Board may prescribe. (b) Annual Pension Payable under the GE Pension Plan - The Annual Pension Payable under the GE Pension Plan shall mean the sum of (1) the total annual past service annuity, future service annuity and Personal Pension Account Annuity deemed to be credited to the Employee as of his date of retirement or death, whichever is earlier, plus any additional annual amount required to provide the minimum pension under the GE Pension Plan and (2) any annual pension (or the annual pension equivalent of other forms of payment) payable under any other pension plan, policy, contract, or government program attributable to periods for which Pension Benefit Service is granted by the Chairman of the Board or the Pension Board or is credited by the GE Pension Plan provided the Pension Board determines such annual pension shall be deductible from the benefit payable under this Plan. All such amounts shall be determined before application of any reduction factors for optional or disability retirement, for election of any optional form of Pension at retirement, a qualified domestic relations order(s), if any, or in connection with any other adjustment made pursuant to the GE Pension Plan or any other pension plan. For the purposes of this paragraph, the Employee's Annual Pension Payable under the GE Pension Plan shall include the Personal Pension Account Annuity deemed payable to the Employee or the Employee's spouse on the date of the Employee's retirement or death as the case may be, regardless of whether such annuity commenced on such date. (c) Annual Retirement Income - For Employees who retire on or after July 1, 1988, or who die in active Service on or after such date, an Employee's Annual Retirement Income shall mean the amount determined by multiplying 1.75% of the Employee's Average Annual Compensation by the number of years of Pension Benefit Service completed by the Employee at the date of his retirement or death, whichever is earlier. > (d) Average Annual Compensation - Average Annual Compensation means one-third of the Employee's Compensation for the highest 36 consecutive months during the last 120 completed months before his date of retirement or death, whichever is earlier. In computing an Employee's Average Annual Compensation, his normal straight-time earnings shall be substituted for his actual Compensation for any month in which such normal straight-time earnings are greater. The Pension Board shall specify the basis for determining any Employee's Compensation for any portion of the 120 completed months used to compute the Employee's Average Annual Compensation during which the Employee was not employed by an Employer participating in this Plan. (e) Compensation - For periods after December 31, 1969 "Compensation" for the purposes of this Plan shall mean with respect to the period in question salary (including any deferred salary approved by the Pension Board as compensation for purposes of this Plan) plus: > (1) for persons then eligible for Incentive Compensation, the total amount of > any Incentive Compensation earned except to the extent such Incentive > Compensation is excluded by the Board of Directors or a committee thereof; > > (2) for persons who would then have been eligible for Incentive Compensation > if they had not been participants in a Sales Commission Plan or other variable > compensation plan, the total amount of sales commissions (or other variable > compensation earned); > > (3) for all other persons, the sales commissions and other variable > compensation earned by them but only to the extent such earnings were then > included under the GE Pension Plan; plus any amounts (other than salary and those mentioned in clauses (1) through (3) above) which were then included as Compensation under the GE Pension Plan except any amounts which the Pension Board may exclude from the computation of "Compensation" and subject to the powers of the Committee under Section IX hereof. For periods before January 1, 1970, "Compensation" for the purposes of this Plan has the same meaning as under the GE Pension Plan applying the rules in effect during such periods. The definition set forth in this paragraph (e) shall apply to the calculation of any and all Supplementary Pension benefits payable on and after January 1, 1976. All such payments made prior to January 1, 1976 shall be determined in accordance with the terms of the Plan in effect prior to such date. (f) Officers - Officers shall mean the Chairman of the Board, the Vice Chairmen, the President, the Vice Presidents, Officer Equivalents and such other Employees as the Committee referred to in Section IX hereof may designate. (g) Pension Benefit Service - Pension Benefit Service shall have the same meaning herein as in the GE Pension Plan except that for periods before January 1, 1976 the term Credited Service as a full-time Employee shall also include all Service credited under the GE Pension Plan to such Employee for any period during which he was a full-time Employee for purposes of such GE Pension Plan. Pension Benefit Service shall also include: > (1) any period of Service with the Company or an Affiliate as the Pension > Board may otherwise provide by rules and regulations issued with respect to > this Plan, and, > > (2) any period of service with another employer as may be approved from time > to time by the Chairman of the Board but only to the extent that any > conditions specified in such approval have been met. (h) Pension Qualification Service - Pension Qualification Service shall have the same meaning herein as in the GE Pension Plan except that for periods before January 1, 1976 the term Credited Service used in determining such Pension Qualification Service shall mean only Service for which an Employee is credited with a past service annuity or a future service annuity under the GE Pension Plan (plus his first year of Service where such year is recognized as additional Credited Service under that Plan), except as the Pension Board may otherwise provide by rules and regulations issued with respect to this Plan. All other terms used in this Plan which are defined in the GE Pension Plan shall have the same meanings herein as therein, unless otherwise expressly provided in this Plan. Section III. Amount of Supplementary Pension at or After Normal Retirement (a) The annual Supplementary Pension payable to an eligible Employee who retires on or after his normal retirement date under the GE Pension Plan shall be equal to the excess, if any, of the Employee's Annual Retirement Income, over the sum of: > (1) the Employee's Annual Pension Payable under the GE Pension Plan; > > (2) 1/2 of the Employee's Annual Estimated Social Security Benefit; (3) the Employee's annual excess benefit, if any, payable under the GE Excess Benefit Plan; and (4) The Employee's annual benefit, if any, payable under the GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan. Such Supplementary Pension shall be subject to the limitations specified in Section IX. (b) The Supplementary Pension of an Employee who continues in the Service of the Company or an Affiliate after his normal retirement date shall not commence before his actual retirement date following termination of Service, regardless of whether such Employee has attained age 70-1/2 and commenced receiving his pension under the GE Pension Plan. Section IV. Amount of Supplementary Pension at Optional or Disability Retirement (a) The annual Supplementary Pension payable to an eligible Employee who, following attainment of age 60, retires on an optional retirement date under Section V.1. of the GE Pension Plan shall be computed in the manner provided by Section III(a) (for an Employee retiring on his normal retirement date) but taking into account only Pension Benefit Service and Average Annual Compensation to the actual date of optional retirement. Such Supplementary Pension shall be subject to the limitations specified in Section IX. (b) The annual Supplementary Pension payable to an eligible Employee who retires on a Disability Pension under Section VII of the GE Pension Plan shall first be computed in the manner provided by Section III(a) (for an Employee retiring on his normal retirement date) taking into account only Pension Benefit Service and Average Annual Compensation to the actual date of disability retirement but in the case of an eligible Employee whose date of retirement precedes the first day of the month following his attainment of age 60, such Supplementary Pension shall then be reduced using the reduction factor specified under Section VII.3. of the GE Pension Plan. Such Supplementary Pension shall be subject to the limitations specified in Section IX. If the Disability Pension payable to the Employee under the GE Pension Plan is discontinued thereunder as a result of the cessation of the Employee's disability prior to the attainment of age 60 or otherwise, the Supplementary Pension provided under this Section IV shall also be discontinued. Section V. Special Benefit Protection for Certain Employees (a) A former Employee whose Service with the Company is terminated on or after June 27, 1988 and after completion of 25 or more years of Pension Qualification Service who does not withdraw his contributions from the GE Pension Plan before retirement and who meets one of the following conditions shall be eligible for a Supplementary Pension under this Plan commencing upon his retirement under the GE Pension Plan following attainment of age 60: > (1) The Employee's Service is terminated because of a Plant Closing. (2) The Employee's Service is terminated for transfer to a successor employer. The conditions of this paragraph (2) shall not be satisfied, however, if the transferred Employee retires under the GE Pension Plan before July 1, 2000 and prior to the later of (A) his termination of service with the successor employer and (B) the first of the month following attainment of age 60. (3) The Employee's Service terminated after one year on layoff with protected service. Effective July 1, 1994 and regardless of whether the Employee terminated Service on, before or after such date, for purposes of this Section V(a) and any other provision of this Plan, a former Employee will be deemed to have withdrawn his contributions from the GE Pension Plan at such time the payment of benefits attributable to such contributions commences, regardless of whether such contributions are paid in the form of a lump sum or an annuity. (b) In determining the Supplementary Pension, if any, for Employees who meet the conditions in Section V(a), the Average Annual Compensation shall be based on the last 120 completed months before his Service termination date and the Annual Estimated Social Security Benefit shall be determined as though the employee's retirement date was the date of termination. Section VI. Survivor Benefits If a survivor benefit applies with respect to the past and future service annuity portion of an Employee's pension under the GE Pension Plan, such survivor benefit shall automatically apply to any Supplementary Pension for which he may be eligible under this Plan. His Supplementary Pension shall be adjusted and paid in the same manner as such pension payable under the GE Pension Plan is adjusted and paid on account of such survivor benefit. Section VII. Payments Upon Death If an eligible Employee dies in active Service, or following retirement on a Supplementary Pension, or if a former Employee entitled to a Supplementary Pension pursuant to Section V dies prior to such retirement, and a death benefit (other than a return of Employee contributions with interest including an Employee's Personal and Voluntary Pension Accounts) is payable to the beneficiary or Surviving Spouse of such Employee under the GE Pension Plan, a death benefit shall also be payable to the beneficiary or Surviving Spouse under this Supplementary Pension Plan. Any such death benefit payable under this Plan shall be computed and paid in the same manner as the death benefit payable under the GE Pension Plan but shall be based on the Supplementary Pension payable under this Plan. Section VIII. Employees Retired Before July 1, 1973 [Reserved-See Section VIII of this Plan prior to this restatement.] Section IX. Limitation on Benefits > (a) Notwithstanding any provision of this Plan to the contrary, if the sum of: (1) the Supplementary Pension (before application of any reduction factor for disability retirement or a survivor benefit) otherwise payable to an Employee hereunder; (2) the Employee's Annual Pension Payable under the GE Pension Plan; (3) 100% of the Annual Estimated Social Security Benefit but before any adjustment for less than 35 years of Pension Benefit Service; (4) the Employee's annual excess benefit, if any, payable under the GE Excess Benefit Plan; and (5) The Employee's annual benefit, if any, payable under the GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan; exceeds 60% of his Average Annual Compensation, such Supplementary Pension shall be reduced by the amount of the excess. (b) Notwithstanding any provision in this Plan to the contrary, the amount of Supplementary Pension and any death or survivor benefit payable to or on behalf of any Employee who is or was an Officer shall be determined in accordance with such general rules and regulations as may be adopted by a Committee appointed by the Board of Directors for such purpose, subject to the limitation that any such Supplementary Pension or death benefit may not exceed the amount which would be payable hereunder in the absence of such rules and regulations. Section X Payment of benefits (a) Payment of Supplementary Pensions provided for herein shall be in the same form as distribution is made pursuant to the Participant's election under the GE Pension Plan. Consistent with the foregoing, Supplementary Pensions shall be payable in monthly installments, each equal to 1/12th of the annual amount determined under the applicable Section. In addition, the provisions of the GE Pension Plan with respect to the following shall apply to amounts payable under this Plan: (1) The dates of first and last payment of any Pension. > (2) Treatment of amounts payable to a missing person. > > In no event shall the accelerated payment option of Section XI.4.b.(iii) of > the GE Pension Plan apply with respect to this Plan. (b) If an Employee's Pension under the GE Pension Plan is suspended for any month in accordance with the re-employment provisions of that Plan (or would be suspended if he had such a Pension), the Employee's Supplementary Pension for that month shall be suspended under this Plan. In addition, the re-employment provisions of the GE Pension Plan with respect to the computation of benefits payable upon retirement at the end of the period of re-employment shall apply to amounts payable under this Plan. (c) An Employee's beneficiary for the purposes of this Plan shall be the beneficiary designated by him under the GE Pension Plan, except in those instances where a separate beneficiary designation is in effect under this Plan. The provisions of the GE Pension Plan with respect to the designation or selection of a beneficiary shall apply to the designation or selection of a beneficiary under this Plan, except that the requirement of the Spouse's Consent to the designation or selection of a beneficiary by the Employee shall not apply. Section XI. Administration (a) This Plan shall be administered by the Pension Board, which shall have authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve in its sole and absolute discretion any and all questions or claims, including interpretations of this Plan, as may arise in connection with this Plan. (b) In the administration of this Plan, the Pension Board may, from time to time, employ agents and delegate to them such administrative duties as it sees fit and may from time to time consult with counsel who may also serve as counsel to the Company. (c) The decision or action of the Pension Board in respect of any question arising out of or in connection with the administration, interpretation and application of this Plan and the rules and regulations hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan or making any claim hereunder. Section XII. Termination, Suspension or Amendment The Board of Directors may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part. However, no such termination, suspension or amendment shall adversely affect (a) the benefits of any Employee who retired under the Plan prior to the date of such termination, suspension or amendment or (b) the right of any then current Employee to receive upon retirement, or of his or her Surviving Spouse or beneficiary to receive upon such Employee's death, the amount as a Supplementary Pension or death benefit, as the case may be, to which such person would have been entitled under this Plan computed to the date of such termination, suspension or amendment, taking into account the Employee's Pension Benefit Service and Average Annual Compensation calculated as of the date of such termination, suspension or amendment. Section XIII. Adjustments in Supplementary Pension Following Retirement (a) Effective January 1, 1975, the amount of Supplementary Pension then payable to any Employee who retired before January 1, 1975 shall be reduced by the amount of any increase which becomes effective January 1, 1975 in the Pension payable under the GE Pension Plan to such Employee. (b) If the Pension payable under the GE Pension Plan to any Employee is increased following his retirement which increase becomes effective after January 1, 1975, the amount of the Supplementary Pension thereafter payable to such Employee under this Supplementary Pension Plan shall be determined by the Board of Directors. (c) Effective November 1, 1977, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased in accordance with paragraphs 25 (a), (b) or (c) of Section XIV of that Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after November 1, 1977 shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. (d) Effective May 1, 1979, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased by a percentage in accordance with paragraphs 26 (a), (b) or (c) of Section XIV of that Plan, or would have been increased by a percentage in accordance with such paragraphs except for the fact that such pensioner or Surviving Spouse received a lump-sum settlement under the GE Pension Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after May 1, 1979 shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. (e) If the Pension benefit or Service credits under the GE Pension Plan are increased for a retired employee in accordance with paragraph 27 or 28 of Section XIV of that Plan, or in accordance with the opportunity made available under that Plan effective January 1, 1980 to make up Employee contributions plus interest for periods during which the Employee was otherwise eligible but failed to participate because of late enrollment or voluntary suspension, the Supplementary Pension payable to the Employee under this Plan shall be recalculated to take any such increase into account. For this purpose, Section III of this Plan as amended effective July 1, 1979 shall apply. Any change in the Employee's Supplementary Pension shall take effect on the same date as the corresponding change under the GE Pension Plan. (f) Effective February 1, 1981, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased by a percentage in accordance with paragraphs 29 (a), (b) or (c) of Section XIV of that Plan, or would have been increased by a percentage in accordance with such paragraphs except for the fact that such pensioner or Surviving Spouse received a lump sum settlement under the GE Pension Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after February 1, 1981 shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. (g) Effective January 1, 1983, if the benefit payable to a pensioner under the GE Pension Plan is increased in accordance with paragraph 30 of Section XIV of that Plan, the Supplementary Pension payable to the pensioner under this Plan shall be recalculated to take any such increase into account. Any change in the Supplementary Pension shall take effect on the same date as the corresponding change under the GE Pension Plan. (h) Effective December 1, 1984, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased by a percentage in accordance with paragraph 32 (a), (b) or (c) of Section XIV of that Plan, or would have been increased by a percentage in accordance with such paragraphs except for the fact that such pensioner or Surviving Spouse received a lump-sum settlement under the GE Pension Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after December 1, 1984, shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. (i) Effective July 1, 1985, if the benefit payable to a pensioner under the GE Pension Plan is increased in accordance with paragraph 34 of Section XIV of that Plan, the Supplementary Pension payable to the pensioner under this Plan shall be recalculated to take any such increase into account. Any change in the Supplementary Pension shall take effect on the same date as the corresponding change under the GE Pension Plan. (j) Effective January 1, 1988, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased by a percentage in accordance with paragraph 35 of Section XIV of that Plan, or would have been increased by a percentage in accordance with such paragraph except for the fact that such pensioner or Surviving Spouse received a lump sum settlement under the GE Pension Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after January 1, 1988 shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. (k) Effective July 1, 1988, if the benefit payable to a pensioner under the GE Pension Plan or the GE Excess Benefit Plan is increased as a result of paragraph 36 of Section XIV of the GE Pension Plan, the Supplementary Pension payable to the pensioner under this Plan shall be recalculated to take any such increase into account. Any change in the Supplementary Pension shall take effect on the same date as the corresponding increase under the GE Pension Plan or GE Excess Benefit Plan. (l) Effective July 1, 1991, if the benefit payable to a pensioner or Surviving Spouse under the GE Pension Plan is increased by a percentage in accordance with paragraph 37 of Section XIV of that Plan, or would have been increased by a percentage in accordance with such paragraph except for the fact that such pensioner or Surviving Spouse received a lump sum settlement under the GE Pension Plan, the Supplementary Pension or death benefit, if any, payable under this Plan to such pensioner or Surviving Spouse on and after January 1, 1991 shall be increased by the same percentage. Any such increase shall not be reduced by the percentage limitations specified in Section IX. > (m) Effective December 1, 1991, if the benefit payable to a pensioner under > the GE Pension Plan, the GE Excess Benefit Plan or GE Executive Special Early > Retirement Option and Plant Closing Retirement Option Plan is increased as a > result of paragraph 38 of Section XIV of the GE Pension Plan, the > Supplementary Pension payable to the pensioner under this Plan shall be > recalculated to take any such increase into account. Any change in the > Supplementary Pension shall take effect on the same date as the corresponding > increase under the GE Pension Plan, GE Excess Benefit Plan or GE Executive > Special Early Retirement Option and Plant Closing Retirement Option Plan. > > (n) Effective December 1, 1994, if the benefit payable to a pensioner under > the GE Pension Plan, the GE Excess Benefit Plan or the GE Executive Special > Early Retirement Option and Plant Closing Retirement Option Plan is increased > as a result of paragraph 39 of Section XIV of the GE Pension Plan, the > Supplementary Pension payable to the pensioner under this Plan shall be > recalculated to take any such increase into account. Any change in the > Supplementary Pension shall take effect on the same date as the corresponding > increase under the GE Pension Plan, GE Excess Benefit Plan or GE Executive > Special Early Retirement Option and Plant Closing Retirement Option Plan. > > (o) Effective November 1, 1996, if the benefit payable under the GE Pension > Plan or the GE Excess Benefit Plan is increased as a result of paragraph 47, > 48 or 49 of Section XIV of the GE Pension Plan, said increase shall be > disregarded for purposes of calculating the amount payable under this Plan. (p) Effective December 1, 1997, if the benefit payable to a pensioner under the GE Pension Plan, the GE Excess Benefit Plan or the GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan is increased as a result of paragraph 51 of Section XIV of the GE Pension Plan, the Supplementary Pension payable to the pensioner under this Plan shall be recalculated to take any such increase into account. Any change in the Supplementary Pension shall take effect on the same date as the corresponding increase under the GE Pension Plan, GE Excess Benefit Plan or GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan. > (q) Effective May 1, 2000, if the benefit payable under the GE Pension Plan or > the GE Excess Benefit Plan is increased as a result of paragraph 54, 55 or 56 > of Section XIV of the GE Pension Plan, said increase shall be disregarded for > purposes of calculating the amount payable under this Plan. (r) Effective December 1, 2000, if the benefit payable to a pensioner under the GE Pension Plan, the GE Excess Benefit Plan or the GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan is increased as a result of paragraph 58 of Section XIV of the GE Pension Plan, the Supplementary Pension payable to the pensioner under this Plan shall be recalculated to take any such increase into account. Any change in the Supplementary Pension shall take effect on the same date as the corresponding increase under the GE Pension Plan, GE Excess Benefit Plan or GE Executive Special Early Retirement Option and Plant Closing Retirement Option Plan. Section XIV. General Conditions (a) No interest of an Employee, retired employee (whether retired before or after July 1, 1973), Surviving Spouse or beneficiary under this Plan and no benefit payable hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any such interest or any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through an Employee, retired employee, Surviving Spouse or beneficiary. If any attempt is made to alienate, pledge or charge any such interest or any such benefit for any debt, liabilities in tort or contract, or otherwise, of any Employee, retired employee, Surviving Spouse, or beneficiary, contrary to the prohibitions of the preceding sentence, then the Pension Board in its discretion may suspend or forfeit the interests of such person and during the period of such suspension, or in case of forfeiture, the Pension Board shall hold such interest for the benefit of, or shall make the benefit payments to which such person would otherwise be entitled to the designated beneficiary or to some member of such Employee's, retired employee's, Surviving Spouse's or beneficiary's family to be selected in the discretion of the Pension Board. Similarly, in cases of misconduct, incapacity or disability, the Pension Board, in its sole discretion, may make payments to some member of the family of any of the foregoing to be selected by it or to whomsoever it may determine is best fitted to receive or administer such payments. (b) No Employee and no other person shall have any legal or equitable rights or interest in this Plan that are not expressly granted in this Plan. Participation in this Plan does not give any person any right to be retained in the Service of his employer. The right and power of the Company to dismiss or discharge any Employee is expressly reserved. (c) Except to the extent that the same are governed by the Act, the law of the State of New York shall govern the construction and administration of this Plan. (d) The rights under this Plan of an Employee who leaves the Service of the Company at any time and the rights of anyone entitled to receive any payments under the Plan by reason of the death of such Employee, shall be governed by the provisions of the Plan in effect on the date such Employee leaves the Service of the Company, except as otherwise specifically provided in this Plan.

Exhibit 10.2 AMENDMENT NO. 1 TO LOAN AGREEMENT AND WAIVER             This AMENDMENT NO. 1 TO LOAN AGREEMENT AND WAIVER (this "Amendment"), made as of June 30, 2001, among OGLEBAY NORTON COMPANY ("Borrower"), the banking institutions named in Schedule 1 to the Loan Agreement (as hereinafter defined) (collectively, the "Banks" and individually, "Bank"), KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Banks ("Agent"), BANK ONE, MICHIGAN, as syndication agent ("Syndication Agent") and THE BANK OF NOVA SCOTIA, as documentation agent ("Documentation Agent"). W I T N E S S E T H :             WHEREAS, Borrower, the Banks, the Agent, the Syndication Agent and the Documentation Agent have entered into that certain Loan Agreement, dated as of April 3, 2000 (as amended from time to time, the "Loan Agreement"), pursuant to which the Banks have made certain loans and other financial accommodations available to Borrower; and             WHEREAS, Borrower, the Banks, the Agent, the Syndication Agent and the Documentation Agent desire to amend the Loan Agreement as hereinafter set forth;             NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, the Banks, the Agent, the Syndication Agent and the Documentation Agent do hereby agree as follows: 1.    DEFINED TERMS.             Each defined term used herein and not otherwise defined herein shall have the meaning ascribed to such term in the Loan Agreement. 2.    AMENDMENT TO THE LOAN AGREEMENT.             2.1        Amendment to Article I. DEFINITIONS. The definitions of "Level II Acquisition" and Level II Acquisition Limit" are deleted. The definitions of "Applicable Margin" and "Level I Acquisition Limit" in Article I are amended to read as follows:             "Applicable Margin" shall mean the number of basis points (depending upon whether the Loans are LIBOR Loans or Prime Rate Loans) set forth in the following matrix, based upon the result of the computation of the Leverage Ratio: Leverage Ratio Applicable Margin for LIBOR Loans Applicable Margin for Prime Rate Loans   Greater than or equal to 4.50 to 1.00 300 Basis Points 50 Basis Points   Greater than or equal to 4.25 to 1.00 but less   than 4.50 to 1.00 275 Basis Points 25 Basis Points   Greater than or equal to 4.00 to 1.00 but less   than 4.25 to 1.00 250 Basis Points 0 Basis Points   Greater than or equal to 3.75 to 1.00 but less   than 4.00 to 1.00 200 Basis Points 0 Basis Points   Greater than or equal to 3.50 to 1.00 but less   than 3.75 to 1.00 175 Basis Points 0 Basis Points   Less than 3.50 to 1.00 150 Basis Points 0 Basis Points Changes to the Applicable Margin shall be effective on the first day of the month following the date upon which Agent received, or, if earlier, Agent should have received, pursuant to Section 5.3 (a) or (b) hereof, the financial statements of the Companies. The above matrix does not modify or waive, in any respect, the requirements of Section 5.7 hereof, the rights of the Banks to charge the Default Rate, or the rights and remedies of the Banks pursuant to Articles VII and VIII hereof.             "Level I Acquisition Limit" shall mean Fifteen Million Dollars ($15,000,000).             2.2        Amendment to Section 5.7 FINANCIAL COVENANTS. Section 5.7 is amended to read as follows:                         (a)         LEVERAGE RATIO. The Companies shall not suffer or permit at any time the Leverage Ratio to exceed: (i) 4.75 to 1.00 on July 1, 2001 through September 30, 2001, (ii) 4.50 to 1.00 on October 1, 2001 through June 30, 2002, (iii) 4.35 to 1.00 on July 1, 2002 through September 30, 2002, and (iv) 4.25 to 1.00 on October 1, 2002 and thereafter.                         (b)         SENIOR DEBT RATIO. The Companies shall not suffer or permit at any time the ratio of Total Senior Funded Indebtedness to Consolidated Pro-Forma EBITDA, based upon the financial statements of the Companies for the most recently completed four (4) fiscal quarters, to be greater than: (i) 3.50 to 1.00 on July 1, 2001 through September 30, 2002 and (ii) 3.25 to 1.00 on October 1, 2002 and thereafter.                         (c)         INTEREST COVERAGE. The Companies shall not suffer or permit at any time the ratio of (x) Consolidated Pro-Forma Pre-Tax Earnings plus Consolidated Pro-Forma Interest Expense to (y) Consolidated Pro-Forma Interest Expense (less non cash amortized financing and FAS 133 costs to the extent included in Consolidated Pro-Forma Interest Expense in accordance with GAAP), based upon the financial statements of the Companies for the most recently completed four (4) fiscal quarters, to be less than: (i) 1.25 to 1.00 on July 1, 2001 through December 31, 2001, (ii) 1.30 to 1.00 on January 1, 2002 through June 30, 2002 and (iii) 1.40 to 1.00 on July 1, 2002 and thereafter.                         (d)         CASH-FLOW COVERAGE. The Companies shall not suffer or permit at any time the ratio of (i) Consolidated Pro-Forma Cash flow to (ii) Consolidated Pro-Forma Fixed Charges to be less than 1.10 to 1.00, based upon the financial statements of the Companies for the most recently completed four (4) fiscal quarters.                         (e)         NET WORTH. The Companies shall not suffer or permit Consolidated Net Worth at any time, based upon the Consolidated financial statements of the Companies for the most recently completed fiscal quarter, to fall below the current minimum amount required, which current minimum amount required shall be an amount equal to One Hundred Twenty Two Million Three Hundred Five Thousand Dollars ($122,305,000), plus an Increase Amount on the last day of each fiscal quarter ending after April 1, 2001. As used herein, the term "Increase Amount' shall mean an amount equal to (i) sixty-five percent (65%) of the positive Consolidated Net Earnings of the Companies for the fiscal quarter then ended, plus (ii) one hundred percent (100%) of the proceeds of any equity offering or any debt offering convertible to equity.                         (f)         CONSOLIDATED PRO-FORMA EBITDA. The Companies shall not suffer or permit at any time Consolidated Pro-Forma EBITDA, based upon the financial statements of the Companies for the most recently completed four (4) fiscal quarters, to be less than (i) Seventy Five Million Dollars ($75,000,000) on July 1, 2001 thorough June 30, 2002, and (ii) Eighty Million Dollars ($80,000,000) on July 1, 2002 and thereafter.             2.3        Amendment to Section 5.13 ACQUISITIONS. Section 5.13 is amended to read as follows:             SECTION 5.13. ACQUISITIONS. Without the prior written consent of Agent and the Majority Banks, no Company shall effect an Acquisition; provided, that, so long as no Unmatured Event of Default or Event of Default shall then exist or immediately thereafter shall begin to exist:             (a)        Borrower or any Pledgor may effect an Acquisition so long as:                (i)        Borrower or such Pledgor is the surviving entity of the Acquisition (in the case of a merger, consolidation or other combination) or the person to be acquired becomes a Pledgor promptly after such Acquisition (in the case of the acquisition of the stock (or other equity interest) of a Person) in accordance with Section 5.22 hereof;                (ii)        the Companies are in full compliance with the Loan Documents both prior to and subsequent to he transaction;                    (iii)       Borrower provides to Agent and the Banks, at least ten (10) days prior to the consummation of such Acquisition, (A) written notice of such Acquisition, (B) historical financial statements of such Person, (C) a pro forma financial statement of the companies, and (D) a certificate of a Financial Officer of Borrower showing pro forma compliance with Section 5.7 hereof, both before and after the proposed Acquisition; and                    (iv)       the aggregate Consideration paid by the companies with respect to any Level I Acquisition, when added to all other Level I Acquisitions during any four (4) consecutive fiscal quarters, does not exceed the Level I Acquisition Limit;             (b)        Notwithstanding the limitations set forth in subpart (iv) of Section 5.13(a) above, any Company may effect the Permitted Acquisitions so long as the conditions set forth in subparts (i), (ii) and (iii) of such Section 5.13(a) are satisfied.             2.4        Amendment to Section 5.18 CAPITAL EXPENDITURES. Section 5.18 is amended to read as follows:             SECTION 5.18 CAPITAL EXPENDITURES Borrower and its Subsidiaries shall not invest in Consolidated Capital Expenditures more than an aggregate amount equal to Thirty Five Million Dollars ($35,000,000) during each fiscal year of Borrower. 3.    WAIVER.             3.1        Waiver. Subject to and conditioned on the effectiveness of this Amendment, to the extent that the following actions or circumstances have resulted in Borrower's failure to comply with the Loan Agreement, the Banks, in accordance with Section 10.3 of the Loan Agreement, hereby waive, as of the date of this Amendment:             (a)        Borrower's failure to comply with the requirements set forth in Sections 5.7(a), 5.7(b) and 5.7(c) of the Loan Agreement at June 30, 2001 and for the period ended June 30, 2001; and             (b)        solely with respect to defaults waived pursuant to Section 3.1(a) above, any Event of Default under Section 7.2 of the Loan Agreement resulting therefrom. 4.    REPRESENTATIONS AND WARRANTIES.             Borrower hereby represents and warrants as follows:             4.1        The Amendment. This Amendment has been duly and validly executed by an authorized executive officer of Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms. The execution, delivery, and performance of this Amendment, the Loan Agreement (as amended hereby), and the other Loan Documents to which Borrower is a party are within Borrower's corporate powers, have been duly authorized, and are not in contravention of Law or the terms of Borrower's Certificate of Incorporation or By-Laws or any indenture (including the Indenture) or other document or instrument evidencing borrowed money or any other agreement or undertaking to which Borrower is a party or by which it or its property is bound.             4.2        Claims and Defenses. As of the date of this Amendment, neither Borrower nor any of the Companies has any defenses, claims, counterclaims or setoffs with respect to the Loan Agreement, the Loan Documents or any obligations thereunder or with respect to any actions of the Agent, the Syndication Agent, the Documentation Agent, the Banks or any of their respective officers, directors, shareholders, employees, agents or attorneys, and Borrower irrevocably and absolutely waives any such defenses, claims, counterclaims and setoffs and releases Agent, the Syndication Agent, the Documentation Agent, the Banks, and each of their respective officers, directors, shareholders, employees, agents and attorneys, from the same.             4.3        Loan Agreement. The Loan Agreement, as amended by this Amendment, remains in full force and effect and remains the valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms.             4.4        Nonwaiver. Except as expressly provided in Section 3 hereto, the execution, delivery, performance and effectiveness of this Amendment shall not operate, be deemed to be, or be construed to be a waiver: (i) of any right, power or remedy of Agent, the Syndication Agent, the Documentation Agent, any Bank under the Loan Agreement or (ii) of any term, provision, representation, warranty or covenant contained in the Loan Agreement or any other documentation executed in connection therewith. Further, except as set forth in Section 3 of this Agreement, none of the provisions of this Amendment shall constitute, be deemed to be or construed to be, a waiver of any Event of Default under the Loan Agreement as previously amended and as further amended by this Amendment.             4.5        Reference to and Effect on the Loan Agreement. Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import shall mean and be a reference to the Loan Agreement, as previously amended and as further amended hereby, and each reference to the Loan Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Loan Agreement shall mean and be a reference to the Loan Agreement, as previously amended and as further amended hereby. 5.     CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1 AND WAIVER.             This Amendment shall become effective as of the date (the "Amendment Effective Date") on which each of the following conditions precedent shall have been fulfilled:             5.1        Amendment No. 1 to Loan Agreement and Waiver. The Agent shall have received from Borrower and a requisite number of Banks constituting the Majority Banks (as defined in the Loan Agreement) an original counterpart of this Amendment No. 1 to Loan Agreement and Waiver, executed and delivered by a duly authorized officer of Borrower or each such Bank, as the case may be.             5.2        Amendment No. 1 to Credit Agreement and Waiver. The Agent shall have received from Borrower and a requisite number of Banks constituting the Majority Banks an original counterpart of Amendment No. 1 to Credit Agreement and Waiver, in form and substance acceptable to the Agent, executed and delivered by a duly authorized officer of Borrower or each such Bank, as the case may be.             5.3        Acknowledgment of Guarantors. The Agent shall have received the Acknowledgment of Guarantors, attached hereto, executed and delivered by a duly authorized officer of each of the Guarantors.             5.4        Amendment Fee. The Agent shall have received from Borrower, for account of each Bank that consents to this Amendment No. 1 to Loan Agreement and Waiver (evidenced by receipt by the Agent of an executed counterpart of this Amendment No. 1 to Loan Agreement and Waiver) by 5:00 p.m., Cleveland, Ohio time, on August 6, 2001, an amendment fee in an amount equal to 0.15% of the sum of each such approving Bank's Term Loan Commitment Amount. 6.    MISCELLANEOUS.             6.1        Governing Law. This Amendment has been delivered and accepted at and shall be deemed to have been made at Cleveland, Ohio. This Amendment shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Ohio, without regard to principles of conflict of law, and all other laws of mandatory application.             6.2        Severability. Each provision of this Amendment shall be interpreted in such manner as to be valid under applicable law, but if any provision hereof shall be invalid under applicable law, such provision shall be ineffective to the extent of such invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.             6.3        Counterparts. This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute but one and the same agreement. [Signature Page to Follow]                        IN WITNESS WHEREOF, Borrower has caused this Amendment No. 1 to Loan Agreement and Waiver to be duly executed and delivered by its duly authorized officer as of the date first above written. Address:   1100 Superior Avenue   OGLEBAY NORTON COMPANY     Cleveland, Ohio 44114         Attention: Treasurer   By:                                                                                       Name: Rochelle F. Walk                                                  Title: Vice President and Secretary                           Address:   Key Center   KEYBANK NATIONAL ASSOCIATION,     127 Public Square         Cleveland, Ohio 44114-1306         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   611 Woodward Avenue   BANK ONE, MICHIGAN     Detroit, Michigan 48226         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   600 Peachtree Street   THE BANK OF NOVA SCOTIA     Suite 2700Atlanta,         Georgia 30308   By:                                                                                   Attention: Large Corporate   Name:                                                                              Banking Division   Title:                                                                            Address:   500 Woodward Avenue, 9th Fl.   COMERICA BANK     Detroit, Michigan 48226         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   231 S. LaSalle Street   BANK OF AMERICA, N.A.     Chicago, Illinois 60697         Attention: Peter J. Gates   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   111 West Monroe, 10W   HARRIS TRUST AND SAVINGS BANK     Chicago, Illinois 60603         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   975 Euclid Avenue   THE HUNTINGTON NATIONAL BANK     Cleveland, Ohio 44115         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   1111 Superior Avenue   MELLON BANK, N.A.     Suite 1600         Cleveland, Ohio 44114   By:                                                                                   Attention: Large Corporate   Name:                                                                              Banking Division   Title:                                                                                      Address:   1900 East Ninth Street   NATIONAL CITY BANK     Cleveland, Ohio 44114         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   250 West Huron   THE CHASE MANHATTAN BANK     Cleveland, Ohio 44113         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                            Address:   1404 East Ninth Street   FIFTH THIRD BANK, NORTHEASTERN OHIO     Cleveland, Ohio 44114         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   1350 Euclid Avenue   FIRSTAR BANK, NATIONAL ASSOCIATION     Cleveland, Ohio 44115         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   244 Westchester Avenue   FLEET NATIONAL BANK     White Plains, New York 10604         Attention: Large Corporate   By:                                                                                   Banking Division   Name:                                                                                  Title:                                                                                      Address:   110 South Stratford Road   BRANCH BANKING & TRUST CO.     Suite 301         Winston-Salem, NC 27104   By:                                                                                   Attention: Large Corporate   Name:                                                                              Banking Division   Title:                                                                            ACKNOWLEDGMENT OF GUARANTORS             Each of the undersigned consents and agrees to and acknowledges the terms of the foregoing Amendment No. 1 to Loan Agreement and Waiver. Each of the undersigned further agrees that the obligations of each of the undersigned pursuant to the Guaranty of Payment, the Security Agreement and any other Loan Document to which any of the undersigned is a party shall remain in full force and effect and be unaffected hereby.     ONCO Investment Company     Oglebay Norton Industrial Minerals, Inc.     Oglebay Norton Management Company     Oglebay Norton Industrial Sands, Inc.     Oglebay Norton Terminals, Inc.     Oglebay Norton Engineered Materials Inc.     Michigan Limestone Operations, Inc.     Global Stone Corporation (successor by merger to                Oglebay Norton Acquisition Company)     Global Stone Tenn Lutrell Company     Global Stone Chemstone Corporation     Global Stone St. Clair, Inc.     Global Stone Filler Products Company     Global Stone James River, Inc.     GS PC, Inc.     Oglebay Norton Minerals, Inc.     Oglebay Norton Specialty Minerals, Inc.     ON Marine Services Company           By:                                                                                    Rochelle F. Walk, as Vice President and Secretary of each of the companies listed above.           Texas Mining, LP, by its General Partner Oglebay Norton Industrial Sands, Inc.             By:                                                                        Rochelle F. Walk         Vice President and Secretary           Global Stone PenRoc LP, by its General Partner, GS PC, Inc,.             By:                                                                        Rochelle F. Walk         Vice President and Secretary           Oglebay Marine Services Company, L.L.C., by its Member OM MARINE SERVICES COMPANY             By:                                                                        Rochelle F. Walk         Vice President and Secretary

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.21.2 AMENDED EXHIBIT "A" To The GAS PURCHASE CONTRACT As Of: October 1, 1994 Between CASCADE NATURAL GAS CORPORATION ("BUYER") and IGI RESOURCES, INC. ("SELLER") Effective Date of this Exhibit "A":  October 1, 2002 Ending Date of this Exhibit "A":  March 31, 2003 DELIVERY POINT   As defined in Section 1.01(g) of the Contract noted above       MAXIMUM DAILY CONTRACT QUANTITY(MMBtu)   7,446       DELIVERY POINT SELLING PRICE   1/ -------------------------------------------------------------------------------- 1.The Delivery Point Selling Price shall be equal to four dollars and sixty eight cents ($[*]U.S. dry) per MMBtu at AECO-C Hub plus the actual cost of firm NOVA re-delivery service and firm ANG receipt and re-delivery service plus any applicable allowance for fuel-in-kind associated with such services. [*] = Confidential Information     "BUYER" CASCADE NATURAL GAS CORPORATION               By:   /s/ King Oberg --------------------------------------------------------------------------------     Name:   King Oberg --------------------------------------------------------------------------------     Title:   Vice President, Gas Supply --------------------------------------------------------------------------------                         "SELLER" IGI RESOURCES, INC.               By:   /s/ Randy Schultz --------------------------------------------------------------------------------     Name:   Randy Schultz --------------------------------------------------------------------------------     Title:   President -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- QuickLinks Exhibit 10.21.2 AMENDED EXHIBIT "A" To The GAS PURCHASE CONTRACT As Of: October 1, 1994 Between CASCADE NATURAL GAS CORPORATION ("BUYER") and IGI RESOURCES, INC. ("SELLER")

  ALLIANCE CAPITAL MANAGEMENT L.P. UNIT OPTION PLAN AGREEMENT             AGREEMENT, dated December 11, 2000 between Alliance Capital Management L.P. (the "Partnership"), Alliance Capital Management Holding L.P. (“Alliance Holding”) and David R. Brewer, Jr. (the "Employee"), an employee of the Partnership or a subsidiary of the Partnership.           The Option Committee (the "Administrator") of the Board of Directors (the “Board”) of Alliance Capital Management Corporation, the general partner of the Partnership and Alliance Holding, pursuant to the Alliance Capital Management L.P. 1993 Unit Option Plan, a copy of which has been delivered to the Employee (the "Plan"), has granted to the Employee an option to purchase units representing assignments of beneficial ownership of limited partnership interests in Alliance Holding (the "Units") as hereinafter set forth, and authorized the execution and delivery of this Agreement.           In accordance with that grant, and as a condition thereto, the Partnership, Alliance Holding and the Employee agree as follows:           1.       Grant of Option.  Subject to and under the terms and conditions set forth in this Agreement and the Plan, the Employee is the owner of an option (the "Option") to purchase the number of Units set forth in Section 1 of Exhibit A attached hereto at the per Unit price set forth in Section 2 of Exhibit A.           2.       Term and Exercise Schedule.  This Option shall not be exercisable to any extent prior to December 11, 2001 or after December 11, 2010 (the "Expiration Date").  Subject to the terms and condi­tions of this Agreement and the Plan, the Employee shall be entitled to exercise the Option prior to the Expiration Date and to purchase Units hereunder in accordance with the schedule set forth in Section 3 of Exhibit A.           The right to exercise this Option shall be cumulative so that to the extent this Option is not exercised when it becomes initially exercisable with respect to any Units, it shall be exercisable with respect to such Units at any time thereafter until the Expiration Date and any Units subject to this Option which have not then been purchased may not, thereafter, be pur­chased hereunder.  A Unit shall be considered to have been purchased on or before the Expiration Date if notice of the purchase has been given and payment therefor has actually been received pursuant to Sections 3 and 13, on or before the Expiration Date.           3.       Notice of Exercise, Payment and Certificate.  Exercise of this Option, in whole or in part, shall be by delivery of a written notice to the Partnership and Alliance Holding pursuant to Section 13 which specifies the number of Units being purchased and is accompanied by payment therefor in cash.  Promptly after receipt of such notice and purchase price, the Partnership and Alliance Holding shall deliver to the person exercising the Option a certificate for the number of Units purchased.  Units to be issued upon the exercise of this Option may be either authorized and unissued Units or Units which have been reacquired by the Partnership, a subsidiary of the Partnership, Alliance Holding or a subsidiary of Alliance Holding.           4.       Termination of Employment.  This Option may be exer­cised only while the Employee is a full-time employee of the Partnership, except as follows:           (a)      Disability.  If the Employee's employment with the Partnership terminates because of Disability, the Employee (or his personal representative) shall have the right to exercise this Option, to the extent that the Employee was entitled to do so on the date of termination of his employ­ment, for a period which ends not later than the earlier of (i) three months after such termination, and (ii) the Expi­ration Date.  "Disability" shall mean a determination by the Administrator that the Employee is physically or mentally incapacitated and has been unable for a period of six con­secutive months to perform the duties for which he was responsible immediately before the onset of his incapacity.  In order to assist the Administrator in making a determina­tion as to the Disability of the Employee for purposes of this paragraph (a), the Employee shall, as reasonably re­quested by the Administrator, (A) make himself available for medical examinations by one or more physicians chosen by the Administrator and approved by the Employee, whose approval shall not unreasonably be withheld, and (B) grant the Admin­istrator and any such physicians access to all relevant medical information concerning him, arrange to furnish copies of medical records to them, and use his best efforts to cause his own physicians to be available to discuss his health with them.           (b)      Death.  If the Employee dies (i) while in the employ of the Partnership, or (ii) within one month after termination of his employment with the Partnership because of Disability (as determined in accordance with paragraph (a) above), or (iii) within one month after the Partnership terminates his employment for any reason other than for Cause (as determined in accordance with paragraph (c) be­low), this Option may be exercised, to the extent that the Employee was entitled to do so on the date of his death, by the person or persons to whom the Option shall have been transferred by will or by the laws of descent and distribu­tion, for a period which ends not later than the earlier of (A) six months from the date of the Employee's death, and (B) the Expiration Date.           (c)      Other Termination.  If the Partnership terminates the Employee's employment for any reason other than death, Disability or for Cause, the Employee shall have the right to exercise this Option, to the extent that he was entitled to do so on the date of the termination of his employment, for a period which ends not later than the earlier of (i) three months after such termination, and (ii) the Expiration Date.  "Cause" shall mean (A) the Employee's continuing willful failure to perform his duties as an employee (other than as a result of his total or partial incapacity due to physical or mental illness), (B) gross negligence or malfeasance in the performance of the Employee's duties, (C) a finding by a court or other governmental body with proper jurisdiction that an act or acts by the Employee constitutes (1) a felony under the laws of the United States or any state thereof (or, if the Employee's place of employment is outside of the United States, a serious crime under the laws of the foreign jurisdiction where he is employed, which crime if committed in the United States would be a felony under the laws of the United States or the laws of New York), or (2) a violation of federal or state securities law (or, if the Employee's place of employment is outside of the United States, of federal, state or foreign securities law) by reason of which finding of violation described in this clause (2) the Board determines in good faith that the continued employment of the Employee by the Partnership would be seriously detrimental to the Partnership and its business, (D) in the absence of such a finding by a court or other governmental body with proper jurisdiction, such a determination in good faith by the Board by reason of such act or acts constituting such a felony, serious crime or violation, or (E) any breach by the Employee of any obliga­tion of confidentiality or non-competition to the Partnership.           For purposes of this Agreement, employment by a subsidiary of the Partnership shall be deemed to be employment by the Partnership.  A "subsidiary" of the Partnership shall be any corporation or other entity of which the Partnership and/or its subsidiaries (a) have sufficient voting power (not depending on the happening of a contingency) to elect at least a majority of its board of directors, or (b) otherwise have the power to direct or cause the direction of its management and policies.           5.       Non-Transferability.  This Option is not transferable other than by will or the laws of descent and distribution and, except as otherwise provided in Section 4, during the lifetime of the Employee this Option is exercisable only by the Employee.           6.       No Right to Continued Employment.  This Option shall not confer upon the Employee any right to continue in the employ of the Partnership or interfere in any way with the right of the Partnership to terminate the employment of the Employee at any time for any reason.           7.       Payment of Withholding Tax.  (a) In the event that the Partnership or Alliance Holding determines that any federal, state or local tax or any other charge is required by law to be withheld with respect to the exercise of this Option, the Employee shall promptly pay to the Partnership or a subsidiary specified by the Partnership or Alliance Holding, on at least seven business days' notice, an amount equal to such withholding tax or charge or (b) if the Employee does not promptly so pay the entire amount of such withholding tax or charge in accordance with such notice, or make arrangements satisfactory to the Partnership and Alliance Holding regarding payment thereof, the Partnership or any subsidiary of the Partnership may withhold the remaining amount thereof from any amount due the Employee from the Partnership or the subsidiary.           8.       Dilution and Other Adjustments.  The existence of this Option shall not impair the right of the Partnership or Alliance Holding or their respective partners to, among other things, conduct, make or effect any change in the Partnership's or Alliance Holding’s business, any issuance of debt obligations or other securities by the Partnership or Alliance Holding, any grant of options with respect to an interest in the Partnership or Alliance Holding or any adjustment, recapitalization or other change in the partnership interests of the Partnership or Alliance Holding (including, without limitation, any distribution, subdivision, or combination of limited partnership interests), or any incorporation of the Partnership or Alliance Holding.  In the event of such a change in the partnership interests of the Partnership or Alliance Holding, the Board shall make such adjustments to this Option, including the purchase price specified in Section 1, as it deems appropriate and equitable. In the event of incorporation of the Partnership or Alliance Holding, the Board shall make such arrangements as it deems appropriate and equitable with respect to this Option for the Employee to purchase stock in the resulting corporation in place of the Units subject to this Option.  Any such adjust­ment or arrangement may provide for the elimination of any fractional Unit or shares of stock which might otherwise become subject to this Option.  Any decision by the Board under this Section shall be final and binding upon the Employee.           9.       Rights as an Owner of a Unit.  The Employee (or a transferee of this Option pursuant to Section 4) shall have no rights as an owner of a Unit with respect to any Unit covered by this Option until he becomes the holder of record of such Unit, which shall be deemed to occur at the time that notice of pur­chase is given and payment in full is received under Section 3 and 13.  By such actions, the Employee (or such transferee) shall be deemed to have consented to, and agreed to be bound by, all other terms, conditions, rights and obligations set forth in the then current Amended and Restated Agreement of Limited Partnership of Alliance Holding and the then current Amended and Restated Agreement of Limited Partnership of the Partnership.  Except as provided in Section 8, no adjustment shall be made with respect to any Unit for any distribution for which the record date is prior to the date on which the Employee becomes the holder of record of the Unit, regardless of whether the distribution is ordinary or extraordinary, in cash, securities or other property, or of any other rights.           10.     Administrator.  If at any time there shall be no Option Committee of the Board, the Board shall be the Administrator.           11.     Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.           12.     Interpretation.  The Employee accepts this Option subject to all the terms and provisions of the Plan, which shall control in the event of any conflict between any provision of the Plan and this Agreement, and accepts as binding, conclusive and final all decisions or interpretations of the Board or the Administrator upon any questions arising under the Plan and/or this Agreement.           13.     Notices.  Any notice under this Agreement shall be in writing and shall be deemed to have been duly given when deliv­ered personally or when deposited in the United States mail, registered, postage prepaid, and addressed, in the case of the Partnership, to the Secretary of Alliance Capital Management Corporation at 1345 Avenue of the Americas, New York, New York  10105, or if the Partnership should move its principal office, to such principal office, in the case of Alliance Holding, to the Secretary of Alliance Capital Management Corporation at 1345 Avenue of the Americas, New York, New York 10105, or if Alliance Holding should move its principal office, to such principal office, and, in the case of the Employee, to his last permanent address as shown on the Partnership's records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the require­ments of this Section.           14.     Sections and Headings.  All section references in this Agreement are to sections hereof for convenience of reference only and are not to affect the meaning of any provision of this Agreement.     ALLIANCE CAPITAL MANAGEMENT L.P.       By: Alliance Capital Management       Corporation, its General Partner             By: /s/ John D. Carifa --------------------------------------------------------------------------------       John D. Carifa       President         ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.     By: Alliance Capital Management       Corporation, General Partner     By: /s/ John D. Carifa --------------------------------------------------------------------------------       John D. Carifa       President       /s/ David R. Brewer, Jr. --------------------------------------------------------------------------------       David R. Brewer, Jr.     EXHIBIT A To Unit Option Plan Agreement Dated December 11, 2000 between Alliance Capital Management L.P., Alliance Capital Management Holding L.P. and David R. Brewer, Jr.   1. The number of Units that the Employee is entitled to purchase pursuant to the Option granted under this Agreement is 15,000.     2. The per Unit price to purchase Units pursuant to the Option granted under this Agreement is $53.75 per Unit. 3. Percentage of Units With Respect to   Which the Option First Becomes   Exercisable on the Date Indicated --------------------------------------------------------------------------------   1. December 11, 2001 20%     2. December 11, 2002 20%     3. December 11, 2003 20%     4. December 11, 2004 20%     5. December 11, 2005 20%      

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.2 TANNING TECHNOLOGY CORPORATION SUBSCRIPTION AGREEMENT 1.Gregory A. Conley ("Subscriber") hereby agrees to purchase on the dates set forth on Attachment A such number of shares of common stock, par value $.01 per share (the "Shares") of Tanning Technology Corporation (the "Company") set forth opposite such dates, in each case at a purchase price of $4.10 per Share (for an aggregate purchase price of seven hundred twenty-four thousand eight hundred thirty dollars and eighty cents ($724,830.80)). Against receipt of each installment of such purchase price, the Company shall cause its transfer agent (by irrevocable written instruction) to issue to Subscriber a stock certificate representing such number of Shares purchased on such date, which Shares shall be validly issued, fully paid and non-assessable. 2.Subscriber represents and warrants to the Company that the Shares acquired pursuant to this agreement are being purchased for investment purposes only, and not with a view to the sale and distribution thereof. 3.Subscriber represents and warrants to the Company that he is an "accredited investor", as defined in the Securities Act of 1933 (the "Act"). 4.Subscriber acknowledges that the Shares acquired pursuant to this agreement may not be sold, pledged, assigned, hypothecated or otherwise transferred, with or without consideration, except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act, the availability of which is established to the satisfaction of the Company. 5.The Company represents and warrants that none of the Company's (i) Prospectus dated July 22, 1999, as filed pursuant to Rule 424(b)(1) under the Securities Act of 1933, as amended, or (ii) Reports on Form 10-Q for the periods ended June 30, 1999, 2000 and 2001, September 30, 1999 and 2000, or March 31, 2000 and 2001, or (iii) Reports of Form 10-K for the periods ended December 31, 1999 and 2000, as of the dates they were filed, contained any untrue statement of material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 6.The parties acknowledge and agree that the obligations contained herein are independent of any other agreements or relationships the parties may have with each other.     IN WITNESS WHEREOF, Subscriber has duly executed this Subscription Agreement this 14th day of September, 2001.     GREGORY A. CONLEY     By: /s/ GREGORY A. CONLEY    -------------------------------------------------------------------------------- Name: Gregory A. Conley Agreed and Accepted on this 14th day of September, 2001: TANNING TECHNOLOGY CORPORATION By: /s/ FREDERICK H. FOGEL    -------------------------------------------------------------------------------- Name: Frederick H. Fogel Title: General Counsel and SVP, Business Affairs     -------------------------------------------------------------------------------- EXHIBIT A STOCK PURCHASE SCHEDULE Date --------------------------------------------------------------------------------   Dollar Amount --------------------------------------------------------------------------------   Number of Shares -------------------------------------------------------------------------------- November 25, 2001   $ 117,001.70   28,537 January 25, 2002   $ 115,000.90   28,049 February 25, 2002   $ 187,829.20   45,812 March 25, 2002   $ 189,998.10   46,341 November 25, 2002   $ 115,000.90   28,049 2 -------------------------------------------------------------------------------- QuickLinks STOCK PURCHASE SCHEDULE

EMPLOYMENT AGREEMENT DATE: July 31, 2001   PARTIES: eCollege.com, a Delaware corporation (the "Company") Steven P. Lindauer, a resident of Colorado ("Employee") RECITAL: The Company is engaged in the business of online web production, online education and online training. The Company desires to employ and retain the unique experience, abilities, and services of Employee as Senior Vice President, Strategy & Business Development, in the Company's office in Denver, Colorado. AGREEMENT: The parties agree as follows: EMPLOYMENT a)   Term. The term of this Employment Agreement (the "Agreement") shall commence on July 31, 2001. The term of this Agreement shall continue until termination in accordance with Section 5 of this Agreement, or until either the Company provides the Employee, or the Employee provides the Company, with written notice to the contrary. b)   Duties. Company shall employ Employee as a Senior Vice President, Strategy & Business Development. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, such duties shall consist of administration of the day to day operations of the Company's online web production, online education and online training business, and the specific duties set forth in Schedule A attached hereto. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the Employee's supervisor, Oakleigh Thorne, CEO of the Company or by the Executive Vice President of the Company. In performing such duties, Employee shall be subject to the direction and control of the CEO. Employee further agrees that in all aspects of such employment, Employee shall comply with the policies, standards, and regulations of the Company established from time to time, and shall perform his/her duties faithfully, intelligently, to the best of his/her ability, and in the best interest of the Company. The devotion of reasonable periods of time by Employee for personal purposes or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company; however, any outside business activities that are not first submitted in writing to the CEO of the Company, and approved in writing by the CEO shall be deemed a breach of this Agreement. COVENANT NOT TO COMPETE; CONFIDENTIALITY a)   Noncompetition. During the term of this Agreement and for a period of six (6) months after the termination of this Agreement, Employee shall not, within the United States, directly or indirectly, (1) own (as a proprietor, partner, stockholder, or otherwise) an interest of five percent (5%) or more in, or (2) participate (as an officer, director, or in any other capacity) in the management, operation, or control of, or (3) perform services as or act in the capacity of an employee, independent contractor, consultant, or agent of any enterprise engaged, directly or indirectly, in the online education and online training business or in competition with any other business conducted by the Company except with the prior written consent of the CEO of the Company; or, (4) directly or indirectly, contact, solicit or direct any person, firm, or corporation to contact or solicit, any of the Company's customers, prospective customers, or business brokers for the purpose of selling or attempting to sell, any products and/or services that are the same as or similar to the products and services provided by the Company to its customers during the term hereof. In addition, the Employee will not disclose the identity of any such business brokers, customers, or prospective customers, or any part thereof, to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever; and solicit or accept if offered to him/her, with or without solicitation, on his/her own behalf or on behalf of any other person, the services of any person who is an employee of the Company, nor solicit any of the Company's employees to terminate employment with the Company, nor agree to hire any employee of the Company into employment with himself/herself or any company, individual or other entity. b)   Confidentiality. Employee acknowledges and agrees that all product specifications, product planning information, lists of the Company's customers and suppliers, financial information, and other Company data related to its business ("Confidential Information") are valuable assets of the Company. Except for information that is a matter of public record, Employee shall not, during the term of this Agreement or after the termination of employment with the Company, disclose any Confidential Information to any person or use any Confidential Information for the benefit of Employee or any other person, except with the prior written consent of the Company. c)   Ideas, Inventions. The Employee recognizes and agrees that all ideas, inventions, enhancements, plans, writings, and other developments or improvements (the "Inventions") conceived by the Employee, alone or with others, during the term of his employment, whether or not during working hours, that are within the scope of the Company's business operations or that relate to any of the Company's work or projects, are the sole and exclusive property of the Company. The Employee further agrees that (1) he will promptly disclose all Inventions to the Company and hereby assigns to the Company all present and future rights he has or may have in those Inventions, including without limitation those relating to patent, copyright, trademark or trade secrets; and (2) all of the Inventions eligible under the copyright laws are "work made for hire." At the request of and without charge to the Company, the Employee will do all things deemed by the Company to be reasonably necessary to perfect title to the Inventions in the Company and to assist in obtaining for the Company such patents, copyrights or other protection as may be provided under law and desired by the Company, including but not limited to executing and signing any and all relevant applications, assignments or other instruments. Notwithstanding the foregoing, the Company hereby notifies the Employee that the provisions of this Section 2)c) shall not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Company was used and which were developed entirely on the Employee's own time, unless (1) the Invention relates (i) to the business of the Company, or (ii) to actual or demonstrably anticipated research or development of the Company, or (2) the Invention results from any work performed by the Employee for the Company. d)   Nondisparagement. During the term of this Agreement and for a period of two years following the voluntary or involuntary termination of this Agreement, the parties shall not make any statements concerning the other party that would tend to diminish the esteem, respect, good will, or confidence in which that party is held by members of the community in which that party, or its officers, directors and employees, conduct their business affairs or that would provoke adverse or derogatory feelings or opinions in such members of those communities as to that party. e)   Return of Documents. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, plans, drawings, memoranda, notes, and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company, and shall be returned to the Company upon the termination of employment with the Company or upon the written request of the Company. f)   Injunction. Employee agrees that it would be difficult to measure damage to the Company from any breach by Employee of Section 2)a), 2)b), 2)c) or 2)d) and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall breach or take steps preliminary to breaching Section 2)a), 2)b), 2)c) or 2)d), the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. Company agrees that it would be difficult to measure damage to the Employee from any breach by Company of Section 2)d) and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Company agrees that if Employee shall breach or take steps preliminary to breaching Section 2)d), the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. g)   No Release. Employee agrees that the termination of employment with the Company or the expiration of the term of this Agreement shall not release Employee from any obligations under Section 2)a), 2)b), 2)c), 2)d), 2)e) or 2)f). COMPENSATION a)   Base Compensation; Bonus Compensation. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee compensation as described in Schedule A of this Agreement. b)   Other Benefits. Employee has been provided with a brochure of the Company's general benefits. Employee agrees and acknowledges that the benefits provided by the Company may be changed or amended from time to time, and at any time, at the sole discretion of the Company. COMPANY POLICIES a)   General Policy Descriptions. Employee has been provided with a description of several policies, standards and regulations of the Company including a description of the Personal Days Policy, Travel Policy, and Expense Reimbursement Policy. b)   Abide by All Policies Established by the Company. Employee agrees to abide by all policies, standards and regulations of the Company. c)   Changes to Company Policies. Employee agrees and acknowledges that the Company's policies may be created, eliminated, changed or amended from time to time, and at any time, at the sole discretion of the Company. TERMINATION a)   At-Will Employment. Employee agrees and acknowledges that, just as he has the right to terminate his employment with the Company at any time for any reason, the Company has the same right, and may terminate his employment with the Company at any time for any reason. b)   Severance. In the event of the involuntary termination of Employee by the Company, which termination is not termination for cause as set forth in Paragraph 5)c) below, the Company shall provide Employee with severance pay equal to six months of Employee's base salary paid on the Company's normal payroll dates, plus/less any positive/negative accrued vacation days, provided that the Employee executes a severance agreement waiving any claims against the Company and in which the Company waives claims against the Employee. c)   Immediate Termination. The employment of Employee by the Company may be terminated immediately in the sole discretion of the either the President, a Vice President or the Board of Directors of the Company upon the occurrence of any one of the following events: i. After Employee receives written notice of conduct which is in violation of policies, standards, and regulations of the Company as established from time to time and after a reasonable period of time to correct the conduct, the Employee willfully and continuously fails or refuses to comply, in a material manner, with the policies, standards, and regulations of the Company; ii. Employee engages in fraud, dishonesty, or any other act of material misconduct in the performance of Employee's duties on behalf of the Company; iii. Employee fails to perform any material provision of this Agreement to be performed by Employee, provided however, that if such breach can be cured, the Employee will receive reasonable, written notice of breach and opportunity to cure such breach; or iv. Employee violates one or more of the rules identified on Schedule B. FACILITIES AND PERSONNEL a)   Workspace and Supplies. Employee shall be provided a workspace at the Company's executive headquarters. The Company shall provide all such facilities, supplies, and services as the Company determines are reasonably required for the performance of Employee's duties under this Agreement. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE a)   No Other Employment Agreements. Employee represents and warrants to the Company that there is no employment contract or any other contractual obligation to which Employee is subject, which prevents Employee from entering into this Agreement or from performing fully Employee's duties under this Agreement. b)   Special Needs. There are no special accommodations required to be made by Company for Employee to perform his duties and responsibilities. MISCELLANEOUS PROVISIONS a)   Binding Effect. This Agreement shall be binding on and inure to the benefit of the parties and their heirs, personal representatives, successors, and assigns. b)   Notices. Any notice, election, waiver, consent, acceptance or other communication required or permitted to be given under this Agreement shall be in writing and shall be hand delivered, transmitted via fax, by e-mail or sent via nationally recognized third party delivery (such as Federal Express or UPS) for next day delivery, addressed to the parties as follows: If to Company: eCollege.com Attn: CEO 10200 "A" East Girard Ave. Denver, Colorado 80231 Fax: 1-303-873-7449 If to Employee: Steven P. Lindauer 10200 "A" East Girard Ave. Denver, CO 80231 Any notice or other communication shall be deemed to be given at the date the notice is hand delivered to the individual, the date the notice is sent via fax, or the date following the date of deposit with any nationally recognized third party delivery (such as Federal Express or UPS) for next day delivery to the addressee. The addresses to which notices or other communications shall be sent may be changed from time to time by giving written notice to the other party as provided in this Paragraph. c)   Amendments. This Agreement may be amended only by an instrument in writing executed by all the parties. d)   Entire Agreement. This Agreement (including the schedules) sets forth the entire understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior understandings and agreements, whether written or oral, between the parties with respect to such subject matter. e)   Counterparts. This Agreement may be executed by the parties in separate counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. Fax signatures shall have the same effect as an original signature. f)   Severability. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired; provided, however, that the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute for each invalid provision or unenforceable provision in light of the tenor of this Agreement and, upon so agreeing, shall incorporate such substitute provision into this Agreement. g)   Waiver. A provision of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Failure to enforce any provision of this Agreement shall not operate as a waiver of such provision or any other provision. h)   Further Assurances. From time to time, each of the parties shall execute, acknowledge, and deliver any instruments or documents necessary to carry out the purposes of this Agreement. i)   No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer on any person, other than the parties to this Agreement, any right or remedy of any nature whatsoever. j)   Expenses. Except as otherwise provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated by this Agreement. k)   Exhibits.The exhibits and schedules referenced in this Agreement are a part of this Agreement as if fully set forth in this Agreement. l)   Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of Colorado. m)   Arbitration. i. Any controversy or claim arising out of or relating to this Agreement, including, without limitation, the making, performance, or interpretation of this Agreement, shall be settled by arbitration. ii. The parties may choose an arbitrator and rules of arbitration by mutual agreement. Unless the parties agree otherwise, the arbitration shall be conducted in Denver, Colorado in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association in Denver, Colorado. The arbitration shall be held before a single arbitrator (unless otherwise agreed by the parties). The arbitrator shall be chosen from a panel of attorneys knowledgeable in the field of business law in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof and any party to the arbitration may, if it so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. The powers of the arbitrator shall include the granting of injunctive relief. If the arbitration is commenced, the parties agree to permit reasonable discovery proceedings as determined by the arbitrator, including production of material documents, accounting of sources and uses of funds, interrogatories and the deposition of each party and any witness proposed by either party. iii. The parties agree that the arbitrator shall have no jurisdiction to consider evidence with respect to or render an award or judgment for punitive damages (or any other amount awarded for the purpose of imposing a penalty), incidental or consequential damages. iv. The arbitrator shall award all direct costs of the arbitration, including arbitrator's fees and arbitration filing fees according to the parties' ability to pay. v. The arbitrator shall determine a schedule for the arbitration proceedings such that a final determination of the matter submitted to the arbitrator can be rendered and delivered to the parties within 150 days following the date that a demand for arbitration is filed. vi. The parties agree that all facts and other information relating to any arbitration arising under this Agreement shall be kept confidential to the fullest extent permitted by law. n)   Survival Beyond Termination. All provisions that by their terms survive termination or expiration and all rights and obligations under those provisions shall survive any voluntary or involuntary termination or expiration of this Agreement in accordance with the respective terms of such provisions. eCollege.com By: /s/ Oakleigh Thorne Oakleigh Thorne, CEO /s/ Steven P. Lindauer Steven P. Lindauer, Individually     SCHEDULE A COMPENSATION AND DUTIES 1)   SALARY. Commencing on August 6, 2001, compensation to the Employee shall be at the rate of $170,000 per year, payable on the Company's normal payroll dates. Employee's target bonus for the period of August 6, 2001 through December 31, 2001, pursuant to the eCollege Incentive Compensation Plan and subject to the discretion of the Board of Directors, is $14,875 and is based on Employee achieving the individual objectives agreed to by Employee and the CEO, and approved of by the Company's Compensation Committee ("Approved Objectives"). 2)   SALARY ADJUSTMENT. Subject to approval by the Compensation Committee and achievement of the Approved Objectives, Employee's base compensation shall increase to $180,000 per year at the time of the next annual merit increases for executive management, as determined by the Compensation Committee, but no later than April 1, 2002. 3)   BONUS/OTHER COMPENSATION. Employee bonus compensation, whether in cash, Company stock, or other consideration, may be provided to Employee as determined from time to time by the Board of Directors or the CEO of the Company; the Company has no requirement to provide Employee with bonus compensation of any type. 4)   JOB DESCRIPTION. As Senior Vice President, Strategy & Business Development, Employee is responsible for business development strategic planning for the Company. Employee's general duties include: a. Development, along with the CEO, and implementation of a business strategy for the Company; b. Ongoing review and updates to business strategy developed for the Company; c. Development of long-term product vision consistent with the Company strategy; d. Keeping abreast of current market conditions in elearning; and e. Identification of business development opportunities consistent with Company's strategy; f. Management, under the direction of the CEO, of business development arrangements entered into by Company. 5)   OTHER DUTIES. Employee's duties may vary from time to time as determined by the CEO or the Executive Vice President of the of the Company. Employee acknowledges that he has read and fully understands all terms set forth in this Schedule A . /s/ Steven P. Lindauer Steven P. Lindauer       SCHEDULE B All employees must abide by the following rules of the Company: 1)   HONESTY. Employees shall conduct their affairs with honesty and integrity and shall not engage in fraud, dishonesty or any act of material misconduct. 2)   SIGNING AGREEMENTS. Employees shall not sign any document or agreement that creates a legally binding obligation on the Company. The only persons authorized to sign agreements are the CEO, Oakleigh Thorne and the Executive Vice President, Doug Kelsall. 3)   WRITTEN AGREEMENT. All employees of the Company and all independent contractors of the Company must have a signed, written agreement with the Company prior to performing work for the Company. Any violation of the above rules may result in disciplinary action, including termination of any employee found to have violated one or more of the above rules.

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CREDIT AGREEMENT dated as of May 10, 2001 among NU SKIN ENTERPRISES, INC., VARIOUS FINANCIAL INSTITUTIONS, and BANK OF AMERICA, N.A., as Administrative Agent -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE SECTION 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . .1 1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . 18 SECTION 2 COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES. . . . . . . . . . . . . . . . . . . . 19 2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1.1 Loans. . . . . . . . . . . . . . . . . . . . . . . 19 2.1.2 L/C Commitment . . . . . . . . . . . . . . . . . . 19 2.2 Loan Procedures . . . . . . . . . . . . . . . . . . . . . . 19 2.2.1 Various Types of Loans . . . . . . . . . . . . . . 19 2.2.2 Borrowing Procedures . . . . . . . . . . . . . . . 20 2.2.3 Conversion and Continuation Procedures . . . . . . 20 2.3 Letter of Credit Procedures . . . . . . . . . . . . . . . . 21 2.3.1 L/C Applications . . . . . . . . . . . . . . . . . 21 2.3.2 Participations in Letters of Credit. . . . . . . . 22 2.3.3 Reimbursement Obligations. . . . . . . . . . . . . 22 2.3.4 Limitation on Obligations of Issuing Lenders . . . 23 2.3.5 Funding by Lenders to Issuing Lenders. . . . . . . 23 2.4 Commitments Several . . . . . . . . . . . . . . . . . . . . 24 2.5 Certain Conditions. . . . . . . . . . . . . . . . . . . . . 24 SECTION 3 NOTES EVIDENCING LOANS . . . . . . . . . . . . . . . . . . . . . . 24 3.1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.2 Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 4 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.1 Interest Rates. . . . . . . . . . . . . . . . . . . . . . . 24 4.2 Interest Payment Dates. . . . . . . . . . . . . . . . . . . 25 4.3 Setting and Notice of Rates . . . . . . . . . . . . . . . . 25 4.4 Computation of Interest . . . . . . . . . . . . . . . . . . 25 SECTION 5 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.1 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . 25 5.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . 26 5.3 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . 26 5.4 Administrative Agent's Fees . . . . . . . . . . . . . . . . 26 SECTION 6 REDUCTION IN THE COMMITMENT AMOUNT; PREPAYMENTS . . . . . . 26 6.1 Reductions in the Commitment Amount . . . . . . . . . . . . 26 i 6.1.1 Voluntary Reductions of the Commitment Amount. . . 26 6.1.2 Mandatory Reductions in the Commitment Amount. . . 27 6.2 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES. . . . . . . . . . 27 7.1 Making of Payments. . . . . . . . . . . . . . . . . . . . . 27 7.2 Application of Certain Payments . . . . . . . . . . . . . . 28 7.3 Due Date Extension. . . . . . . . . . . . . . . . . . . . . 28 7.4 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.5 Proration of Payments . . . . . . . . . . . . . . . . . . . 28 7.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR YEN LIBOR LOANS AND EURODOLLAR LOANS . . . . . . . . . . . . . . . . . . . . . . . 30 8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . 30 8.2 Basis for Determining Interest Rate Inadequate or Unfair. . 31 8.3 Changes in Law Rendering Loans Unlawful . . . . . . . . . . 32 8.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . 33 8.5 Right of Lenders to Fund through Other Offices. . . . . . . 33 8.6 Discretion of Lenders as to Manner of Funding . . . . . . . 33 8.7 Mitigation of Circumstances; Replacement of Affected Lender 33 8.8 Conclusiveness of Statements; Survival of Provisions. . . . 34 SECTION 9 WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.1 Organization, etc . . . . . . . . . . . . . . . . . . . . . 34 9.2 Authorization; No Conflict. . . . . . . . . . . . . . . . . 34 9.3 Financial Condition . . . . . . . . . . . . . . . . . . . . 35 9.4 No Material Adverse Change. . . . . . . . . . . . . . . . . 35 9.5 Governmental Authorizations; etc. . . . . . . . . . . . . . 35 9.6 Title to Property; Leases . . . . . . . . . . . . . . . . . 35 9.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 36 9.8 Compliance with ERISA . . . . . . . . . . . . . . . . . . . 36 9.9 Litigation; Observance of Agreements, Statutes and Orders . 37 9.10 Other Statutes. . . . . . . . . . . . . . . . . . . . . . . 37 9.11 Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . 37 9.12 Use of Proceeds; Margin Regulations . . . . . . . . . . . . 38 9.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.14 Existing Indebtedness; Future Liens . . . . . . . . . . . . 38 9.15 Environmental Matters . . . . . . . . . . . . . . . . . . . 39 9.16 Information . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 10 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 10.1 Reports, Certificates and Other Information . . . . . . . . 40 ii 10.1.1 Audit Report . . . . . . . . . . . . . . . . . . . 40 10.1.2 Quarterly Reports. . . . . . . . . . . . . . . . . 41 10.1.3 Compliance Certificates. . . . . . . . . . . . . . 41 10.1.4 SEC and Other Reports. . . . . . . . . . . . . . . 42 10.1.5 Notice of Default. . . . . . . . . . . . . . . . . 42 10.1.6 Notice of ERISA Matters. . . . . . . . . . . . . . 42 10.1.7 Notices from Governmental Authority. . . . . . . . 42 10.1.8 Management Reports . . . . . . . . . . . . . . . . 43 10.2 Inspections . . . . . . . . . . . . . . . . . . . . . . . . 43 10.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 43 10.4 Compliance with Laws. . . . . . . . . . . . . . . . . . . . 43 10.5 Maintenance of Existence, etc . . . . . . . . . . . . . . . 44 10.6 Maintenance of Properties . . . . . . . . . . . . . . . . . 44 10.7 Payment of Taxes and Claims . . . . . . . . . . . . . . . . 44 10.8 Security; Execution of Pledge Agreement and Subsidiary Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 44 10.9 Nature of the Business. . . . . . . . . . . . . . . . . . . 46 10.10 Financial Covenants . . . . . . . . . . . . . . . . . . . . 46 10.10.1 Minimum Consolidated Net Worth . . . . . . . . . . 46 10.10.2 Minimum Fixed Charges Coverage . . . . . . . . . . 46 10.11 Limitations on Indebtedness . . . . . . . . . . . . . . . . 46 10.12 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 10.13 Mergers, Consolidations, Sales. . . . . . . . . . . . . . . 49 10.14 Transactions with Affiliates. . . . . . . . . . . . . . . . 51 10.15 Restricted Payments . . . . . . . . . . . . . . . . . . . . 51 10.16 Limitation on Swap Agreements . . . . . . . . . . . . . . . 52 10.17 Limitation on Margin Stock. . . . . . . . . . . . . . . . . 52 10.18 Designation of Restricted and Unrestricted Subsidiaries . . 52 SECTION 11 CONDITIONS OF LENDING, ETC. . . . . . . . . . . . . . . . . . . . 53 11.1 Initial Credit Extension. . . . . . . . . . . . . . . . . . 53 11.1.1 Notes. . . . . . . . . . . . . . . . . . . . . . . 53 11.1.2 Resolutions. . . . . . . . . . . . . . . . . . . . 53 11.1.3 Consents, etc. . . . . . . . . . . . . . . . . . . 53 11.1.4 Incumbency and Signature Certificates. . . . . . . 53 11.1.5 Subsidiary Guaranty. . . . . . . . . . . . . . . . 53 11.1.6 Pledge Agreement . . . . . . . . . . . . . . . . . 53 11.1.7 Opinion of Counsel for the Company and the Subsidiary Guarantors. . . . . . . . . . . . . . . 54 11.1.8 Closing Certificate. . . . . . . . . . . . . . . . . 54 11.1.9 Other. . . . . . . . . . . . . . . . . . . . . . . . 54 11.2 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . 54 11.2.1 Compliance with Warranties, No Default, etc. . . . 54 11.2.2 Confirmatory Certificate . . . . . . . . . . . . . 55 iii SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . . . . 55 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 55 12.1.1 Non-Payment of the Loans, etc. . . . . . . . . . . 55 12.1.2 Non-Compliance with Section 10 . . . . . . . . . . 55 12.1.3 Non-Compliance with Provisions of This Agreement . 55 12.1.4 Default in Payment of Other Indebtedness . . . . . 56 12.1.5 Bankruptcy, Insolvency, etc. . . . . . . . . . . . 56 12.1.6 Warranties . . . . . . . . . . . . . . . . . . . . 56 12.1.7 Judgments. . . . . . . . . . . . . . . . . . . . . 57 12.1.8 Pension Plans. . . . . . . . . . . . . . . . . . . 57 12.1.9 Invalidity of Guaranty, etc . . . . . . . . . . . . 57 12.1.10 Invalidity of Collateral Documents, etc. . . . . . 57 12.1.11 Change of Control. . . . . . . . . . . . . . . . . 57 12.2 Effect of Event of Default. . . . . . . . . . . . . . . . . 57 SECTION 13 THE ADMINISTRATIVE AGENT. . . . . . . . . . . . . . . . . . . . . 58 13.1 Appointment and Authorization . . . . . . . . . . . . . . . 58 13.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . 59 13.3 Liability of Administrative Agent . . . . . . . . . . . . . 59 13.4 Reliance by Administrative Agent. . . . . . . . . . . . . . 59 13.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . 59 13.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . 60 13.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . 60 13.8 Administrative Agent in Individual Capacity . . . . . . . . 61 13.9 Successor Administrative Agent. . . . . . . . . . . . . . . 62 13.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . 62 13.11 Collateral Matters. . . . . . . . . . . . . . . . . . . . . 64 13.12 Non-Receipt of Funds by the Administrative Agent. . . . . . 64 SECTION 14 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 14.1 Waiver; Amendments. . . . . . . . . . . . . . . . . . . . . 64 14.2 Confirmations . . . . . . . . . . . . . . . . . . . . . . . 65 14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 65 14.4 Computations. . . . . . . . . . . . . . . . . . . . . . . . 65 14.5 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . 66 14.6 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . 66 14.7 Subsidiary References . . . . . . . . . . . . . . . . . . . 66 14.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . 66 14.9 Assignments; Participations . . . . . . . . . . . . . . . . 66 14.9.1 Assignments. . . . . . . . . . . . . . . . . . . . 67 14.9.2 Participations . . . . . . . . . . . . . . . . . . 68 14.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 68 14.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 69 iv 14.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . 69 14.13 Indemnification by the Company. . . . . . . . . . . . . . . 69 14.14 Forum Selection and Consent to Jurisdiction . . . . . . . . 69 14.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . 70 14.16 Judgment Currency . . . . . . . . . . . . . . . . . . . . . . 70 SCHEDULE 1 Existing Letters of Credit SCHEDULE 1.1 Pricing Schedule SCHEDULE 2.1 Lenders and Percentages SCHEDULE 9.4 Material Adverse Change SCHEDULE 9.7 Subsidiaries SCHEDULE 9.9 Litigation SCHEDULE 9.11 Licenses; Permits SCHEDULE 9.14 Existing Indebtedness SCHEDULE 10.12 Existing Liens SCHEDULE 10.19 Excluded Letters of Credit SCHEDULE 14.3 Addresses for Notices EXHIBIT A Form of Note (Section 3.1) EXHIBIT B Form of Subsidiary Guaranty (Section 1) EXHIBIT C Copy of Pledge Agreement (Section 1) EXHIBIT D Form of Assignment Agreement (Section 14.9) EXHIBIT E-1 Copy of Collateral Agency and Intercreditor Agreement (Section 1) EXHIBIT E-2 Form of Amendment to Collateral Agency and Intercreditor Agreement (Section 11.1) EXHIBIT F Form of Subordination Agreement (Section 1) v CREDIT AGREEMENT          This CREDIT AGREEMENT dated as of May 10, 2001 (this “Agreement”) is among NU SKIN ENTERPRISES, INC., a Delaware corporation (the “Company”), the various financial institutions that are or may from time to time become parties hereto (together with their respective successors and assigns, the “Lenders”), and BANK OF AMERICA, N.A. (in its individual capacity, “Bank of America”), as administrative agent for the Lenders.          WHEREAS, the Company has requested that the Lenders provide a revolving credit facility to the Company; and          WHEREAS, the Lenders are willing to extend commitments to make Loans to the Company hereunder for the purposes provided herein and on the terms and subject to the conditions set forth herein.          NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:          SECTION 1    DEFINITIONS.          1.1    Definitions. When used herein the following terms shall have the following meanings:          ABN Amro Facility means the $10,000,000 credit facility evidenced by that certain Grid Note dated as of May 24, 2000 executed by the Company in favor of ABN Amro Bank N.V., as amended, supplemented or modified prior to the date hereof.          Administrative Agent means Bank of America in its capacity as administrative agent for the Lenders hereunder and any successor thereto in such capacity.          Affected Lender means any Lender that has given notice to the Company (which has not been rescinded) of (a) any obligation by the Company to pay any amount pursuant to Section 7.6 or 8.1 or (b) the occurrence of any circumstance of the nature described in Section 8.2 or 8.3.          Affiliate means, at any time, (a) with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) with respect to the Company and its Subsidiaries, any Person beneficially owning or holding, directly or indirectly, 5% or more of any class of voting or equity interests of the Company or any of its Subsidiaries or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 5% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the 1 direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.          Agent-Related Persons means the Administrative Agent and any successor administrative agent arising under Section 13.9, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates.          Agreement - see the Preamble.          Assignee - see Section 14.9.1.          Assignment Agreement - see Section 14.9.1.          Base Rate means at any time the greater of (a) the Federal Funds Rate plus 0.5% and (b) the Prime Rate.          Bank of America - see the Preamble.          Business Day means any day other than a Saturday, a Sunday or a day on which commercial banks in Charlotte, North Carolina and New York, New York are required or authorized to be closed and (a) with respect to any borrowing, payment or rate determination of Yen LIBOR Loans, any day other than a Saturday, a Sunday or a day on which commercial banks in Tokyo, Japan and London, England are required or authorized to be closed and (b) with respect to any borrowing, payment or rate determination of Eurodollar Loans, any day other than a Saturday, a Sunday or day on which commercial banks in London, England are required or authorized to be closed.          Capital Lease means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.          Change of Control means an event or series of events by which:          (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any (i) Specified Person and (ii) employee benefit plan of such Person or its subsidiaries, or any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person shall be deemed to have “beneficial ownership” of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of (x) 25% or more of the equity interests of the Company and (y) more 2 voting equity interests of the Company than the aggregate amount of such voting equity interests beneficially owned by the Specified Persons; or          (b) during any period of 12 consecutive months, a majority of the members of the Board of Directors or other equivalent governing body of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body.          Closing Date means the date of the making of the initial Loans, or the issuance of the initial Letter of Credit, hereunder (whichever occurs first).          Codemeans the Internal Revenue Code of 1986.          Collateral Agency and Intercreditor Agreement means the Collateral Agency and Intercreditor Agreement, a copy of which is attached as Exhibit E-1, by and among the Company, the Collateral Agent, the Administrative Agent and each of the other Senior Secured Creditors, and acknowledged by the Company and the Subsidiary Guarantors.          Collateral Agent means State Street Bank and Trust Company of California, N.A., acting in its capacity as collateral agent under the Collateral Agency and Intercreditor Agreement, together with its successors and assigns.          Collateral Documents means the Pledge Agreement, the Subsidiary Guaranty, the Collateral Agency and Intercreditor Agreement and all other documents evidencing, securing or relating to the Loans, the payment of the indebtedness evidenced by the Notes and all other amounts due from the Company or any other Restricted Subsidiary evidenced or secured by this Agreement, the Notes or the Collateral Documents.          Commitment means, as to any Lender, such Lender’s commitment to make Loans, and to issue or participate in Letters of Credit, under this Agreement.          Commitment Amount means $60,000,000, as reduced from time to time pursuant to Section 6.1.          Commitment Fee Rate - see Schedule 1.1.          Company - see the Preamble. 3          Computation Period means each period of four consecutive quarterly fiscal periods ending on the last day of a quarterly fiscal period.          Consolidated Income Available for Fixed Charges means, with respect to any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (a) Fixed Charges, and (b) taxes imposed on or measured by income or excess profits of the Company and the Restricted Subsidiaries.          Consolidated Net Income means, with respect to any period, the net income (or loss) of the Company and the Restricted Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and the Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and the Restricted Subsidiaries in accordance with GAAP.          Consolidated Net Worth means, at any time, (a) the consolidated stockholders’ equity of the Company and the Restricted Subsidiaries, as defined according to GAAP, less (b) the sum of (i) to the extent included in clause (a), all amounts attributable to minority interests, if any, in the securities of Restricted Subsidiaries, and (ii) the amount by which Restricted Investments exceed 20% of the amount determined in clause (a).          Consolidated Total Assets means, at any date of determination, on a consolidated basis for the Company and the Restricted Subsidiaries, total assets, determined in accordance with GAAP.          Credit Facility means any credit facility providing for the borrowing of money or the issuance of letters of credit (a) for the Company or (b) for any Restricted Subsidiary, if its obligations under such Credit Facility are guaranteed by the Company.          Dollar and the sign “$” mean the lawful money of the United States of America.          Dollar Equivalent means, with respect to a specified amount of any currency, the amount of Dollars into which such amount of such currency would be converted, based on the applicable Spot Rate of Exchange.          Domestic Subsidiary means, at any time, each Subsidiary of the Company (a) which is created, organized or domesticated in the United States or under the laws of the United States or any state or territory thereof, (b) which was included as a member of the Company’s affiliated group in the Company’s most recent consolidated United States federal income tax return, or (c) the earnings of which were includable in the taxable income of the Company or any other Domestic Subsidiary (to the extent of the Company’s and/or such other Domestic Subsidiary’s ownership interest of such Subsidiary) in the Company’s most recent consolidated United States federal income tax return. 4          EBITDA means, with respect to any period, the sum of (i) Consolidated Net Income for such period without giving effect to extraordinary gains and losses, gains and losses resulting from changes in GAAP and one time non-recurring income and expenses resulting from acquisitions and similar events, plus (ii) to the extent deducted in the calculation of Consolidated Net Income, the amount of all interest expense, depreciation expense, amortization expense, and income tax expense; provided that EBITDA will include or exclude, as applicable, acquisitions and divestitures of Restricted Subsidiaries or other business units on a pro forma basis as if such acquisitions or divestitures occurred on the first day of the applicable period.          Effective Date - see Section 11.1.          Environmental Laws means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.          ERISA means the Employee Retirement Income Security Act of 1974, and the rules and regulations promulgated thereunder from time to time in effect.          ERISA Affiliate means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code.          Eurocurrency Reserve Percentage means, with respect to any Eurodollar Loan for any Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentage in effect on each day of such Interest Period, as prescribed by the FRB (or any successor), for determining the aggregate maximum reserve requirements applicable to “Eurocurrency Liabilities” pursuant to Regulation D or any other then applicable regulation of the FRB which prescribes reserve requirements applicable to “Eurocurrency Liabilities” as presently defined in Regulation D.          Eurodollar Loan means any Loan which bears interest at a rate determined by reference to the Eurodollar Rate (Reserve Adjusted).          Eurodollar/Yen LIBOR Margin - see Schedule 1.1.          Eurodollar Office means with respect to any Lender the office or offices of such Lender which shall be making or maintaining the Eurodollar Loans of such Lender hereunder or, if applicable, such other office or offices through which such Lender determines the Eurodollar Rate. A Eurodollar Office of any Lender may be, at the option of such Lender, either a domestic or foreign office. 5          Eurodollar Rate means, with respect to any Eurodollar Loan for any Interest Period, (i) the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) equal to the rate determined by the Administrative Agent to be the offered rate which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being page number 3750) for deposits (for delivery two Business Days prior to the beginning of such Interest Period) with a term equivalent to the applicable Interest Period, determined as of approximately 11:00 A.M. (London, England time) on such date of determination, or (ii) if the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded upward, if necessary, to the nearest five decimal places) equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery two Business Days prior to the beginning of such Interest Period) with a term equivalent to such Interest Period determined as of approximately 11:00 A.M. (London, England time) on such date of determination, or (iii) if the rates referenced in the preceding clauses (i) and (ii) are not available, the rate per annum equal to the offered quotation rate (rounded upward, if necessary, to the nearest five decimal places) to first class banks in the London interbank market by the Administrative Agent for deposits (for delivery two Business Days prior to the beginning of such Interest Period) of amounts in same day funds comparable to the principal amount of the Eurodollar Loan of Bank of America included in the Eurodollar borrowing for which the Eurodollar Rate is then being determined with a maturity comparable to such Interest Period as of approximately 11:00 A.M. (London, England time) on such date of determination.          Eurodollar Rate (Reserve Adjusted) means, with respect to any Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula:                    Eurodollar Rate      =         Eurodollar Rate                 (Reserve Adjusted)             1-Eurocurrency                                                                 Reserve Percentage          Event of Default means any of the events described in Section 12.1.          Exchange Act means the Securities Exchange Act of 1934.          Existing Letters of Credit means the letters of credit described by date of issuance, letter of credit number, undrawn amount, name of beneficiary and the date of expiry on Schedule 1 hereto.          Exemption Representation - see Section 7.6.          Federal Funds Rate means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of 6 New York (including any such successor publication, “H.15(519)”) on the preceding Business Day opposite the caption “Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent.          Fixed Charges means, with respect to any period, the sum of (i) Interest Expense for such period, and (ii) Lease Rentals for such period.          Floating Rate Loan means any Loan which bears interest at or by reference to the Base Rate.          Floating Rate Margin - see Schedule 1.1.          Foreign Subsidiary means, at any time, each Subsidiary of the Company that is not a Domestic Subsidiary.          FRB means the Board of Governors of the Federal Reserve System.          GAAP means generally accepted accounting principles as in effect from time to time in the United States of America.          Group - see Section 2.2.1.          Governmental Authority means (a) the government of (i) the United States of America or any state or other political subdivision thereof, or (ii) Japan or any political subdivision thereof, or (iii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.          Guaranty means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person (a) to purchase such indebtedness or obligation or any property constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation, (c) to lease properties or to purchase properties or 7 services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation, or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.          Hazardous Material means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls).          Indebtedness with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock, (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property), (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases, (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities), (e) Securitization Debt and (f) any Guaranty (other than the Subsidiary Guaranty) of such Person with respect to liabilities of a type described in any of clauses (a) through (e) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (f) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.          Interest Expense means, with respect to the Company and the Restricted Subsidiaries for any period, the sum, determined on a consolidated basis in accordance with GAAP, of (a) all interest paid, accrued or scheduled for payment on the Indebtedness of the Company and the Restricted Subsidiaries during such period (including interest attributable to Capital Leases), plus (b) all fees in respect of outstanding letters of credit paid, accrued or scheduled for payment by the Company and the Restricted Subsidiaries during such period.          Interest Period means, as to any Yen LIBOR Loan or Eurodollar Loan, the period commencing on the date such Loan is borrowed or continued as a Yen LIBOR Loan or Eurodollar Loan or converted into a Eurodollar Loan and ending on the date one, two, three or six months thereafter, as selected by the Company pursuant to Section 2.2.3; provided that:                   (a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the 8 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 preceding Business Day;                  (b) any Interest Period for a Yen LIBOR Loan or Eurodollar Loan that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and                   (c) the Company may not select any Interest Period for any Loan which would extend beyond the scheduled Termination Date or which would cause the aggregate principal amount of all Yen LIBOR Loans and Eurodollar Loans having Interest Periods ending after the date on which the Commitment Amount is scheduled to be reduced pursuant to Section 6.1(d), plus the Stated Amount of all Letters of Credit scheduled to be outstanding after such date, to exceed the Commitment Amount scheduled to be in effect at the close of business on such date.          Investment means any investment, made in cash or by delivery of property, by the Company or any Restricted Subsidiary (a) in any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise; or (b) in any property.          Issuing Lender means Bank of America in its capacity as an issuer of Letters of Credit hereunder and any other Lender which, with the written consent of the Company and the Administrative Agent, is the issuer of one or more Letters of Credit hereunder.          L/C Application means, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the applicable Issuing Lender at the time of such request for the type of letter of credit requested.          Lease Rentals means, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Restricted Subsidiary as lessee under all leases of real or personal property (other than Capital Leases) as determined on a consolidated basis for the Company and the Restricted Subsidiaries in accordance with GAAP.          Lender - see the Preamble. References to the “Lenders” shall include the Issuing Lender; for purposes of clarification only, to the extent that Bank of America (or any successor Issuing Lender) may have any rights or obligations in addition to those of the other Lenders due to its status as Issuing Lender, its status as such will be specifically referenced.          Letter of Credit - see Section 2.1.2. 9          Leverage Ratio means, as of any date, the ratio of Total Indebtedness as of such date to EBITDA for the most recently ended period of four consecutive fiscal quarters.          Lien means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).          Loan Documents means this Agreement, the Notes, the Guaranties, the L/C Applications and the Collateral Documents.          Loans - see Section 2.1.1.          Material or Materially means material or materially, as the case may be, in relation to the business, operations, affairs, financial condition, assets, properties or prospects of the Company and the Restricted Subsidiaries taken as a whole.          Material Adverse Effect means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and the Restricted Subsidiaries taken as a whole, or (b) the ability of the Company and the Restricted Subsidiaries, taken as a whole, to perform their obligations under this Agreement, the Collateral Documents or any other Loan Document, or (c) the validity or enforceability of this Agreement, the Collateral Documents or any other Loan Document.          Material Domestic Subsidiary means each Domestic Subsidiary of the Company that also is a Material Subsidiary.          Material Foreign Subsidiary means each Foreign Subsidiary of the Company that also is a Material Subsidiary.          Material Subsidiaries means, at any time, (a) Nu Skin Japan Co., Ltd., a Japanese corporation, Nu Skin International, Inc., a Utah corporation, NSE Hong Kong, Inc., a Utah corporation, Nu Skin Taiwan, Inc., a Utah corporation, and Nu Skin United States, Inc., a Delaware corporation, and (b) each other Subsidiary of the Company which (i) had revenues during the four most recently ended fiscal quarters equal to or greater than 5.0% of the consolidated total revenues of the Company and its Subsidiaries during such period or (ii) is an obligor under any Guaranty with respect to the Indebtedness of the Company under any Significant Credit Facility; provided that no Subsidiary shall be a "Material Subsidiary" unless at least a majority of the voting securities of such Subsidiary are owned by the Company and/or one or more Wholly-Owned Restricted Subsidiaries. 10          Multiemployer Plan means any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA).          Note - see Section 3.1.          Officer’s Certificate means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.          PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.          Percentage means, with respect to any Lender, the percentage specified opposite such Lender’s name on Schedule 2.1, as adjusted by any assignment pursuant to Section 14.9.1.          Permitted Liens - see Section 10.12.          Permitted Securitization Program means any transaction or series of transactions that may be entered into by the Company or any Restricted Subsidiary pursuant to which the Company or any Restricted Subsidiary may sell, convey or otherwise transfer to (a) a Securitization Entity (in the case of a transfer by the Company or any Restricted Subsidiary) and (b) any other Person (in the case of a transfer by a Securitization Entity), or may grant a security interest in, any receivables (whether now existing or arising or acquired in the future) of the Company or any Restricted Subsidiary, and any assets related thereto including (i) all collateral securing such receivables, (ii) all contracts and contract rights and all guarantees or other obligations in respect of such receivables, (iii) proceeds of such receivables, and (iv) other assets (including contract rights) that are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving receivables; provided that the resultant Securitization Debt, together with all other Priority Indebtedness then outstanding, shall not exceed the amount of Priority Indebtedness permitted by Section 10.11(a)(ii).          Person means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or government (or an agency or political subdivision thereof).          Plan means an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.          Pledge Agreement means the Pledge Agreement executed by the Company in favor of State Street Bank and Trust Company of California, N.A., as collateral agent, a copy of which is attached as Exhibit C. 11          Pledged Securities means, in respect of each Pledgor, (a) the Equity Securities owned by such Pledgor described in Schedule I attached to, or otherwise pledged pursuant to, the Pledge Agreement and the Equity Securities owned by such Pledgor of each Person that becomes a Material Foreign Subsidiary, including all securities convertible into, and rights, warrants, options and other rights to purchase or otherwise acquire, any of the foregoing now or hereafter owned by such Pledgor, and the certificates or other instruments representing any of the foregoing and any interest of such Pledgor in the entries on the books of any securities intermediary pertaining thereto (the “Pledged Shares”), and all dividends, distributions, returns of capital, cash, warrants, option, rights, instruments, right to vote or manage the business of the respective issuer pursuant to organizational documents governing the rights and obligations of the stockholders, and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; provided that the Pledged Shares shall not include any Equity Securities of such issuer in excess of the number of shares or other equity interests of such issuer possessing up to but not exceeding 65% of the voting power of all classes of Equity Securities entitled to vote of such issuer, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Equity Securities, and (b) to the extent not covered by clause (a) above, all proceeds of any or all of the foregoing.          Pledgor means each Person who pledges Pledged Securities under the Pledge Agreement.          Preferred Stock means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation.          Prime Rate means, for any day, the rate of interest in effect for such day as publicly announced from time to time by Bank of America in Charlotte as its “prime rate.” (The “prime rate” is a rate set by Bank of America based upon various factors, including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.) Any change in the prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.          Priority Indebtedness means (without duplication) the sum of (a) any unsecured Indebtedness of the Restricted Subsidiaries other than (i) guarantees under the Subsidiary Guaranty, (ii) Indebtedness of a Restricted Subsidiary if (x) the Company has guaranteed such Indebtedness or is a primary obligor of such Indebtedness, and (y) the holder of such Indebtedness becomes a party to the Collateral Agency and Intercreditor Agreement (provided that until the holder of such Indebtedness becomes a party to the Collateral Agency and Intercreditor Agreement, such Indebtedness will be considered Priority Indebtedness), and (iii) Indebtedness owed to the Company or any other Restricted Subsidiary, and (b) Indebtedness of 12 the Company and its Restricted Subsidiaries secured by a Lien not permitted by clauses (a) through (m) of Section 10.12, and (c) Securitization Debt.          Property or properties means and includes each and every interest in any property or asset, whether tangible or intangible and whether real, personal or mixed.          QPAM Exemption means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.          Required Lenders means Lenders having Percentages aggregating 51% or more.          Responsible Officer means any Senior Financial Officer and any other officer of the Company or its Subsidiaries with responsibility for the administration of the relevant portion of this Agreement or any Loan Document.          Restricted Investments means all Investments except any of the following: (a) property to be used in the ordinary course of business; (b) assets arising from the sale of goods and services in the ordinary course of business; (c) Investments in one or more Restricted Subsidiaries or any Person that immediately becomes a Restricted Subsidiary; (d) Investments existing on the Signing Date; (e) Investments in obligations, maturing within one year, issued by or guaranteed by the United States of America, or an agency thereof, or Canada, or any province thereof; (f) Investments in tax-exempt obligations, maturing within one year, which are rated in one of the top two rating classifications by at least one national rating agency; (g) Investments in certificates of deposit or banker’s acceptances maturing within one year issued by Bank of America or other commercial banks which are rated in one of the top two rating classifications by at least one national rating agency; (h) Investments in commercial paper, maturing within 270 days, rated in one of the top two rating classifications by at least one national rating agency; (i) Investments in repurchase agreements; (j) treasury stock; (k) Investments in money market instrument programs which are classified as current assets in accordance with GAAP; (l) Investments in foreign currency risk hedging contracts used in the ordinary course of business; and (m) Investments in Securitization Entities.          Restricted Subsidiary means any Subsidiary (a) at least a majority of the voting securities of which are owned by the Company and/or one or more Wholly-Owned Restricted Subsidiaries, and (b) which the Company has not designated as an Unrestricted Subsidiary in accordance with Section 10.18; provided that upon any Unrestricted Subsidiary becoming a Material Subsidiary, it shall immediately be deemed to be a Restricted Subsidiary.          Securities Act means the Securities Act of 1933.          Security has the meaning set forth in Section 2(l) of the Securities Act.          Securitization Debt for the Company and the Restricted Subsidiaries shall mean, in 13 connection with any Permitted Securitization Program, (a) any amount as to which any Securitization Entity or other Person has recourse to the Company or any Restricted Subsidiary with respect to such Permitted Securitization Program by way of a Guaranty and (b) the amount of any reserve account or similar account or asset shown as an asset of the Company or a Restricted Subsidiary under GAAP that has been pledged to any Securitization Entity or any other Person in connection with such Permitted Securitization Program.          Securitization Entity means a wholly-owned Subsidiary (other than a Restricted Subsidiary) of the Company (or another Person in which the Company or any of its Subsidiaries makes an investment and to which the Company or any of its Subsidiaries transfers receivables and related assets) that engages in no activities other than in connection with the financing of receivables and that is designated by the Board of Directors of the Company (as provided below) as a Securitization Entity (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any of its Subsidiaries (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any of its Subsidiaries in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of the Company or any other Subsidiary of the Company, directly or indirectly, continently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any of its Subsidiaries has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity, and (c) to which neither the Company nor any of its Subsidiaries has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.          Senior Financial Officer means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.          Senior Notes means the 3.03% Senior Notes due October 12, 2010 issued by the Company.          Senior Note Purchase Agreement means the Note Purchase Agreement dated October 12, 2000 between the Company and The Prudential Insurance Company of America.          Senior Secured Creditor means (a) each Lender, (b) each holder of a Senior Note, and (c) each lender under a Significant Credit Facility.          Significant Credit Facility means (a) any Credit Facility that has at least $7,500,000 available to be borrowed and/or outstanding at any time, and (b) any Credit Facility if the aggregate amount available to be borrowed and/or outstanding under all of the Credit Facilities exceeds $25,000,000 at any time; provided that the term “Significant Credit Facility” shall not 14 include any Priority Indebtedness to the extent that such Priority Indebtedness is permitted by Section 10.11(a)(ii), any Indebtedness secured by a Lien permitted by Section 10.12(h), or any Indebtedness secured by a Lien renewing, extending or replacing Liens as described in Section 10.12(m).          Signing Date means the date on which the Agreement has been executed and delivered by all of the parties hereto.          Specified Person means each of (a) Blake M. Roney, Steven J. Lund, Sandra N. Tillotson, Brooke B. Roney, Nedra Roney, Craig Bryson or Craig Tillotson and (b) the immediate family members and trusts established for the immediate family members of, and other entities 67% or more of the equity interests of which are owned by, any of the foregoing individuals.          Spot Rate of Exchange means, as of any date for any amount denominated in any currency other than Dollars, the applicable quoted spot rate as reported on the appropriate page of the Reuters Screen at 11:00 A.M. (London, England time) two Business Days preceding the day such determination is requested to be made.          Standard Securitization Undertakings means representations, warranties, covenants and indemnities entered into by the Company or any of its Subsidiaries that are reasonably customary in a receivables securitization transaction.          Stated Amount means, with respect to any Letter of Credit at any date of determination, the maximum aggregate amount available for drawing thereunder at any time during the then ensuing term of such Letter of Credit under any and all circumstances, plus the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit.          Subsidiary means, as to any Person, (a) any corporation of which more than 50% of the issued and outstanding Equity Securities having ordinary 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 have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person’s other Subsidiaries, (b) any partnership, joint venture, limited liability company or other association of which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture, limited liability company or other association is at the time owned and controlled by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person’s other Subsidiaries, or (c) any other Person included in the financial statements of such Person on a consolidated basis. Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.          Subsidiary Guarantors means all current and future Material Domestic Subsidiaries of the 15 Company.          Subsidiary Guaranty means the Subsidiary Guaranty, substantially in the form of Exhibit B.          Swap Agreement means (a) any and all rate swap transactions, basis swaps, forward rate transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing); provided that any such transaction is governed by or subject to a Master Agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement published by any successor organization thereto (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.          Taxes - see Section 7.6.          Term Debt means any Indebtedness of the Company or any Restricted Subsidiary other than (a) Credit Facilities providing for the borrowing of money or the issuance of letters of credit on a revolving basis or for working capital, (b) Priority Indebtedness, and (c) Indebtedness secured by Liens permitted by clauses (a) through (m) of Section 10.12.          Termination Date means the earlier to occur of (a) May 10, 2004 or (b) such other date on which the Commitments shall terminate pursuant to Section 6 or 12.          Total Indebtedness means, at any date of determination, the sum of (i) the total of all Indebtedness of the Company and the Restricted Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and the Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and the Restricted Subsidiaries in accordance with GAAP, plus (ii) the aggregate amount of Indebtedness of the Company to any of its Restricted Subsidiaries that is not subordinated to the Indebtedness hereunder pursuant to a subordination agreement substantially in the form of Exhibit F.          Total Outstandings means at any time the sum of (a) the aggregate Dollar Equivalent principal amount of all outstanding Loans plus (b) the Stated Amount of all Letters of Credit.          Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or borrowings under this Agreement are as follows: Floating Rate Loans or borrowings, Yen LIBOR Loans or borrowings, and Eurodollar Loans or borrowings. 16          Unmatured Event of Default means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.          Unrestricted Subsidiary means any Subsidiary which is designated as an Unrestricted Subsidiary on Schedule 9.8 or is designated as such in writing by the Company to each Lender pursuant to Section 10.18; provided that no Material Subsidiary shall be an Unrestricted Subsidiary.          Wholly-Owned Restricted Subsidiary means, at any time, (a) with respect to Domestic Subsidiaries, any Restricted Subsidiary one hundred percent (100%) of all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company’s other wholly-owned Restricted Subsidiaries at such time, and (b) with respect to Foreign Subsidiaries, any Restricted Subsidiary ninety-five percent (95%) or more of all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company’s other Wholly-Owned Restricted Subsidiaries at such time.          Yen and ¥ mean the lawful currency of Japan.          Yen LIBOR means, for any Yen LIBOR Loan for any Interest Period, the per annum rate (reserve adjusted as provided below) of interest, rounded upwards, if necessary, to the nearest one-sixteenth of one percent (0.0625%), at which Japanese Yen deposits in immediately available funds are offered in the interbank eurodollar market as presented on Telerate Page 3750 as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period, for delivery on the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount equal or comparable to the Yen LIBOR Loan of Bank of America to which such Interest Period relates. The foregoing rate of interest shall be reserve adjusted by dividing Yen LIBOR by one minus the Yen LIBOR Reserve Percentage, with such quotient to be rounded upward to the nearest whole multiple of one-hundredth of one percent (0.01%). All references in this Agreement or other Loan Documents to Yen LIBOR shall mean and include the aforesaid reserve adjustment. “Telerate Page 3750” means the display designated as “Page 3750” (or such other page as may replace Page 3750) on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association interest settlement rates for Japanese Yen deposits or, in the absence of such availability, by reference to the average (rounded upwards, if necessary, to the nearest one-sixteenth of one percent (0.0625%)) of the rates at which three major banks designated by the Administrative Agent are offered Japanese Yen deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market.          Yen LIBOR Loan means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to Yen LIBOR. 17          Yen LIBOR Office means, with respect to any Lender, the office or offices of such Lender which shall be making or maintaining the Yen LIBOR Loans of such Lender hereunder. A Yen LIBOR Office of any Lender may be, at the option of such Lender, either a domestic or foreign office.          Yen LIBOR Reserve Percentage means, relative to any Yen LIBOR Loan for any Interest Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date Yen LIBOR for such Interest Period is determined under regulations issued from time to time by the FRB, the Japanese Ministry of Finance or the Bank of Japan (or any successor regulatory body) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”) having a term comparable to such Interest Period.          (a)     Other Interpretive Provisions . The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.          (b)    Section, clause, Schedule and Exhibit references are to this Agreement unless otherwise specified.          (c)    (i)     The term "including" is not limiting and means "including without limitation."                     (ii)     In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including.”          (d)    Unless otherwise expressly provided herein, (i)      references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii)      references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such statute or regulation.          (e)    This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms.          (f)     This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Company, the Lenders and the other parties thereto and are the products of all parties. Accordingly, they shall not be construed against the Administrative Agent or the Lenders merely because of the Administrative Agent’s or Lenders’ involvement in their preparation. 18          SECTION 2    COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES.          2.1    Commitments. On and subject to the terms and conditions of this Agreement, each of the Lenders, severally and for itself alone, agrees to make loans to, and to issue or participate in the issuance of letters of credit for the account of, the Company as follows:          2.1.1    Loans. Each Lender will make loans on a revolving basis (“Loans”) from time to time before the Termination Date in such Lender’s Percentage of such aggregate amounts as the Company may from time to time request from all Lenders; provided that the Total Outstandings will not at any time exceed the Commitment Amount.          2.1.2    L/C Commitment.     (a)  The Issuing Lenders will issue letters of credit, in each case containing such terms and conditions as are permitted by this Agreement and are reasonably satisfactory to the applicable Issuing Lender and the Company (each a “Letter of Credit”), at the request of and for the account of the Company or any Subsidiary from time to time before the Termination Date and (b) as more fully set forth in Section 2.3.5, each Lender agrees to purchase a participation in each such Letter of Credit; provided that the aggregate Stated Amount of all Letters of Credit shall not at any time exceed the lesser of (i) $5,000,000 and (ii) the excess, if any, of the Commitment Amount over the aggregate principal amount of all outstanding Loans.          2.2    Loan Procedures.          2.2.1    Various Types of Loans . Each Loan shall be either a Floating Rate Loan, a Yen LIBOR Loan or a Eurodollar Loan (each a “type” of Loan), as the Company shall specify in the related notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3. Yen LIBOR Loans or Eurodollar Loans having the same Interest Period are sometimes called a “Group” or collectively “Groups”. Floating Rate Loans, Yen LIBOR Loans and Eurodollar Loans may be outstanding at the same time; provided that (i) not more than five different Groups of Yen LIBOR Loans shall be outstanding at any one time, (ii) the aggregate principal amount of each Group of Yen LIBOR Loans shall at all times be at least ¥600,000,000 and an integral multiple of ¥100,000,000, (iii) not more than five different Groups of Eurodollar Loans shall be outstanding at any one time and (iv) the aggregate principal amount of each Group of Eurodollar Loans shall at all times be at least $5,000,000 and an integral multiple of $1,000,000. All borrowings, conversions and repayments of Loans shall be effected so that each Lender will have a pro rata share (according to its Percentage) of all types and Groups of Loans.          2.2.2    Borrowing Procedures. The Company shall give written or telephonic (followed promptly by written confirmation thereof) notice to the Administrative Agent of each proposed borrowing not later than (a) in the case of a Floating Rate borrowing, noon, New York time, on the proposed date of such borrowing, (b)  in the case of a Yen LIBOR borrowing, 10:00 A.M., New York time, at least five Business Days prior to the proposed date of such borrowing, and (c) in the case of a Eurodollar borrowing, 10:00 A.M., New York time, at least three Business Days 19 prior to the proposed date of such borrowing. Each such notice shall be effective upon receipt by the Administrative Agent, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a Yen LIBOR or Eurodollar borrowing, the initial Interest Period therefor. Promptly upon receipt of such notice, the Administrative Agent shall advise each Lender thereof. Not later than 2:00 p.m., New York time, on the date of a proposed borrowing, each Lender shall provide the Administrative Agent at the office specified by the Administrative Agent with (a) in the case of a Yen LIBOR borrowing, Yen in immediately available funds, or (b) in the case of a Floating Rate borrowing or a Eurodollar borrowing, Dollars in immediately available funds, in each case covering such Lender’s Percentage of such borrowing and, so long as the Administrative Agent has not received written notice that the conditions precedent set forth in Section 11 with respect to such borrowing have not been satisfied, the Administrative Agent shall pay over the requested amount to the Company on the requested borrowing date. Each borrowing shall be on a Business Day. Each Floating Rate borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple thereof. Each other borrowing shall be in the applicable amount required for a Group pursuant to Section 2.2.1.          2.2.3    Conversion and Continuation Procedures. (a) Subject to the provisions of Section 2.2.1, the Company may, upon irrevocable written notice to the Administrative Agent in accordance with clause (b) below:                  (i)      elect, as of any Business Day, to convert any outstanding Floating Rate Loan into a Eurodollar Loan or any outstanding Eurodollar Loan to a Floating Rate Loan; or                  (ii)     elect, as of the last day of the applicable Interest Period, to continue any Group of Yen LIBOR Loans or Eurodollar Loans having an Interest Period expiring on such day (or any part thereof in the applicable amount required for a Group pursuant to Section 2.2.1) for a new Interest Period.          (b)    The Company shall give written or telephonic (followed promptly by written confirmation thereof) notice to the Administrative Agent of each proposed conversion or continuation not later than (i) in the case of conversion of Eurodollar Loans into Floating Rate Loans, 11:00 a.m., New York time, on the proposed date of such conversion, (ii) in the case of continuation of Yen LIBOR Loans, 11:00 a.m., New York time, at least five Business Days prior to the proposed date of such continuation, and (iii) in the case of a conversion of Floating Rate Loans into or continuation of Eurodollar Loans, 11:00 a.m., New York time, at least three Business Days prior to the proposed date of such conversion or continuation, specifying in each case:                  (1)   the proposed date of conversion or continuation;                  (2)   the aggregate amount and currency of the Loans to be converted or continued; 20                  (3)   the type of Loans resulting from the proposed conversion or continuation; and                  (4)    in the case of continuation of Yen LIBOR Loans or conversion into, or continuation of, Eurodollar Loans, the duration of the requested Interest Period therefor.          (c) If upon expiration of any Interest Period applicable to Yen LIBOR Loans, the Company has failed to select timely a new Interest Period to be applicable to such Yen LIBOR Loans, the Company shall be deemed to have elected to continue such Yen LIBOR Loans for a one-month Interest Period.          (d) If upon expiration of any Interest Period applicable to Eurodollar Loans, the Company has failed to select timely a new Interest Period to be applicable to such Eurodollar Loans, the Company shall be deemed to have elected to convert such Eurodollar Loans into Floating Rate Loans effective on the last day of such Interest Period.          (e) The Administrative Agent will promptly notify each Lender of its receipt of a notice of conversion or continuation pursuant to this Section 2.2.3 or, if no timely notice is provided by the Company, of the details of any automatic continuation or conversion.          (f) Unless the Required Lenders otherwise consent, during the existence of any Event of Default or Unmatured Event of Default, the Company may not elect to have a Floating Rate Loan converted into or continued as a Eurodollar Loan.          2.3    Letter of Credit Procedures.          2.3.1  L/C Applications. The Company shall give notice to the Administrative Agent and the applicable Issuing Lender of the proposed issuance of each Letter of Credit on a Business Day which is at least three Business Days (or such lesser number of days as the Administrative Agent and such Issuing Lender shall agree in any particular instance) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by the Company (together with any Subsidiary for the account of which the related Letter of Credit is to be issued) and in all respects satisfactory to the Administrative Agent and the applicable Issuing Lender, together with such other documentation as the Administrative Agent or such Issuing Lender may reasonably request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, whether such Letter of Credit is to be transferable in whole or in part and the expiration date of such Letter of Credit (which shall not be later than the Termination Date and shall not result in the aggregate Stated Amount of all Letters of Credit scheduled to be outstanding after any date on which the Commitment Amount is scheduled to be reduced pursuant to Section 6.1(d), plus the aggregate principal amount of all Yen LIBOR Loans and Eurodollar Loans having Interest Periods ending after such date, to exceed the Commitment Amount scheduled to be in effect at the close of business on such date). So long as the applicable Issuing Lender has not received written notice that the conditions precedent set forth 21 in Section 11 with respect to the issuance of such Letter of Credit have not been satisfied, such Issuing Lender shall issue such Letter of Credit on the requested issuance date. Each Issuing Lender shall promptly advise the Administrative Agent of the issuance of each Letter of Credit by such Issuing Lender and of any amendment thereto, extension thereof or event or circumstance changing the amount available for drawing thereunder.          2.3.2  Participations in Letters of Credit. Concurrently with the issuance of each Letter of Credit, the applicable Issuing Lender shall be deemed to have sold and transferred to each other Lender, and each other Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Lender, without recourse or warranty, an undivided interest and participation, to the extent of such other Lender’s Percentage, in such Letter of Credit and the Company’s reimbursement obligations with respect thereto. For the purposes of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be the applicable Issuing Lender’s “participation” therein. Each Issuing Lender hereby agrees, upon request of the Administrative Agent or any Lender, to deliver to such Lender a list of all outstanding Letters of Credit issued by such Issuing Lender, together with such information related thereto as such Lender may reasonably request.          2.3.3  Reimbursement Obligations. The Company hereby unconditionally and irrevocably agrees to reimburse the applicable Issuing Lender for each payment or disbursement made by such Issuing Lender under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, in each case on the date that such payment or disbursement is made. Any amount not reimbursed on the date of such payment or disbursement shall bear interest from the date of such payment or disbursement to the date that such Issuing Lender is reimbursed by the Company therefor, payable on demand, at a rate per annum equal to the Base Rate from time to time in effect plus the Floating Rate Margin from time to time in effect plus, beginning on the third Business Day after receipt of notice from the Issuing Lender of such payment or disbursement, 2%. The applicable Issuing Lender shall notify the Company and the Administrative Agent whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; provided, that the failure of such Issuing Lender to so notify the Company shall not affect the rights of such Issuing Lender or the Lenders in any manner whatsoever.          2.3.4  Limitation on Obligations of Issuing Lenders. In determining whether to pay under any Letter of Credit, no Issuing Lender shall have any obligation to the Company or any Lender other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted by an Issuing Lender under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence and willful misconduct, shall not impose upon such Issuing Lender any liability to the Company or any Lender and shall not reduce or impair the Company’s reimbursement obligations set forth in Section 2.3.3 or the obligations of the Lenders pursuant to Section 2.3.5. 22          2.3.5  Funding by Lenders to Issuing Lenders. If an Issuing Lender makes any payment or disbursement under any Letter of Credit and the Company has not reimbursed such Issuing Lender in full for such payment or disbursement by noon, New York time, on the date of such payment or disbursement, or if any reimbursement received by such Issuing Lender from the Company is or must be returned or rescinded upon or during any bankruptcy or reorganization of the Company or otherwise, each other Lender shall be obligated to pay to the Administrative Agent for the account of such Issuing Lender, in full or partial payment of the purchase price of its participation in such Letter of Credit, its pro rata share (according to its Percentage) of such payment or disbursement (but no such payment shall diminish the obligations of the Company under Section 2.3.3), and upon notice from the applicable Issuing Lender, the Administrative Agent shall promptly notify each other Lender thereof. Each other Lender irrevocably and unconditionally agrees to so pay to the Administrative Agent in immediately available funds for the applicable Issuing Lender’s account the amount of such other Lender’s Percentage of such payment or disbursement. If and to the extent any Lender shall not have made such amount available to the Administrative Agent by 2:00 P.M., New York time, on the Business Day on which such Lender receives notice from the Administrative Agent of such payment or disbursement (it being understood that any such notice received after 1:00 P.M., New York time, on any Business Day shall be deemed to have been received on the next following Business Day), such Lender agrees to pay interest on such amount to the Administrative Agent for the applicable Issuing Lender’s account forthwith on demand for each day from the date such amount was to have been delivered to the Administrative Agent to the date such amount is paid, at a rate per annum equal to (a) for the first three days after demand, the Federal Funds Rate from time to time in effect and (b) thereafter, the Base Rate from time to time in effect. Any Lender’s failure to make available to the Administrative Agent its Percentage of any such payment or disbursement shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent such other Lender’s Percentage of such payment, but no Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent such other Lender’s Percentage of any such payment or disbursement.          2.4  Commitments Several. The failure of any Lender to make a requested Loan on any date shall not relieve any other Lender of its obligation (if any) to make a Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make any Loan to be made by such other Lender.          2.5  Certain Conditions. Notwithstanding any other provision of this Agreement, no Lender shall have an obligation to make any Loan, to permit the continuation of any Yen LIBOR Loan or to permit the continuation of or any conversion into any Eurodollar Loan, and no Issuing Lender shall have any obligation to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists. 23          SECTION 3    NOTES EVIDENCING LOANS.          3.1    Notes. The Loans of each Lender shall be evidenced by a promissory note (each a “Note”) payable to the order of such Lender substantially in the form set forth in Exhibit A.          3.2    Recordkeeping. Each Lender shall record in its records, or at its option on the schedule attached to its Note, the date and amount of each Loan made by such Lender, each repayment or conversion thereof and, in the case of each Yen LIBOR Loan or Eurodollar Loan, the dates on which each Interest Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Note. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the obligations of the Company hereunder or under any Note to repay the principal amount of the Loans evidenced by such Note together with all interest accruing thereon.          SECTION 4    INTEREST.          4.1    Interest Rates. The Company promises to pay interest on the unpaid principal amount of each Loan for the period commencing on the date of such Loan until such Loan is paid in full as follows:          (a)    in the case of a Loan in Dollars, (i) at all times while such Loan is a Floating Rate Loan, at a rate per annum equal to the sum of the Base Rate from time to time in effect plus the Floating Rate Margin from time to time in effect; and (ii) at all times while such Loan is a Eurodollar Loan, at a rate per annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable to each Interest Period for such Loan plus the Eurodollar/Yen LIBOR Margin from time to time in effect; and          (b)    in the case of a Yen LIBOR Loan, at a rate per annum equal to the sum of the Yen LIBOR applicable to each Interest Period for such Loan plus the Eurodollar/Yen LIBOR Margin in effect; provided that upon request of the Required Lenders at any time an Event of Default exists, the interest rate applicable to each Loan shall be increased by 2%.          4.2    Interest Payment Dates. Accrued interest on each Floating Rate Loan shall be payable in arrears on the last Business Day of each calendar quarter and at maturity. Accrued interest on each Yen LIBOR Loan and Eurodollar Loan shall be payable on the last day of each Interest Period relating to such Loan (and, in the case of a Yen LIBOR Loan or Eurodollar Loan with a six-month Interest Period, on the three-month anniversary of the first day of such Interest Period) and at maturity. After maturity, accrued interest on all Loans shall be payable on demand. 24          4.3    Setting and Notice of Rates. (a) The applicable Yen LIBOR for each Interest Period shall be determined by the Administrative Agent, and notice thereof shall be given by the Administrative Agent promptly to the Company and each Lender.          (b)    The applicable Eurodollar Rate for each Interest Period shall be determined by the Administrative Agent, and notice thereof shall be given by the Administrative Agent promptly to the Company and each Lender.          (c)     Each determination of the applicable Yen LIBOR or Eurodollar Rate by the Administrative Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Administrative Agent shall, upon written request of the Company or any Lender, deliver to the Company or such Lender a statement showing the computations used by the Administrative Agent in determining any applicable Yen LIBOR or Eurodollar Rate hereunder.          4.4    Computation of Interest. All computations of interest for Floating Rate Loans when the Base Rate is determined by the Prime Rate shall be made on the basis of a year of 365 or 366 days, as the case may be, and for the actual number of days elapsed. All other computations of interest shall be made on the basis of a year of 360 days and for the actual number of days elapsed. The applicable interest rate for each Floating Rate Loan shall change simultaneously with each change in the Base Rate.          4.4    SECTION 5    FEES.          5.1    Commitment Fee. The Company agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, for the period from the Signing Date to the Termination Date, at a rate per annum equal to the Commitment Fee Rate in effect from time to time of the actual amount of the unused Dollar Equivalent amount of such Lender’s Percentage of the Commitment Amount as of the end of each day in such period. For purposes of calculating usage under this Section, the Commitment Amount shall be deemed used to the extent of the aggregate principal amount of all outstanding Loans plus the Stated Amount of all Letters of Credit. Such commitment fee shall be payable in arrears on the last Business Day of each calendar quarter and on the Termination Date for any period then ending for which such commitment fee shall not have theretofore been paid. The commitment fee shall be computed for the actual number of days elapsed on the basis of a year of 360 days.          5.2    Closing Fee. The Company agrees to pay to the Administrative Agent for the account of the Lenders pro rata according to their respective Percentages on the Closing Date a closing fee equal to $480,000 (less any portion of such fee previously paid to the Lenders by the Company).          5.3    Letter of Credit Fees. The Company agrees to pay to the Administrative Agent for the account of the Lenders pro rata according to their respective Percentages a letter of 25 credit fee for each standby Letter of Credit in an amount equal to the rate per annum in effect from time to time pursuant to Schedule 1.1 of the undrawn amount of such standby Letter of Credit (computed for the actual number of days elapsed on the basis of a year of 360 days); provided that upon request of the Required Lenders at any time an Event of Default exists, the rate applicable to each standby Letter of Credit shall be increased by 2%. Such letter of credit fee shall be payable in arrears on the last Business Day of each calendar quarter and on the Termination Date for the period from the date of the issuance of each standby Letter of Credit to the date such payment is due or, if earlier, the date on which such standby Letter of Credit expired or was terminated. After the Termination Date, such letter of credit fee shall be payable on demand.          (b)    The Company agrees to pay to the Administrative Agent for the account of the Lenders pro rata according to their respective Percentages a letter of credit fee for each commercial Letter of Credit in an amount equal to the greater of 0.125% of the face amount of such Letter of Credit and $100. Such letter of credit fee shall be payable for each commercial Letter of Credit on the earlier of the last Business Day of the calendar quarter in which such Letter of Credit is issued and the Termination Date.           (c)   The Company agrees to pay each Issuing Lender a fronting fee for each Letter of Credit issued by such Issuing Lender in an amount separately agreed to between the Company and such Issuing Lender.          (d)     In addition, with respect to each Letter of Credit, the Company agrees to pay to the applicable Issuing Lender, for its own account, such fees and expenses as such Issuing Lender customarily requires in connection with the issuance, negotiation, processing and/or administration of letters of credit in similar situations.          5.4    Administrative Agents Fees. The Company agrees to pay to the Administrative Agent such administrative agent’s fees as are mutually agreed to from time to time by the Company and the Administrative Agent.          SECTION 6    REDUCTION IN THE COMMITMENT AMOUNT; PREPAYMENTS.          6.1    Reductions in the Commitment Amount.          6.1.1     Voluntary Reductions of the Commitment Amount. The Company may from time to time on at least five Business Days’ prior written notice received by the Administrative Agent (which shall promptly advise each Lender thereof) permanently reduce the Commitment Amount to an amount not less than the Total Outstandings. Any such reduction shall be in an amount not less than $5,000,000 or a higher integral multiple of $1,000,000. The Company may at any time on like notice terminate the Commitments upon payment in full of all Loans and all other obligations of the Company hereunder and cash collateralization in full, pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent, of all 26 obligations arising with respect to Letters of Credit. All reductions of the Commitment Amount shall reduce the amounts of the Commitments of the Lenders pro rata according to their respective Percentages.          6.1.2    Mandatory Reductions in the Commitment Amount. The Commitment Amount shall be reduced by $15,000,000 on each anniversary of the Signing Date.          6.2    Prepayments.          (a)     Voluntary Prepayments. The Company may from time to time prepay the Loans in whole or in part; provided that the Company shall give the Administrative Agent (which shall promptly advise each Lender) notice thereof not later than 11:00 A.M., New York time, on the day of such prepayment (which shall be a Business Day), specifying the Loans to be prepaid and the date and amount of prepayment. Each partial prepayment of Floating Rate Loans and Eurodollar Loans shall be in an aggregate principal amount of $1,000,000 or an integral multiple thereof and each partial prepayment of Yen LIBOR Loans shall be in an aggregate principal amount of ¥100,000,000 or an integral multiple thereof. After giving effect to any partial prepayment, each borrowing of Yen LIBOR Loans and Eurodollar Loans shall be in the applicable amount required for a Group pursuant to Section 2.2.1.          (b)     Mandatory Prepayments. On each date on which the Commitment Amount is reduced pursuant to Section 6.1.2, the Company shall prepay Loans in the amount, if any, by which the Total Outstandings exceed the Commitments after giving effect to such reduction.          (c)     All Prepayments. All prepayments shall be applied to prepay the Loans of the Banks pro rata according to their respective Percentages. Any prepayment of a Yen LIBOR Loan or Eurodollar Loan on a day other than the last day of an Interest Period therefor shall include interest on the principal amount being repaid and shall be subject to Section 8.4          SECTION 7    MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.          7.1    Making of Payments. All payments of principal of or interest on the Notes, and of all fees, shall be made by the Company to the Administrative Agent in immediately available funds at the office specified by the Administrative Agent not later than 1:00 P.M., New York time, on the date due; and funds received after that hour shall be deemed to have been received by the Administrative Agent on the next following Business Day. The Administrative Agent shall promptly remit to each Lender its share of all such payments received in collected funds by the Administrative Agent for the account of such Lender.          All payments under Section 8.1 shall be made by the Company directly to the Lender entitled thereto. 27          7.2    Application of Certain Payments. Each payment of principal shall be applied to such Loans as the Company shall direct by notice to be received by the Administrative Agent on or before the date of such payment or, in the absence of such notice, as the Administrative Agent shall determine in its discretion. Concurrently with each remittance to any Lender of its share of any such payment, the Administrative Agent shall advise such Lender as to the application of such payment.          7.3    Due Date Extension. If any payment of principal or interest with respect to any of the Loans, or of any fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day (unless, in the case of a Yen LIBOR Loan or Eurodollar Loan, such immediately following Business Day is the first Business Day of a calendar month, in which case such date shall be the immediately preceding Business Day) and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension.          7.4    Setoff. The Company agrees that the Administrative Agent and each Lender have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, the Company agrees that at any time any Event of Default exists, the Administrative Agent and each Lender may apply to the payment of any obligations of the Company hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with the Administrative Agent or such Lender.          7.5    Proration of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise, but excluding any payment pursuant to Section 8.7 or 14.9) on account of principal of or interest on any Loan (or on account of its participation in any Letter of Credit) in excess of its pro rata share of payments and other recoveries obtained by all Lenders on account of principal of and interest on Loans (or such participation) then held by them, such Lender shall purchase from the other Lenders such participation in the Loans (or sub-participation in Letters of Credit) held by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery.          7.6    Taxes. (a) All payments of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender’s net income or receipts (all non-excluded items being called “Taxes”). If any withholding or deduction from any payment to be made by the Company hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Company will: 28          (i)     pay directly to the relevant authority the full amount required to be so withheld or deducted;          (ii)    promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and          (iii)     (except to the extent such withholding or deduction would not be required if such Lender’s Exemption Representation were true) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Administrative Agent or any Lender with respect to any payment received by the Administrative Agent or such Lender hereunder, the Administrative Agent or such Lender may pay such Taxes and the Company will (except to the extent such Taxes are payable by a Lender and would not have been payable if such Lender’s Exemption Representation were true) promptly pay such additional amounts (including any penalty, interest and expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted.          (b)    If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Company shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 7.6, a distribution hereunder by the Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Company.          (c)     Each Lender represents and warrants (such Lender’s “Exemption Representation”) to the Company and the Administrative Agent that, as of the date of this Agreement (or, in the case of an Assignee, the date it becomes a party hereto), it is entitled to receive payments hereunder without any deduction or withholding for or on account of any Taxes imposed by the United States of America or any political subdivision or taxing authority thereof.          (d)     Upon the request from time to time of the Company or the Administrative Agent, each Lender that is organized under the laws of a jurisdiction other than the United States of America shall execute and deliver to the Company and the Administrative Agent one or more (as the Company or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms W-8ECI or W-8BEN or such other forms or documents, appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. 29          (e)     If, and to the extent that, any Lender shall obtain a credit, relief or remission for, or repayment of, any Taxes indemnified or paid by the Company pursuant to this Section 7.6, such Lender agrees to promptly notify the Company thereof and thereupon enter into negotiations in good faith with the Company to determine the basis on which an equitable reimbursement of such Taxes can be made to the Company.          (f)     All obligations of the Company and the Lenders under this Section 7.6 shall survive repayment of the Loans, cancellation of the Notes, cancellation or expiration of the Letters of Credit and any termination of this Agreement.          (g)     Notwithstanding the foregoing provisions of this Section 7.6 if any Lender fails to notify the Company of any event or circumstance which will entitle such Lender to compensation pursuant to this Section 7.6 within 180 days after such Lender obtains knowledge of such event or circumstance, then such Lender shall not be entitled to compensation from the Company for any amount arising prior to the date which is 180 days before the date on which such Lender notifies the Company of such event or circumstance.          SECTION 8     INCREASED COSTS; SPECIAL PROVISIONS FOR YEN LIBOR LOANS AND EURODOLLAR LOANS.          8.1    Increased Costs.   (a)   If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any Yen LIBOR Office or Eurodollar Office of such Lender) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency          (i)     shall subject any Lender (or any Yen LIBOR Office or Eurodollar Office of such Lender) to any tax, duty or other charge with respect to its Yen LIBOR Loans or Eurodollar Loans, its Note or its obligation to make Yen LIBOR Loans or Eurodollar Loans, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Yen LIBOR Loans or Eurodollar Loans or any other amounts due under this Agreement in respect of its Yen LIBOR Loans or Eurodollar Loans or its obligation to make Yen LIBOR Loans or Eurodollar Loans (except for changes in the rate of tax on the overall net income of such Lender or its Yen LIBOR Office or Eurodollar Office imposed by the jurisdiction in which such Lender’s principal executive office, Yen LIBOR Office or Eurodollar Office is located); or          (ii)     shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of interest rates pursuant to Section 4), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Lender (or any Yen LIBOR Office or Eurodollar Office of such Lender); or 30          (iii) shall impose on any Lender (or its Yen LIBOR Office or Eurodollar Office) any other condition affecting its Yen LIBOR Loans or Eurodollar Loans, its Note or its obligation to make Yen LIBOR Loans or Eurodollar Loans; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D of the FRB, to impose a cost on) such Lender (or any Yen LIBOR Office or Eurodollar Office of such Lender) of making or maintaining any Yen LIBOR Loan or Eurodollar Loan, or to reduce the amount of any sum received or receivable by such Lender (or its Yen LIBOR Office or Eurodollar Office) under this Agreement or under its Note with respect thereto, then within 10 days after demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Company shall pay directly to such Lender such additional amount as will compensate such Lender for such increased cost or such reduction.          (b)    If any Lender shall reasonably determine that the adoption or phase-in 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 compliance by any Lender or any Person controlling such Lender with 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 such Lender's or such controlling Person's capital as a consequence of such Lender's obligations hereunder or under any Letter of Credit to a level below that which such Lender or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Lender or such controlling Person to be material, then from time to time, within 10 days after demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling Person for such reduction.          (c)     Notwithstanding the foregoing provisions of this Section 8.1, if any Lender fails to notify the Company of any event or circumstance which will entitle such Lender to compensation pursuant to this Section 8.1 within 180 days after such Lender obtains knowledge of such event or circumstance, then such Lender shall not be entitled to compensation from the Company for any amount arising prior to the date which is 180 days before the date on which such Lender notifies the Company of such event or circumstance.           8.2      Basis for Determining Interest Rate Inadequate or Unfair. If with respect to the relevant Loan for any Interest Period: 31          (a)     deposits in Yen or Dollars, as applicable, in the relevant amounts are not being offered to the Administrative Agent in the interbank eurodollar market for such Interest Period, or the Administrative Agent otherwise reasonably determines (which determination shall be binding and conclusive on the Company) that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable Yen LIBOR or Eurodollar Rate; or          (b)     Lenders having an aggregate Percentage of 40% or more advise the Administrative Agent that Yen LIBOR or the Eurodollar Rate (Reserve Adjusted) as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of maintaining or funding Yen LIBOR Loans or Eurodollar Loans, as the case may be, for such Interest Period (taking into account any amount to which such Lenders may be entitled under Section 8.1) or that the making or funding of Yen LIBOR Loans or Eurodollar Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Lenders materially affects such Loans; then the Administrative Agent shall promptly notify the other parties thereof and, so long as such circumstances shall continue, (x) no Lender shall be under any obligation to make or convert into Eurodollar Loans or Yen LIBOR Loans, as applicable, (y) on the last day of the current Interest Period for each Yen LIBOR Loan, such Loan shall be repaid in full, and (z) on the last day of the current Interest Period for each Eurodollar Loan, such Loan shall (unless then repaid) automatically convert to a Floating Rate Loan.          8.3     Changes in Law Rendering Loans Unlawful. If any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Lender cause a substantial question as to whether it is) unlawful for any Lender to make, maintain or fund Eurodollar Loans or Yen LIBOR Loans, then such Lender shall promptly notify the Company and the Administrative Agent and, so long as such circumstances shall continue:          (a)     In the case of Eurodollar Loans, (i) such Lender shall have no obligation to make or convert into Eurodollar Loans (but shall make Floating Rate Loans concurrently with the making of or conversion into Eurodollar Loans by the Lenders which are not so affected, in each case in an amount equal to such Lender's pro rata share of all Eurodollar Loans which would be made or converted into at such time in the absence of such circumstances) and (ii) on the last day of the current Interest Period for each Eurodollar Loan of such Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such Eurodollar Loan shall, unless then repaid in full, automatically convert to a Floating Rate Loan. Each Floating Rate Loan made by a Lender which, but for the circumstances described in the foregoing sentence, would be a Eurodollar Loan (an "Affected Loan") shall remain outstanding for the 32 same period as the Group of Eurodollar Loans of which such Affected Loan would be a part absent such circumstances.          (b)     In the case of Yen LIBOR Loans, (i) no Lender shall have any obligation to make or continue any Yen LIBOR Loans and (ii) on the last day of the current Interest Period for each borrowing of Yen LIBOR Loans, such Yen LIBOR Loans shall be paid in full.          8.4    Funding Losses. The Company hereby agrees that upon demand by any Lender (which demand shall be accompanied by a statement setting forth the basis for the amount being claimed, a copy of which shall be furnished to the Administrative Agent), the Company will indemnify such Lender against any net loss or expense which such Lender may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain any Yen LIBOR Loan or Eurodollar Loan), as reasonably determined by such Lender, as a result of (a) any payment, prepayment or conversion of any Yen LIBOR Loan or Eurodollar Loan of such Lender on a date other than the last day of an Interest Period for such Loan (including any prepayment or conversion pursuant to Section 8.3) or (b) any failure of the Company to borrow, continue or convert any Loan on a date specified therefor in a notice of borrowing or conversion pursuant to this Agreement. For this purpose, all notices to the Administrative Agent pursuant to this Agreement shall be deemed to be irrevocable.          8.5    Right of Lenders to Fund through Other Offices. Each Lender may, if it so elects, fulfill its commitment as to any Yen LIBOR Loan or Eurodollar Loan by causing a foreign branch or affiliate of such Lender to make such Loan; provided that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of the Company to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such Loan, for the account of such branch or affiliate.          8.6    Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained each Yen LIBOR Loan and Eurodollar Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Yen LIBOR (prior to adjustment for reserves) or the Eurodollar Rate for such Interest Period, as the case may be.          8.7     Mitigation of Circumstances; Replacement of Affected Lender. (a) Each Lender shall promptly notify the Company and the Administrative Agent of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Company to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstance of the nature described in Section 8.2 or 8.3 33           (and, if any Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Company and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different funding office if such designation will avoid (or reduce the cost to the Company of) any event described in clause (i) or (ii) of the preceding sentence and such designation will not, in such Lender's sole good faith judgment, be otherwise disadvantageous to such Lender.          (b)     At any time any Lender is an Affected Lender, the Company may replace such Affected Lender as a party to this Agreement with one or more other banks or financial institutions reasonably satisfactory to the Administrative Agent (and upon notice from the Company such Affected Lender shall assign pursuant to an Assignment Agreement, and without recourse or warranty, its Commitment, its Loans, its Note, its participation in Letters of Credit, and all of its other rights and obligations hereunder to such replacement bank(s) or other financial institution(s) for a purchase price equal to the sum of the principal amount of the Loans so assigned, all accrued and unpaid interest thereon, its ratable share of all accrued and unpaid fees, any amounts payable under Section 8.4 as a result of such Lender receiving payment of any Yen LIBOR Loan or Eurodollar Loan prior to the end of an Interest Period therefor and all other obligations owed to such Affected Lender hereunder).          8.8     Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Lender pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be conclusive absent demonstrable error. Lenders may use reasonable averaging and attribution methods in determining compensation under Sections 8.1 and 8.4, and the provisions of such Sections shall survive repayment of the Loans, cancellation of the Notes, cancellation or expiration of the Letters of Credit and any termination of this Agreement.          SECTION 9    WARRANTIES.          To induce the Administrative Agent and the Lenders to enter into this Agreement and to induce the Lenders to make Loans and issue or purchase participations in Letters of Credit hereunder, the Company warrants to the Administrative Agent and the Lenders that:          9.1    Organization, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement, the Collateral Documents to which it is a party and the Notes, and to perform the provisions hereof and thereof. 34          9.2    Authorization; No Conflict. This Agreement, the Notes and the Collateral Documents to which the Company is a party have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement and each of the Collateral Documents to which it is a party constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The execution, delivery and performance by the Company of this Agreement, the Notes and each other Loan Document to which it is a party will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, note purchase or credit agreement, corporate charter or bylaws, or any other Material agreement, lease or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.          9.3    Financial Condition. The audited consolidated financial statements of the Company and its Restricted Subsidiaries for the fiscal years ending December 31, 1998 and December 31, 1999 and the audited consolidated and consolidating financial statements of the Company and its Subsidiaries for the fiscal year ending December 31, 2000, copies of which in each case have been furnished prior to the Signing Date to each Lender which is a party hereto on the Signing Date (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and the Restricted Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments).          9.4     No Material Adverse Change. Since December 31, 2000, except as disclosed in Schedule 9.4 and in publicly available SEC filings prior to the date hereof, there has been no Material adverse change in the financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries taken as a whole.           9.5     Governmental Authorizations; etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company or any of its Restricted Subsidiaries of this Agreement or the other Loan Documents. 35          9.6     Title to Property; Leases. The Company and the Restricted Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 9.4 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement or the Collateral Documents. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects.          9.7    Subsidiaries.   (a)  Schedule 9.7 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and whether such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary, and whether such Subsidiary is a Material Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers.          (b)     All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 9.7 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except for Permitted Liens, directors' qualifying shares, shares required to be owned by Persons pursuant to applicable foreign laws regarding foreign ownership, or as otherwise disclosed in Schedule 9.7).          (c)     Each Subsidiary identified in Schedule 9.7 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.          (d)     No Material Subsidiary, is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 9.7 and customary limitations imposed by corporate law statutes) restricting the ability of such Material Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Material Subsidiary.          9.8     Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such 36 instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be, individually or in the aggregate, Material.          (b)     Neither the Company nor any ERISA Affiliate maintains a "single employer plan" or a Multiemployer Plan that is subject to Title IV of ERISA.          (c)    The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans other than such liabilities that individually or in the aggregate are not material.          (d)     The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Company and its Subsidiaries is not Material or has otherwise been disclosed in the most recent consolidated financial statements of the Company and its Subsidiaries referenced in Section 9.4 of this Agreement.          (e)      The execution and delivery of this Agreement and the other Loan Documents and the making of Loans and issuance of Letters of Credit hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code.          9.9     Litigation; Observance of Agreements, Statutes and Orders. (a) Except as disclosed in Schedule 9.9, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.          (b)     Neither the Company nor any Restricted Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including Environmental Laws) of any 37 Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.          9.10    Other Statutes. Neither the Company nor any Restricted Subsidiary is subject to regulation under the Investment Company Act of 1940, the Public Utility Holding Company Act of 1935, the Interstate Commerce Act, or the Federal Power Act.          9.11      Licenses, Permits, etc. Except as disclosed in Schedule 9.11, (a) the Company and the Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without any known Material conflict with the rights of others, (b) to the best knowledge of the Company, no product of the Company infringes in any Material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any Restricted Subsidiary with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any Restricted Subsidiary.          9.12    Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the Loans for general corporate purposes (including repurchases of stock of the Company); provided that no part of the proceeds from the making of Loans or issuance of Letters of Credit hereunder will be used, directly or indirectly, so as to involve the Company or any Lender in a violation of Regulation U of the FRB (12 CFR 221) or Regulation X of the FRB (12 CFR 224), or to involve any broker or dealer in a violation of Regulation T of the FRB (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the term "margin stock" shall have the meaning assigned to it in said Regulation U.          9.13    Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction (other than those tax returns which individually or collectively are not Material), and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material, or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of federal, state or other taxes for all fiscal periods are adequate in accordance with GAAP. The federal income tax liabilities of the Company and its Subsidiaries have been resolved with the Internal Revenue 38 Service and paid for all fiscal years up to and including the fiscal year ending on December 31, 1996.          9.14    Existing Indebtedness; Future Liens. (a) Except as described therein, Schedule 9.14 sets forth a complete and correct list of all outstanding Indebtedness, separately listed for each such item of Indebtedness of $2,000,000 or more, of the Company and the Restricted Subsidiaries as of the Signing Date.          (b)    (i) Neither the Company nor any Restricted Subsidiary is in default in the payment of any principal or interest on any Indebtedness of the Company or such Restricted Subsidiary, and (ii) no event or condition exists with respect to any Indebtedness of the Company or any Restricted Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment, except for Indebtedness described in clauses (i) and (ii) which, in aggregate principal amount, does not exceed $5,000,000.          (c)     Neither the Company nor any Restricted Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by ection 10.12.           9.15    Environmental Matters. Neither the Company nor any of its Subsidiaries has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to the Lenders in writing,          (a)     neither the Company nor any of its Subsidiaries has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect;          (b)     neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them in a manner contrary to any Environmental Laws and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws, in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and 39          (c)     all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with all applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.          9.16    Information. As of the Signing Date, the Closing Date and each other date on which the representation and warranty in this Section 9.16 is made, all information previously or contemporaneously furnished in writing by the Company or any Subsidiary to any Lender for purposes of or in connection with this Agreement and the transactions contemplated hereby is, taken as a whole, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made (it being recognized by the Administrative Agent and the Lenders that (a) any projections and forecasts provided by the Company are based on good faith estimates and assumptions believed by the Company to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts will likely differ from projected or forecasted results and (b) any information provided by the Company or any Subsidiary with respect to any Person or assets acquired or to be acquired by the Company or any Subsidiary shall, for all periods prior to the date of such acquisition, be limited to the knowledge of the Company or the acquiring Subsidiary after reasonable inquiry).          SECTION 10    COVENANTS.           Until the expiration or termination of the Commitments and thereafter until all obligations of the Company hereunder and under the other Loan Documents are paid in full and all Letters of Credit have been terminated, the Company agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will:          10.1    Reports, Certificates and Other Information. Furnish to the Administrative Agent (with sufficient copies to provide one to each Lender):          10.1.1    Audit Report. Promptly when available and in any event within 120 days (or if sooner, on the date consolidated statements are required to be delivered to any other creditor of the Company) after the end of each fiscal year of the Company, duplicate copies of, a consolidated and a consolidating balance sheet of the Company and its Subsidiaries, as at the end of such year, and consolidated and consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, which consolidated financial statements shall be accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such consolidated financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such consolidated financial statements has 40 been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and which consolidating financial statements shall be certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 10.1.1 to provide consolidated financial statements so long as such Annual Report on Form 10-K includes the consolidated financial statements identified in clauses (i) and (ii) above; provided further that such consolidating financial statements shall show the elimination of all Unrestricted Subsidiaries and the resultant consolidated financial statements of the Company and its Restricted Subsidiaries.          10.1.2    Quarterly Reports. Promptly when available and in any event within 60 days (or if sooner, on the date consolidated statements are required to be delivered to any other creditor of the Company) after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of a consolidated and a consolidating balance sheet of the Company and its Subsidiaries as at the end of such quarter, and consolidated and consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 10.1.2 to provide consolidated financial statements so long as such Quarterly Report on Form 10-Q includes the consolidated financial statements identified in clauses (i) and (ii) above; provided further, that such consolidating financial statements shall show the elimination of all Unrestricted Subsidiaries and the resultant consolidated financial statements of the Company and its Restricted Subsidiaries;.          10.1.3     Compliance Certificates. Together with each set of financial statements delivered to a Lender pursuant to Sections 10.1.1 and 10.1.2, a certificate of a Senior Financial Officer setting forth (a) the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Sections 10.10 and 10.11 during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or 41 minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence) and (b) a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes an Event of Default or an Unmatured Event of Default or, if any such condition or event existed or exists (including any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.          10.1.4    SEC and Other Reports. Promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such Lender), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Material Domestic Subsidiary to the public concerning developments that are Material.          10.1.5     Notice of Default. Promptly, and in any event within five days, after a Responsible Officer becoming aware of the existence of any Event of Default or Unmatured Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 12.1.5, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto.          10.1.6    Notice of ERISA Matters. Promptly, and in any event within fifteen days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto, with respect to any Plan, (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof, which could reasonably be expected to have a Material Adverse Effect, (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan, which could reasonably be expected to have a Material Adverse Effect, or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I 42 or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect.           10.1.7     Notices from Governmental Authority. Promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect.           10.1.8    Management Reports. With reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the other Loan Documents as from time to time may be reasonably requested by any Lender.          10.2    Inspections. Permit the representatives of each Lender to (a) if no Event of Default or Unmatured Event of Default then exists, at the expense of such Lender and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times during business hours and as often as may be reasonably requested in writing and (b) if an Event of Default or Unmatured Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such reasonable times and as often as may be requested.          10.3    Insurance. Maintain, and will cause each of the Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.          10.4    Compliance with Laws. Comply, and cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, 43 including Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.          10.5     Maintenance of Existence, etc. Preserve and keep in full force and effect its corporate existence. Subject to Section 10.13, the Company will at all times preserve and keep in full force and effect the corporate existence of each Restricted Subsidiary (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and the Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.          10.6     Maintenance of Properties. Maintain and keep, and cause each of the Restricted Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times; provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.          10.7    Payment of Taxes and Claims. File, and cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary; provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or such Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary, or (ii) the nonpayment of all such taxes and assessments and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.          10.8    Security; Execution of Pledge Agreement and Subsidiary Guaranty. (a) Within five days after the Company or any of its Restricted Subsidiaries acquires a Material Foreign Subsidiary or within five days after the Company delivers consolidating financial statements pursuant to Section 10.1 showing that any of Company's existing Subsidiaries has become a 44           Material Foreign Subsidiary, cause the Pledged Securities of such Material Foreign Subsidiary to be pledged pursuant to a supplement to the Pledge Agreement (unless a pledge of such Pledged Securities (x) is legally unobtainable or (y) the consent of a Governmental Authority is required in order to obtain such pledge and such consent has not been obtained after the Company's commercially reasonable efforts to obtain such consent, and Company delivers an opinion of outside counsel, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, to the effect that such pledge was not legally obtainable or such consent was not obtained). The Company shall promptly take all actions as may be necessary or desirable to give to the Collateral Agent, for the ratable benefit of the Lenders and the other Senior Secured Creditors, a valid and perfected first priority Lien on and security interest in the Pledged Securities of such Material Foreign Subsidiary and shall promptly deliver to the Collateral Agent (i) a supplement to the Pledge Agreement executed by each Pledgor of the Pledged Securities of such Material Foreign Subsidiary, (ii) a certificate executed by the secretary or an assistant secretary of each Pledgor as to (a) the incumbency and signatures of the officers of such Pledgor executing the supplement to the Pledge Agreement, and (b) the fact that the attached resolutions of the Board of Directors of such Pledgor authorizing the execution, delivery and performance of the supplement to the Pledge Agreement are in full force and effect and have not been modified or rescinded, (iii) at the request of the Administrative Agent, a favorable opinion of counsel, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, as to (a) the due organization and good standing of such Pledgor, (b) the due authorization, execution and delivery by such Pledgor of the supplement to the Pledge Agreement, (c) the enforceability of the supplement to the Pledge Agreement, and (d) such other matters as the Required Lenders may reasonably request, all of the foregoing to be satisfactory in form and substance to the Administrative Agent and its counsel; provided that the opinion described in this clause (iii) may be given by the Company's in-house counsel and may contain reasonable assumptions, if necessary, relating to the fact that such counsel may not be admitted to practice law in the applicable jurisdiction, and (iv) such other assurances, certificates, documents, consents or opinions as the Required Lenders reasonably may require.          (b)     Within five days after the Company or any of its Restricted Subsidiaries acquires a Material Domestic Subsidiary or within five days after the Company delivers consolidating financial statements pursuant to Section 10.1 showing that any of Company's existing Subsidiaries has become a Material Domestic Subsidiary (but not later than the time when such Material Domestic Subsidiary provides a Guaranty or co-obligor agreement to the lenders party to any Significant Credit Facility) (x) cause such Material Domestic Subsidiary to execute and deliver to the Administrative Agent a counterpart of the Subsidiary Guaranty, and (y) if the lenders party to such Significant Credit Facility are not then party to the Collateral Agency and Intercreditor Agreement (either directly or through their agent) cause such lenders (either directly or through their agent) to become party to the Collateral Agency and Intercreditor Agreement. The Company shall promptly deliver to the Administrative Agent, together with such counterpart of the Subsidiary Guaranty (i) certified copies of such Material Domestic Subsidiary's Articles or Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation, each to be dated a recent date prior to their delivery to the 45 Administrative Agent, (ii) a copy of such Material Domestic Subsidiary's Bylaws, certified by its corporate secretary or an assistant corporate secretary as of a recent date prior to their delivery to the Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary of such Material Domestic Subsidiary as to (a) the incumbency and signatures of the officers of such Material Domestic Subsidiary executing the counterpart of the Subsidiary Guaranty, and (b) the fact that the attached resolutions of the Board of Directors of such Material Domestic Subsidiary authorizing the execution, delivery and performance of the counterpart of the Subsidiary Guaranty are in full force and effect and have not been modified or rescinded, (iv) at the request of the Administrative Agent, a favorable opinion of counsel to the Company and such Material Domestic Subsidiary, in form and substance reasonably satisfactory to the Administrative Agent and its counsel, as to (a) the due organization and good standing of such Material Domestic Subsidiary, (b) the due authorization, execution and delivery by such Material Domestic Subsidiary of the counterpart of the Subsidiary Guaranty, (c) the enforceability of the counterpart of the Material Domestic Subsidiary, and (d) such other matters as the Required Lenders may reasonably request, all of the foregoing to be satisfactory in form and substance to the Administrative Agent and its counsel; provided, that the opinion described in clause (iv) above may be given by the Company's in-house counsel and may contain reasonable assumptions, if necessary, relating to the fact that counsel to the Company and such Material Domestic Subsidiary may not be admitted to practice law in the applicable jurisdiction, and (v) such other assurances, certificates, documents, consents or opinions as the Required Lenders reasonably may require.          10.9    Nature of the Business. Not, and not permit any Restricted Subsidiary, to engage in any business if, as a result, the general nature of the business of the Company and the Restricted Subsidiaries, taken as a whole, which would then be engaged in by the Company and the Restricted Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and the Restricted Subsidiaries, taken as a whole, on the Signing Date.          10.10    Financial Covenants.          10.10.1     Minimum Consolidated Net Worth. Not, at any time, permit Consolidated Net Worth to be less than the sum of (i) $271,935,200, (ii) an aggregate amount equal to 60% of Consolidated Net Income (but, in each case, only if a positive number) earned in (a) the six months ended December 31, 2000, and (b) each complete fiscal year thereafter, and (iii) 50% of the net proceeds realized by the Company and its Restricted Subsidiaries from the sale of Equity Securities subsequent to June 30, 2000, excluding issuances of Equity Securities upon exercise of employee stock options or rights under any employee benefit plans (excluding such exercise by any Person who owns greater than 5% of the Equity Securities of the Company), issuances of Equity Securities in connection with acquisitions by the Company and its Restricted Subsidiaries, and reissuances of up to $60,000,000 of treasury securities purchased by the Company after the Signing Date. 46           10.10.2     Minimum Fixed Charges Coverage. Not permit, as of the end of each fiscal quarter of the Company, the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges, for the period consisting of such fiscal quarter and the preceding three fiscal quarters, to be less than 2.75 to 1.0.           10.11    Limitations on Indebtedness. (a) Not permit at any time (i) the Leverage Ratio to be greater than 1.85 to 1.0, or (ii) Priority Indebtedness to exceed 13% of Consolidated Net Worth.          (b)     Not, and not permit any Restricted Subsidiary to, incur, assume or create any Indebtedness under any Significant Credit Facility unless each of the lenders under such Significant Credit Facility immediately becomes a party to the Collateral Agency and Intercreditor Agreement.          10.12    Liens. Not, and not permit any of the Restricted Subsidiaries to directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) of the Company or any Restricted Subsidiary, whether now owned or hereafter acquired, or any income or profits therefrom (unless the Company makes, or causes to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other obligations thereby secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Lenders and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the Administrative Agent and the Lenders may be entitled under applicable law, of any equitable Lien on such property), except for the following (which are collectively referred to as "Permitted Liens"):          (a)    Liens for taxes, assessments or other governmental charges which are not yet delinquent or that are being contested in good faith;          (b)    Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', carriers', warehousemen's, mechanics' materialmen's, and other similar Liens) and Liens to secure the performance of bids, tenders, leases or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens incurred in the ordinary course of business and not in connection with the borrowing of money;          (c)     Liens resulting from judgments, unless such judgments are not, within 60 days, discharged or stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; 47          (d)     Liens securing Indebtedness of a Restricted Subsidiary owed to the Company or to a Wholly-Owned Restricted Subsidiary;          (e)    Liens in existence on the Signing Date and reflected in Schedule 10.12;          (f)     minor survey exceptions and the like which do not Materially detract from the value of such property;          (g)     leases, subleases, easements, rights of way, restrictions and other similar charges or encumbrances incidental to the ownership of property or assets or the ordinary conduct of the Company's or any of the Restricted Subsidiaries' businesses; provided that the aggregate of such Liens do not Materially detract from the value of such property;          (h)     Liens (i) existing on property at the time of its acquisition or construction by the Company or a Restricted Subsidiary and not created in contemplation thereof; (ii) on property created contemporaneously with its acquisition or within 180 days of the acquisition or completion of construction or improvement thereof to secure the purchase price or cost of construction or improvement thereof, including such Liens arising under Capital Leases; or (iii) existing on property of a Person at the time such Person is acquired by, consolidated with, or merged into the Company or a Restricted Subsidiary and not created in contemplation thereof; provided that such Liens shall attach solely to the property acquired or constructed and the principal amount of the Indebtedness secured by the Lien shall not exceed the principal amount of such Indebtedness just prior to the time such Person is consolidated with or merged into the Company or a Restricted Subsidiary;          (i)    Liens on receivables of the Company or a Restricted Subsidiary and the related assets of the type specified in clauses (i) through (iv) in the definition of "Permitted Securitization Program" in connection with any Permitted Securitization Program;          (j)    Liens in favor of the Lenders and the other Senior Secured Creditors party to the Collateral Agency and Intercreditor Agreement in connection with the pledge of the Pledged Securities of each Material Foreign Subsidiary;          (k)     banker's Liens and similar Liens (including set-off rights) in respect of bank deposits; provided that any such Liens held by parties to the Collateral Agency and Intercreditor Agreement will be governed by and subject to the Collateral Agency and Intercreditor Agreement;          (l)     Liens in favor of customs and revenue authorities as a matter of law to secure payment of custom duties and in connection with the importation of goods in the ordinary course of the Company's and its Subsidiaries' business;          (m)     any Lien renewing, extending or replacing Liens permitted by clauses (e), (h), and 48 (i) of this Section 10.12; provided that (i) the principal amount of the Indebtedness secured is neither increased nor the maturity thereof changed to an earlier date, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding, no Event of Default or Unmatured Event of Default would exist; and          (n)     other Liens securing Indebtedness not otherwise permitted by clauses (a) through (m) of this Section 10.12; provided that Priority Indebtedness shall not, at any time, exceed an amount equal to 13% of Consolidated Net Worth. Any Lien originally incurred in compliance with clause (n) of this Section 10.12 may be renewed, extended or replaced so long as the conditions set forth in clauses (i), (ii) and (iii) of clause (m) of this Section 10.12 are satisfied.          10.13    Mergers, Consolidations, Sales. (a) Not, and not permit any Restricted Subsidiary to consolidate with or merge with any other Person unless immediately after giving effect to any consolidation or merger no Event of Default or Ummatured Event of Default would exist and:          (i) in the case of a consolidation or merger of a Restricted Subsidiary, (x) the Company or another Restricted Subsidiary is the surviving or continuing corporation, (y) the surviving or continuing corporation is or immediately becomes a Restricted Subsidiary, or (z) such consolidation or merger, if considered as the sale of the assets of such Restricted Subsidiary to such other Person, would be permitted by Section 10.11(b); and          (ii) in the case of a consolidation or merger of the Company, the successor corporation or surviving corporation which results from such consolidation or merger (the “surviving corporation”), if not the Company, (A) is a solvent United States corporation, (B) executes and delivers to each Lender its assumption of (x) the due and punctual payment of the principal of and premium, if any, and interest on the Loans, and (y) the due and punctual performance and observation of all of the covenants in this Agreement, the Collateral Documents and each other Loan Document to be performed or observed by the Company, and (C) furnishes to each Lender an opinion of counsel, reasonably satisfactory to the Required Lenders, to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the surviving corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.          (b)     Not sell, lease (as lessor) or otherwise transfer all or substantially all of its assets in a single transaction or series of transactions to any Person unless immediately after giving effect thereto no Event of Default or Unmatured Event of Default would exist and: 49          (i)    the successor corporation to which all or substantially all of the Company's assets have been sold, leased or transferred (the "successor corporation") is a solvent United States corporation, and          (ii) the successor corporation executes and delivers to each Lender its assumption of the due and punctual payment of the principal of and premium, if any, and interest on the Loans, and the due and punctual performance and observation of all of the covenants in this Agreement, the Collateral Documents and each other Loan Document to be performed or observed by the Company and shall furnish to the Administrative Agent an opinion of counsel, reasonably satisfactory to the Required Lenders, to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such successor corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.           No such conveyance, transfer or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.13 from its liability under this Agreement or the other Loan Documents.          (c)     Not, and not permit any Restricted Subsidiary to, sell, lease (as lessor), transfer, abandon or otherwise dispose of assets to any Person; provided that the foregoing restrictions do not apply to:          (i)     the sale, lease, transfer or other disposition of assets of the Company to a Restricted Subsidiary or of a Restricted Subsidiary to the Company or another Restricted Subsidiary;          (ii)     the sale in the ordinary course of business of inventory held for sale, or equipment, fixtures, supplies or materials that are no longer required in the operation of the business of the Company or any Restricted Subsidiary or are obsolete;          (iii)     the sale of property of the Company or any Restricted Subsidiary and the Company’s or any Restricted Subsidiary’s subsequent lease, as lessee, of the same property, within 270 days following the acquisition or construction of such property;          (iv)     the sale of assets of the Company or any Restricted Subsidiary for cash or other property to a Person or Persons (other than an Affiliate) if (A) such assets (valued at net book value) do not constitute a “substantial part” of the assets of the Company and the Restricted Subsidiaries, (B) in the opinion of a Responsible Officer of the Company, the sale is for fair value and is in the best interests of the Company, and (C) immediately after giving effect to the transaction, no Event of Default or Unmatured Event of Default would exist; or 50

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.23 EMPLOYMENT AGREEMENT     THIS AGREEMENT is entered into July 12, 2000 to be effective as of March 1, 2000, between FIRST TEAM SPORTS, INC., a Minnesota corporation (the "Company"), and Richard Jackson, a resident of Minnesota ("Executive"). W I T N E S S E T H     WHEREAS, the Company desires to promote Executive to the position of Vice President of Production and Product Development effective as of March 1, 2000, and the Board of Directors of the Company elected Executive as Vice President of Production and Product Development on July 12, 2000; and     WHEREAS, the Company desires to continue to have the benefit of Executive's experience and loyalty, and Executive is willing to provide Executive's services on the terms and conditions set forth herein;     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: 1.Definitions.     The following capitalized terms used in this Agreement shall be defined as follows:     "Agreement" shall mean this Agreement between the Company and Executive.     "Base Salary" shall mean the annual base salary payable to Executive pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base Salary divided by twelve (12).     "Board" shall mean the Board of Directors of First Team Sports, Inc.     "Cause" shall mean Executive's (1) gross misconduct, dishonesty or disloyalty; (2) willful and material breach of this Agreement by Executive; or (3) conviction or entry of a plea of guilty or nolo contendere to any felony or to any misdemeanor involving fraud, misrepresentation or theft.     A "Change of Control" shall be deemed to have occurred if (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power (with respect to the election of directors) of the Company's then outstanding securities; (2) at any time after the execution of this Agreement, individuals who as of the date of the execution of this Agreement constitute the Board (and any new director whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office) cease for any reason to constitute a majority of the Board; (3) the consummation of a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power (with respect to the election of directors) of the securities of the Company or of such surviving entity outstanding immediately after such merger or consolidation; or (4) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all of the Company's business or assets. –1– --------------------------------------------------------------------------------     "Change of Control Payments" shall mean any payment (including any benefit or transfer of property) in the nature of compensation, to or for the benefit of Executive under any arrangement, which is partially or entirely contingent on a Change of Control, or is deemed to be contingent on a Change of Control for purposes of Section 280G of the Code. As used in this definition, the term "arrangement" includes any agreement between Executive and the Company and any and all of the Company's salary, bonus, incentive, compensation or benefit plans, programs or arrangements, and shall include this Agreement.     "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.     A "Commencement Date" shall occur on (1) such date as the Company enters into negotiations leading toward an agreement in principle or definitive agreement pursuant to which a Change of Control thereafter occurs; or (2) the date on which a tender or exchange offer or proxy contest is commenced pursuant to which a Change of Control thereafter occurs.     "Company" shall mean First Team Sports, Inc., a Minnesota corporation, any subsidiaries thereof, and any successors or assigns, including any Successor.     "Company Product" means any product, product line or service (including any component thereof or research to develop information useful in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by the Company or with respect to which the Company has acquired Confidential Information which it intends to use, or uses, in the design, development, manufacture, marketing or sale of a product or service.     "Competitive Product" means any product, product line or service (including any component thereof or research to develop information in connection with a product or service) that is being designed, developed, manufactured, marketed or sold by anyone other than the Company and is of the same general type, performs similar functions, or is used for the same purposes as a Company Product.     "Confidential Information" means any information or compilation of information that Executive learns or develops during the course of Executive's employment that derives independent economic value from not being generally known, or readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use. It includes but is not limited to trade secrets, inventions, and discoveries, and may relate to such matters as research and development, manufacturing processes, management systems and techniques, and sales and marketing plans and information.     "Executive" shall mean Richard Jackson, a resident of Minnesota.     "Good Reason" shall mean (1) a substantial reduction in the nature or status of Executive's responsibilities hereunder; (2) a reduction by the Company in the Base Salary of Executive except to the extent permitted under Section 4(a) hereof; (3) the failure by the Company to allow Executive to participate to the full extent to which Executive is eligible in all plans, programs or benefits in accordance with Sections 4(b) to (e), inclusive, hereof; or (4) relocation of Executive's principal office more than 20 miles from its current location. Notwithstanding the foregoing, "Good Reason" shall be deemed to occur only if such event enumerated in (1) through (4) above has not been corrected by the Company within two weeks of receipt of notice from Executive of the occurrence of such event, which notice shall specifically describe such event.     "Incentive Stock Option Plans" shall mean any such plans within the meaning of Section 422 of the Code or any successor provision thereof.     "Inventions" means any inventions, discoveries, improvements, ideas, or works of authorship (whether patentable or not and including those which may be subject to copyright protection) –2– -------------------------------------------------------------------------------- generated, conceived, authored, or reduced to practice by Executive alone or in conjunction with others, during or after working hours, while an employee of the Company, and that:     (i)  are derived in whole or in part from, or use, incorporate, or represent any improvement to any Invention or trade secret of the Company; or     (ii) result from any work Executive performs for the Company; or     (iii)   use any of the Company's equipment, supplies, or facilities, or trade secret information; or     (iv) otherwise relate to the Company's products or the Company's present or possible future research or development.     "Permanently Disabled" shall mean permanently disabled in accordance with the Company's long-term disability plan in effect at the time of commencement of such permanent disability and as evaluated by sufficient documentation including doctors statements, etc. as requested by the Company.     "Person" shall mean an individual, partnership, corporation, estate or trust or other entity.     "Short-Term Plan" shall mean the annual Executive Bonus Plan of the Company in effect from time to time.     "Successor" shall be any entity acquiring substantially all of the assets of the Company or a corporation into which the Company is merged or with which it is consolidated.     "Term" shall mean the term of Executive's employment including any period of renewal, under Section 3 hereof.     "Transition Period" shall be that period of time commencing on the earlier of a Commencement Date or a Change of Control and continuing for 365 days following a Change of Control. 2.Employment and Duties.     (a) General. The Company hereby employs Executive as Vice President of Production and Product Development upon the terms and conditions set forth in this Agreement. Executive agrees to serve as Vice President of Production and Product Development and perform the duties and responsibilities normally vested in such a position, and those duties and responsibilities as may, from time to time, be assigned to Executive by the Board.     (b) Exclusive Services. Throughout the Term, Executive shall, except as may from time to time be otherwise agreed in writing by the Company and unless prevented by ill health, devote his full-time working hours to his duties hereunder.     (c) No Other Employment. Throughout the Term, Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (excluding volunteer services or outside Board activities with modest time commitments) without the consent of the Board or otherwise engage in activities which would interfere significantly with the performance of his duties hereunder.     3.  Term of Employment. The Company shall retain Executive and Executive shall serve in the employ of the Company for a minimum period of two (2) years commencing as of the date of this Agreement; provided, however, that either Executive or the Company may terminate the employment of Executive during the Term in accordance with, and subject to the right of Executive to receive payments and other benefits that may be due pursuant to, this Agreement. This Agreement will be subject to automatic renewals for successive additional two (2)-year periods, unless nonrenewed as provided in Section 9 of this Agreement or terminated as provided in Section 9 of this Agreement. –3– --------------------------------------------------------------------------------     4.  Compensation and Other Benefits. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to Executive during the Term as compensation for services rendered hereunder:     (a) Base Salary. The Company shall pay to Executive a Base Salary at the rate of $100,000 per annum, payable semi-monthly. The Company shall be entitled to deduct or withhold all taxes and charges which the Company may be required to deduct or withhold therefrom. The Base Salary will be reviewed not less than annually by the Board and may be increased, reduced, or left unchanged; provided, however, that any reduction shall be permitted only if the Company then reduces the base compensation of its executive employees generally and shall not exceed the average percentage reduction for all such executive employees.     (b) Incentive Compensation. At all times during the Term, unless prohibited by the Code or other applicable law, Executive shall be entitled to participate in all incentive compensation plans and programs of the Company, currently existing or subsequently adopted.     (c) Stock Options. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be entitled to participate in all stock option plans and programs of the Company currently existing or subsequently adopted, unless otherwise agreed to by Executive and the Board or unless such plan or program is specifically for the Company's non-executive employees.     (d) Executive Benefit Plans. At all times during the Term, Executive shall, unless prohibited by the Code or other applicable law, be eligible to participate in all pension and welfare plans and programs of the Company for executive employees, currently existing or subsequently adopted, including but not limited to the following:     (i)  all qualified pension plans (e.g., profit sharing and 401(k) plans);     (ii) all long-term disability and life insurance plans and programs;     (iii)   all group health insurance plans; and     (iv) all supplemental retirement plans and programs.     5.  Termination of Employment for Cause; Resignation Without Good Reason.     (a) Compensation and Benefits. If, prior to the expiration of the Term, Executive's employment is terminated by the Company for Cause or if Executive resigns from employment hereunder other than for Good Reason, then Executive shall not be eligible to receive any compensation or benefits, or to participate in any benefit plans or programs, under Section 4 hereof with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program, or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program.     (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 5 shall be one (1) month after receipt by Executive of written notice of termination. The date of resignation by Executive under this Section 5 shall be one (1) month after receipt by the Company of written notice of resignation.     6.  Termination of Employment Without Cause or Resignation for Good Reason Other Than During Change of Control.     (a) Compensation and Benefits. If, other than during a Transition Period, Executive's employment is terminated by the Company without Cause or Executive resigns from his employment hereunder for Good Reason, Executive shall be entitled only to receive the following –4– -------------------------------------------------------------------------------- from the Company promptly following the Effective Date of termination or cessation of employment with the Company:     (i)  The Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) the sum of the highest annual Base Salary in effect during the three-year period immediately preceding such termination plus the amount of incentive bonus earned by Executive during the prior fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.     (ii) With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.     (iii)   Executive shall be entitled to continued participation in the Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company.     (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 6 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 6 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.     7.  Termination of Employment Without Cause or Resignation With Good Reason After Change of Control.     (a) Compensation and Benefits. If, prior to the expiration of the Term and as of a date during a Transition Period, Executive's employment is terminated by the Company or its Successor without Cause or if Executive resigns from employment hereunder for Good Reason, Executive shall, subject to subsection (c) below, be entitled only to receive the following from the Company or its Successor promptly following the Effective Date of termination or cessation of employment with the Company:     (i)  Subject to paragraph (c) hereof, the Company shall make a cash payment to Executive equal to the greater of (A) the sum of the highest monthly Base Salary in effect any time during the three-year period immediately preceding such termination times the number of months remaining in the Term (without regard to renewals) under this Agreement, plus an amount equal to the incentive bonus earned by Executive in the prior fiscal year multiplied by the number of months remaining in the Term (without regard to renewals) divided by twelve (12), or (B) 2 times the sum of the highest annual Base Salary in effect any time during the three-year period immediately preceding such termination, and the amount of incentive –5– -------------------------------------------------------------------------------- bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.     (ii) Executive shall not be eligible to receive any compensation or benefits or to participate in any plans or programs with respect to future periods after the date of such termination or resignation except for the right to receive any vested benefits in accordance with the terms of such plan or program or to continue or convert at Executive's expense group insurance coverage as provided by law or the terms of such plan or program. With respect to any stock options, SARs, restricted stock awards or performance share awards granted to Executive and outstanding immediately prior to such termination or resignation, all restrictions (other than those imposed by law) on all shares of restricted stock awards shall lapse immediately, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to be met.     (b) Date of Termination. The date of termination of Executive's employment by the Company under this Section 7 shall be the date specified in the written notice of termination to Executive, or if no such date is specified therein, the date on which such notice is given to Executive. The date of resignation by Executive under this Section 7 shall be two weeks after receipt by the Company of written notice of resignation, provided that the Good Reason specified in such notice shall not have been corrected by the Company during such two-week period.     (c) Limitation on Change of Control Compensation. In the event that Executive is a "disqualified individual" within the meaning of Section 280G of the Code, the parties expressly agree that the payments described in this Section 7 or in Section 9 shall be considered together with all Change of Control Payments so that, with respect to Executive, all Change of Control Payments are collectively subject to an overall maximum limit. Such maximum limit shall be One Dollar ($1.00) less than the largest amount under which no portion of the Change of Control Payments is considered a "parachute payment" within the meaning of Section 280G of the Code. Accordingly, to the extent that the Change of Control Payments would be considered a "parachute payment" with respect to Executive, then the portions of such Change of Control payments shall be reduced or eliminated in the following order until the remaining Change of Control Payments with respect to Executive is one Dollar ($1.00) less than the maximum allowable which would not be considered a "parachute payment" under the Code:     (i)  First, any cash payment to Executive;     (ii) Second, any Change of Control Payments not described in this Agreement; and     (iii)  Third, any forgiveness of indebtedness of Executive to the Company. Executive expressly and irrevocably waives any and all rights to receive any Change of Control payments which would be considered a "parachute payment" under the Code.     8.  Termination of Employment by Disability or Death.     (a) Compensation and Benefits. If Executive becomes Permanently Disabled prior to the expiration of the Term, the Company shall be entitled to terminate Executive's employment subject to the Company's normal policies in such matters as applied to all other salaried employees. In the event of such termination of Executive's employment or termination of Executive's employment by –6– -------------------------------------------------------------------------------- reason of the death of Executive prior to the expiration of the Term, the Executive (or Executive's estate, as the case may be) shall be entitled to receive from the Company only the following:     (i)  In the event of termination after Executive has become Permanently Disabled, Executive shall be entitled to continued participation in hospital and medical plans and programs of the Company at Executive's own expense, as required by COBRA and in accordance with Company policy as it pertains to disabled salaried employees; that is for the period of said disability or until normal retirement age subject to rules and practice of the plan(s). Company may, in its discretion, provide the benefits described herein under the Company's group plans or under no less favorable insurance contracts or arrangements secured by the Company.     (ii) Executive (or, in the event of Executive's death, Executive's estate or Executive's designated beneficiary) shall be entitled to receive any vested benefits in accordance with the terms of any such benefit plans. Executive shall be entitled to continued contributions under the Company's qualified profit sharing and 401(k) plans to the extent permitted in said plans.     (b) Date of Termination. The date of termination of Executive's employment under this Section 8 shall be the date Executive becomes Permanently Disabled or the date of Executive's death as the case may be.     9.  Termination of Employment by Written Notice of Nonrenewal.     (a) Notice. This Agreement may be terminated with or without Cause upon delivery of written notice of nonrenewal by either party to the other between ninety (90) and sixty (60) days prior to the end of the Term or of any renewal period.     (b) Compensation and Benefits. If Executive's employment is not renewed under this Section 9, Executive shall be entitled only to the following severance benefits:     (i)  Unless the notice of nonrenewal is given during a Transition Period, the Company shall make a cash payment equal to the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of employment. Such payment shall be made in cash within fifteen (15) days from and after the end of Executive's employment term. If the notice of renewal is given during a Transition Period, then, subject to Section 7(c), the Company shall make a cash payment to Executive equal to two (2) times the sum of (A) the amount of the highest annual Base Salary in effect any time during the three-year period immediately preceding termination of Executive's employment and (B) the amount of incentive bonuses which, absent termination of Executive's employment, could have been earned by Executive during the fiscal year of the Company in which Executive's employment under this Agreement ceases. For purposes of Clause (B), the computation of the amount of incentive bonuses shall be based upon the bonus programs in effect at the time of termination of Executive's employment and such computation shall assume that target performance levels are satisfied for all purposes during such fiscal year. Such payment shall be made in cash within fifteen (15) days from and after termination of Executive's employment.     (ii) Executive shall be entitled to continued participation in Company's group health insurance plan as permitted by COBRA and the terms of such plan. Company shall, for a one-year period following termination of Executive's employment, continue to pay a portion of Executive's Company group health insurance premiums equivalent to that portion it pays on behalf of its employees during such one-year period, subject to Executive paying the employee portion of such premiums and subject to termination of participation upon Executive becoming entitled to group health insurance coverage on subsequent employment or upon Executive's electing not to continue coverage or termination of such plan by Company. –7– --------------------------------------------------------------------------------     (c) Date of Termination. The date of termination of Executive's employment by the Company under this Section 9 shall be the date on which the term of Executive's employment expires.     10.   Legal Fees and Expenses. The Company shall pay or reimburse Executive for all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided by this Agreement from or against the Company in a proceeding before a court of competent jurisdiction.     11.   Assignment of Inventions. Executive agrees to promptly disclose to the Company in writing all Inventions. All such Inventions shall be the exclusive property of the Company and are hereby assigned by Executive to the Company. Further, Executive will, at the Company's expense, give the Company all assistance it reasonably requires to perfect, protect, enforce, and use its rights to Inventions. In particular, but without limitation, Executive will sign all documents, do all things, and supply all information that the Company may deem necessary or desirable to:     (i)  transfer or record the transfer of Executive's entire right, title and interest in Inventions; and     (ii) enable the Company to obtain or enforce patent, copyright or trademark protection for Inventions anywhere in the world.     The obligations of this Section shall continue beyond the termination of employment with respect to Inventions conceived or made by Executive during the period of Executive's employment and shall be binding upon assigns, executors, administrators and other legal representatives. For purposes of this Agreement, any Invention relating to the business of the Company on which Executive files a patent application within six (6) months after termination of employment with the Company shall be presumed to cover Inventions conceived by Executive during the term of Executive's employment, subject to proof to the contrary by good faith, written and duly corroborated records establishing that such Invention was conceived and made following termination of employment.     NOTICE: Pursuant to Minnesota Statutes § 181.78, Executive is hereby notified that this Section 11 does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Executive's own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the Company.     12.   Confidential Information. Executive agrees not to directly or indirectly use or disclose Confidential Information for the benefit of anyone other than the Company, either during or after employment, for as long as the information retains the characteristics of Confidential Information described in Section 1 above.     13.   Return of Documents and Property. All documents and tangible items provided to Executive by the Company, or possessed, obtained, or created by Executive for use in connection with Executive's employment, are the property of the Company and shall be promptly returned to the Company on termination of employment together with all copies, recordings, abstracts, notes or reproductions of any kind made from or about the documents and tangible items or the information they contain.     14.   Noncompetition. In consideration of Executive's rights under this Agreement, including without limitation Sections 5 through 9 hereof, Executive agrees that, from and after the Effective Date and continuing until the one-year anniversary of termination or cessation of Executive's employment with the Company, Executive will not, alone or in any capacity with another person or entity:     (i)  directly or indirectly, own any interest in, control, be employed by or associated with, or render services to (including but not limited to services in research), any person, entity, or subsidiary, subdivision, division, or joint venture of such entity in connection with the design, –8– -------------------------------------------------------------------------------- development, manufacture, marketing, or sale of a Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function;     (ii) directly or indirectly, solicit any of the Company's present or future employees for the purpose of hiring them or inducing them to leave their employment with the Company;     (iii)   directly or indirectly, solicit, attempt to solicit, interfere, or attempt to interfere with the Company's relationship with its customers or potential customers, on behalf of Executive or any other person or entity engaged in the design, development, manufacture, marketing, or sale of a Competitive Product; or     (iv) directly or indirectly design, develop, manufacture, market, or sell any Competitive Product that is sold or intended for use or sale in any geographic area in which the Company actively markets a Company Product or intends to actively market a Company Product of the same general type or function.     15.   Breach of Noncompetition Provisions of this Agreement. In addition to any other relief or remedies afforded by law or in equity, if Executive breaches Section 14 of this Agreement, Executive agrees that the Company shall be entitled, as a matter of right, to injunctive relief in any court of competent jurisdiction plus its costs, including but not limited to its reasonable attorneys' fees for securing such relief. Executive recognizes and hereby admits that irreparable damage will result to the Company if Executive violates or threatens to violate the terms of Section 14 of this Agreement. This Section 15 shall not preclude the granting of any other appropriate relief including, without limitation, money damages against Executive for breach of Section 14 of this Agreement.     16.   Effect of Other Obligations. It is intended that the obligation of the parties to perform the terms of this Agreement is unconditional and does not depend on the performance or non-performance of any terms, duties or obligations not specifically recited in this Agreement.     17.   Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any Successor to or assigns of the Company, and Executive's heirs and the personal representative of Executive's estate.     18.   Severability. If a Court finds that any provision of this Agreement is not enforceable, Executive and the Company agree that the Court should modify the provision to make it enforceable to the maximum extent possible. If the provision cannot be modified, Executive and the Company agree that the provision may be severed, and the other provisions of this Agreement shall remain in full force and effect.     19.   Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.     20.   Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, interpreted and construed in accordance with the laws of the State of Minnesota.     21.   Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall be delivered or mailed to Executive at the address specified under Executive's signature hereto, or if addressed to the Company, the notice shall be delivered or mailed to the Company at its executive offices to the attention of the Board of Directors of the Company. A notice shall be deemed given, if –9– -------------------------------------------------------------------------------- by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt.     22.   Supersedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder.     23.   Headings; Construction. The headings of Sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted.     24.   Benefit. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.     IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be signed by its officer pursuant to the authority of its Board, and Executive has executed this Employment Agreement, as of the day and year first written above.     FIRST TEAM SPORTS, INC.     By:   -------------------------------------------------------------------------------- John J. Egart President         -------------------------------------------------------------------------------- Richard Jackson –10– -------------------------------------------------------------------------------- QuickLinks EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into July 12, 2000 to be effective as of March 1, 2000, between FIRST TEAM SPORTS, INC ., a Minnesota corporation (the "Company"), and Richard Jackson , a resident of Minnesota ("Executive"). W I T N E S S E T H

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10hh-2 BELLSOUTH CORPORATION STOCK PLAN RESTRICTED SHARES AWARD ESCROW AGREEMENT     This Escrow Agreement, effective October 26, 2000, by and among BellSouth Corporation (the "Corporation"), Ronald M. Dykes (the "Executive") and The Chase Manhattan Bank, as escrow agent (the "Escrow Agent"). WITNESSETH THAT:     WHEREAS, the Corporation has, pursuant to the BellSouth Corporation Stock Plan (the "Plan"), made an award of restricted shares of common stock of the Corporation to the Executive in recognition of the Executive's anticipated service to be rendered to the Corporation; and     WHEREAS, such shares are subject to certain restrictions under the Plan and the terms of the Restricted Shares Award Agreement between the Corporation and the Executive dated the date hereof (the "Award Agreement"); and     WHEREAS, in order to record the delivery of the certificates for such shares and to enforce such restrictions, the certificates are being deposited together with stock powers appropriately endorsed in blank with the Escrow Agent hereunder; and     WHEREAS, the Corporation and the Executive desire to execute this Escrow Agreement with the Escrow Agent in order to record the terms and conditions under which such certificates have been delivered to the Escrow Agent and under which the certificates will be delivered by the Escrow Agent to Executive or the Corporation;     NOW THEREFORE, the Corporation, the Executive and the Escrow Agent agree as follow:     1. Receipt by the Executive. The Executive acknowledges receipt from the Corporation of certificates for shares (the "Shares") of its common stock as follows: Certificate Number --------------------------------------------------------------------------------   Number of Shares -------------------------------------------------------------------------------- BLS   33,333 BLS   33,333 BLS   33,334     2. Investment Representation and Certificate Legend. The Executive, by the Executive's execution of this Agreement, certifies to the Corporation that (a) the Shares received by the Executive have been received for the Executive's own account, and the Executive has no present intention to sell or otherwise dispose of any of the Shares and (b) the Executive is aware that the transfer of the Shares is restricted as indicated on the legend on the certificates for the Shares.     3. Delivery to and Receipt by the Escrow Agent. The Executive hereby delivers to the Escrow Agent, and the Escrow Agent hereby acknowledges receipt from the Executive, of such certificates for the Shares, registered in the name of the Executive, in each case accompanied by stock powers executed in blank by the Executive covering all of the Shares.     4. Delivery by the Escrow Agent. Subject to the other terms of the Plan, the Award Agreement and this Escrow Agreement, the Executive shall become entitled to redelivery of the Shares in accordance with the following schedule: On or After This Date --------------------------------------------------------------------------------   The Executive shall be Entitled to the Following Number of Shares -------------------------------------------------------------------------------- October 1, 2003   33,333 October 1, 2004   33,333 October 1, 2005   33,334 1 --------------------------------------------------------------------------------     The Executive acknowledges and agrees that if the Executive forfeits any shares under the Award Agreement, then all such forfeited Shares shall be returned to the Corporation and all rights of the Executive with respect to those Shares shall cease.     The Escrow Agent shall deliver the certificates for the Shares to the Executive or to the Corporation in accordance with the written instructions of the Committee (as defined in the Plan) or an officer of the Corporation responsible for human resources matters (but in no event the Executive). Such instructions shall be issued in accordance with the provisions of the Plan, the Award Agreement and this Agreement. The Escrow Agent shall not be responsible for the propriety of any such instruction and will be fully protected in making or omitting to make any delivery in accordance with such instructions.     5. Distributions; Release; Voting. The Executive shall be entitled to receive all regular cash dividends paid upon and voting rights with respect to all of the Shares held hereunder from time to time. All shares of capital stock or other securities issued with respect to or in substitution of any of the Shares not yet vested and held hereunder from time to time, whether by the Corporation or by another issuer, any cash or other property received on account of a redemption of such Shares or with respect to such Shares upon the liquidation, sale or merger of the Corporation, and any other distributions with respect to such Shares with the exception of regular cash dividends, shall remain subject to all of the terms and conditions of this Escrow Agreement and shall be redelivered to the Executive or delivered to the Corporation under the same circumstances as the portion of the Shares with respect to, or in substitution for, which they were issued. Any such cash received shall be invested in the Escrow Agent's Money Management Account.     6. Reliance by the Escrow Agent. The Escrow Agent will be under no duties whatsoever, except such duties as are specifically set forth as such in this Escrow Agreement, and no implied covenant or obligation contrary to the terms of this Agreement will be read into this Escrow Agreement against the Escrow Agent. The Escrow Agent will be under no liability or obligation to anyone with respect to any failure on the part of the Corporation, the Committee or the Executive to perform any of their respective obligations under the Plan, the Award Agreement, or under the terms of this Agreement, or for any error or omission whatsoever on the part of the Committee, the Corporation or the Executive. The Escrow Agent shall have no liability for acting in reliance upon any instructions delivered to it and believed in good faith by it to be from the Committee or the Corporation with respect to matters for which they are responsible under the Plan and this Agreement. The Escrow Agent will be under no obligation to interpret Plan provisions, but may rely entirely upon the interpretation of the Plan by the Committee or an officer of the Corporation responsible for human resources (but in no event the Executive).     7. Resignation. The Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving notice in writing of such resignation to the Corporation 180 days in advance of the date when such resignation shall take effect. The Corporation shall have the right to appoint a new escrow agent hereunder.     8. Compensation. The Corporation hereby agrees to pay or reimburse the Escrow Agent upon request for all expenses, disbursements and advances, including reasonable attorneys' fees, incurred or made by it in connection with carrying out its duties hereunder.     9. Indemnification. The Corporation hereby agrees to indemnify the Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Escrow Agent, arising out of or in connection with its entering into this Agreement and carrying out its duties hereunder, including the costs and expenses of defending itself against any claim of liability.     10. Notices. All notices and communications hereunder shall be in writing and shall be deemed to be duly given if sent by registered mail, return receipt requested, as follows: The Chase Manhattan Bank Corporate Trust Department 450 West 33rd Street, 15th Floor New York, New York 10001 BellSouth Corporation 1155 Peachtree Street, N.E., Suite 1800 Atlanta, Georgia 30309-3610 2 --------------------------------------------------------------------------------     To the Executive at the address shown below or at such other address as any of the above may have furnished to the other parties in writing by registered mail, return receipt requested.     11. Binding Effect. This Escrow Agreement shall be binding upon and inure to the benefit of the Corporation, the Executive and the Escrow Agent and their respective heirs, representatives, successors and assigns. Ronald M. Dykes       Signature:   /s/ RONALD M. DYKES    --------------------------------------------------------------------------------   Mailing Address:   110 Green Fall Pointe Atlanta, GA 30350   Social Security No.:   ###-##-#### BellSouth Corporation       By:   /s/ RICHARD D. SIBBERNSEN    --------------------------------------------------------------------------------   Attest:   /s/ MARCY A. BASS    -------------------------------------------------------------------------------- The Chase Manhattan Bank       By:   /s/ BARRY A. SHAPIRO    --------------------------------------------------------------------------------   Attest:   /s/ OLIVA MELENDEZ    -------------------------------------------------------------------------------- 3 -------------------------------------------------------------------------------- QuickLinks BELLSOUTH CORPORATION STOCK PLAN RESTRICTED SHARES AWARD ESCROW AGREEMENT WITNESSETH THAT:

EXHIBIT 10. AMENDED AND RESTATED EMPLOYMENT AGREEMENT       THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Employment Agreement”) is made and entered into as of the _____ day of April, 2001 by and between Teledyne Technologies Incorporated, a Delaware corporation with its executive offices at 2049 Century Park East, 15th Floor, Los Angeles, California 90067-3101 (the “Company”), and Dr. Robert Mehrabian, an individual residing at 5388 Baseline Avenue, Santa Ynez, California 93460 (the “Executive”). RECITALS       WHEREAS, this Amended and Restated Employment Agreement is an amendment and restatement of an Employment Agreement entered into on December 21, 1999 between Teledyne Technologies Incorporated and the Executive and is intended to reflect the additional duties and responsibilities assumed by the Executive subsequent to December 21, 1999 as well as those changes in the Company’s compensation arrangements applicable to the Executive since that date; and       WHEREAS, the Company hired the Executive and the Executive agreed to serve as the Company’s President and Chief Executive Officer (“CEO”) and the Company has subsequently elect the Executive and the Executive has agreed to serve as its Chairman of the Board of Directors; and       WHEREAS, the Personnel and Compensation Committee of the Board of Directors (the “Committee”) authorized the Company to enter into and the Company and the Executive entered into a Change in Control Severance Agreement dated as of December 21, 1999 (the “CIC Agreement”); and       WHEREAS, the CIC Agreement provides for payment of severance benefits if the Executive’s employment is terminated under circumstances described in the CIC Agreement; and       WHEREAS, the Company wishes to supplement the CIC Agreement with respect to the Executive by specifying in the Employment Agreement and as hereby amended and restated the Executive’s titles and the types and rates of compensation to which he is entitled during his employment with the Company.       NOW, THEREFORE, in consideration of the respective covenants and agreements hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows:       1. Term of Agreement. This Employment Agreement, as amended and restated, shall be effective as of the date first above written and shall continue in effect until December 31, 2001, unless extended as described in the next sentence. Effective as of November 1, 2001 and, if previously extended, each November 1st thereafter, the term of this Employment Agreement shall be extended for one additional year unless one party shall give written notice to the other on or before October 31, 2001 or, if previously extended, the then next October 31st that the term -------------------------------------------------------------------------------- will not be thereafter extended. If such notice is given by either party, the Executive may retire on the first December 31st following receipt of such notice.       2. Employment Agreement to Supplement the CIC Agreement. This Employment Agreement, as amended and restated, shall supplement the CIC Agreement and the terms and conditions of this Employment Agreement are not intended to alter or vary the terms and conditions of the CIC Agreement. The intention of this Employment Agreement is to memorialize certain terms and conditions of the employment of the Executive, which are particular to him and not specified in the CIC Agreement. Except as specifically set forth herein, initially capitalized terms shall have the meaning ascribed thereto under the CIC Agreement which is incorporated herein and made a part hereof as if set forth at length.       3. Position and Duties. The Company shall employ Executive and the Executive shall serve as the Chairman, President and CEO of the Company and shall have primary responsibility to manage and direct the day-to-day business of the Company including the generation of income and control of expenses. Subject to the approval of the Board of Directors of the Company, the Executive may serve as a director of charitable organizations and/or for profit corporations, which do not compete with the Company or any of its subsidiaries and affiliates. The Company acknowledges that Executive serves as a director of Mellon Financial Corporation and PPG Industries, Inc. as of the date hereof and agrees that the Executive may continue to serve as a director of those corporations.       4. Compensation. The Executive shall receive the following items of compensation at the rates thereof set forth below.         a. Base Salary. During the Term, the Company shall pay Executive a base salary at the annualized rate of Five Hundred Thousand ($565,000) Dollars (“Base Salary”). Base Salary shall be paid periodically in accordance with normal Company payroll practices applicable to executive employees.         b. Participation in Compensation Plans and Programs. In accordance with the respective terms and conditions of the respective plans and programs, the Executive shall be entitled to participate in the following compensation plans and programs:         1. AIP. In the AIP at an annual opportunity at 80% of Base Salary if targets are reached at 100%, or such greater percentage if provided in the AIP for any year.     2. PSP. In the PSP at an opportunity equal to 150% of Base Salary if targets are reached at 100%, or such greater percentage if provided in the PSP for any measurement period.     3. Restricted Stock Award Program (RSAP). In the RSAP with annual grants of restricted stock equal to at least 30% of Base Salary as of the date of this grant subject to meeting targets set forth in the RSAP.     4. SARP. In the SARP at the level approved by the Committee. In the event Allegheny Technologies Incorporated alters to the benefit of participants the   - 2 -   --------------------------------------------------------------------------------           terms and conditions of its SARP, to the extent those alterations are not made applicable to the Executive by the terms of those alterations, the Company shall make arrangements so that the Executive is made whole for the benefits of such alterations.     5. Stock Option. In addition to the initial award of 300,000 stock options made as of November 29, 1999, eligibility to receive future grants of options in a number determined by the Personnel and Compensation Committee of the Board of Directors, each subject to the terms and conditions of the Stock Option Incentive Plan.       5. Employee Benefits. The Executive shall participate in each qualified, non-qualified and supplemental employee benefit, executive benefit, fringe benefit and perquisite plan, policy or arrangement of the Company applicable to executive level employees, including, but not limited to, expense reimbursement policies, a country club and city club membership, and use of an automobile, in each case, in accordance with the terms and conditions thereof (including tax equalization payments to the extent provided with respect to such plans by Allegheny Teledyne Incorporated on or prior to November 29, 1999) as in effect from time to time. Nothing in this Employment Agreement shall be construed as preventing the amendment or termination of any such plan, policy or arrangement by the Company (including those referred to in paragraph 4.b. hereof) so long as such amendment or termination affects all executive employees of the Company then participating.       6. Non-Qualified Pension Arrangement. In addition to the employee benefits described in Section 5, the Company will pay to the Executive (or his designee if amounts are payable after the death of the Executive) following his Retirement (as defined below), as payments supplemental to any accrued pension under the Company’s qualified pension plan, an annual amount, paid in equal monthly installments, equal to 50% of his Base Compensation at the rate in effect on the date of his Retirement. Such annual amount shall be paid each year for a number of years following his Retirement equal to the number of whole and fractional years of service, not in excess of ten (10), the Executive has rendered to the Company (including the period from August, 1997 through and including November, 1999 rendered as service to the Company’s predecessor, Allegheny Teledyne Incorporated). For purposes of Section 6 of this Employment Agreement and without effect upon whether the Executive is deemed to be retired under the CIC Agreement, the Executive will be deemed to have a Retirement upon his separation from service with the Company for any reason other than for Cause.       7. Binding Agreement. The Company will use its best efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company) to expressly assume and agree to perform this Employment Agreement and the CIC Agreement in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be deemed to be a termination without Cause for purposes of this Employment Agreement and the CIC Agreement. For purposes of implementing the foregoing, the date on which any such succession becomes effective shall be the Date of Termination.   - 3 -   --------------------------------------------------------------------------------       8. Notices. Any notice required or permitted under this Employment Agreement shall be given in writing and shall be deemed to have been effectively made or given if personally delivered at the address first above written or such other address as may be given by one party to the other.       9. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount payable under this Employment Agreement of any payroll and withholding taxes required by law, as determined by the Company in good faith.       10. Governing Law. This Employment Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of California without reference to rules relating to conflict of law.       11. Headings. The headings of sections are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Employment Agreement.       12. Counterparts. This Employment Agreement may be executed by either of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.       IN WITNESS WHEREOF, the parties have executed this Amended and Restated Employment Agreement as of the day and year first above written.         EXECUTIVE       By:  /s/ ROBERT MEHRABIAN --------------------------------------------------------------------------------     Robert Mehrabian       TELEDYNE TECHNOLOGIES INCORPORATED       By:  /s/ CHARLES J. QUEENAN, JR.     --------------------------------------------------------------------------------             Name:  Charles J. Queenan, Jr.     --------------------------------------------------------------------------------          Title:  Chairman, Personnel and Compensation Committee --------------------------------------------------------------------------------   - 4 -

EX-10 5 ex1019.htm Exhibit 10.19 CONSULTING AGREEMENT           THIS CONSULTING AGREEMENT ("Agreement") is entered into on this 6th day of January, 2000, by and between LabOne, Inc., a Missouri corporation (the "Company") and JAMES R. SEWARD, an individual (the "Consultant"); W I T N E S S E T H:           WHEREAS, Robert D. Thompson, Executive Vice President, Chief Operating Officer, Chief Financial Officer and a Director of the Company, announced his resignation on the date hereof;           WHEREAS, Consultant (i) currently is a Director of the Company, (ii) formerly served as Senior Vice President and Chief Financial Officer of the Company, (iii) has substantial knowledge and experience regarding the financial and business affairs of the Company (the "Business"), and (iv) has substantial and valuable contacts in the financial community relating to the Business of the Company;           WHEREAS, the Company wishes to retain Consultant and Consultant and is willing to serve the Company in accordance with the terms and conditions of this Consulting Agreement;           NOW, THEREFORE, the Company and Consultant hereby agree as follows:           1.    Engagement of Consultant. The Company hereby engages Consultant to consult and assist the Company in the Business, and Consultant hereby accepts such engagement from the Company, upon the terms and conditions herein set forth. The Company shall have no control over the methods used by Consultant in performing services hereunder. Consultant shall be treated for all federal and state income and employment tax and other purposes as an independent contractor and not as an employee of the Company. To the extent that Consultant shall be treated as an employee of the Company, and as a consequence the Company incurs additional tax or other costs and liabilities, Consultant shall reimburse the Company for the amount of such additional taxes and other costs and liabilities.           2.    Performance of Duties. During the Term (as hereinafter defined) of this Agreement, Consultant shall assist the Company in recruiting and securing for the Company a new Chief Financial Officer and Chief Operating Officer. During the Term of this Agreement, Consultant have the duties and perform the services generally performed by the Chief Financial Officer. Consultant shall also assist the Company in conducting investor relations and in performing the financial analysis by the Company of any pending business acquisitions during the Term of this Agreement. In the event a new Chief Financial Officer is secured by the Company during the Term of this Agreement, Consultant shall assist the new Chief Financial Officer in becoming familiar with the financial affairs of the Business during the remaining Term of this Agreement. Consultant shall perform his duties under this Agreement faithfully, diligently and competently to the best of his ability, and shall devote a reasonable part of his business time and attention to the affairs of the Company and its affiliates, as reasonably requested by the Company, at times mutually agreed upon. The amount of services to be provided by Consultant shall be consistent with Consultant's other activities and shall in no event exceed thirty (30) hours per week.            3.       Term. The term ("Term") of this Agreement shall commence on the date hereof and shall continue through April 5, 2000.            4.      Compensation. In consideration for Consultant's performance of services under this Agreement, the Company shall grant to Consultant a non-qualified stock option (the "Option") for 25,000 shares of the Company's common stock, at an option price of $6.125 per share, which Option shall become 100% vested on April 6, 2000, in accordance with the terms and conditions of the Stock Option Agreement attached hereto as Exhibit A and incorporated herein by reference.            5.       Reimbursement of Expenses. The Company shall promptly reimburse Consultant for reasonable expenses incurred by him in connection with the performance of his consulting services under this Agreement, subject to the receipt by the Company of acceptable substantiation of such expenses.            6.       Successors and Assigns. The rights and obligations of the parties under this Agreement shall inure to the benefit of and be enforceable by and binding upon them and their respective successors and assigns, except that Consultant shall not delegate his duties under this Agreement.            7.      Miscellaneous.                   (a) Entire Agreement. This Agreement constitutes the full and complete agreement between the parties with respect to the subject matter hereof and shall not be modified or amended except in a writing executed by each of them.                   (b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas.                   (c) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall constitute one and the same Agreement, and each of which shall be deemed an original.                   (d) Waiver. The provisions of this Agreement may be waived only in a writing signed by the party against whom such waiver is sought to be enforced. The failure of either party, at any time or times, to require performance of any provision hereof shall in no manner affect such party's right to enforce the same provision at a later time. No waiver by either party of any condition, or the breach of any term, agreement or covenant in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be construed as a further or continuing waiver of any such condition or breach or waiver of any other condition or breach of any other term, agreement or covenant of this Agreement.                   (e) Attorney's Fees. In any action at law or in equity between the parties to enforce any of the provisions or rights under this Agreement, the unsuccessful party shall pay to the successful party all of his, its or their, as the case may be, costs, expenses and reasonable attorney's fees incurred therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the day and year first above written.                                                                                "Company"                                                                                 LabOne, Inc.                                                                  By:          /s/ W. Thomas Grant II                                                                                W. Thomas Grant II,                                                                                Chairman, President and                                                                                Chief Executive Officer                                                                                "Consultant"                                                                                /s/ James R. Seward                                                                                 James R. Seward

QuickLinks -- Click here to rapidly navigate through this document SECOND AMENDMENT TO AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING AND STOCK OPTION AGREEMENT     Effective as of September 5, 2001     1.  General.  Reference is made to that certain Amended and Restated Memorandum of Understanding and Stock Option Agreement dated as of December 30, 1996 and the Amendment and Consent thereto effective as of November 9, 1998 (as amended, the "Stock Option"). Capitalized but undefined terms shall have the meanings provided in the Stock Option. Section 15 of the Stock Option provides that it may be amended at any time by the written agreement and consent of each of the Funds and by the members of Management holding not less than 66-2/3% of the unexercised Options and each of such persons is identified on the signature pages to this agreement. The sole purpose of this Second Amendment to Amended and Restated Memorandum of Understanding and Stock Option Agreement is to delete the restriction that the Options may only be exercised on two separate occasions.     2.  Amendment.  The final paragraph of Section 2 of the Stock Option is hereby restated in its entirety as follows: "Each such Option shall be exercisable upon the first to occur of (i) receipt of the approval, if any, required under the Stockholders Agreement (as defined) as contemplated by Section 10 or (ii) a Qualified Public Offering (as defined in the Stockholders Agreement) and shall be exercisable at any time and from time to time thereafter through and including 5:00 p.m., Los Angeles time, on December 30, 2001 (the "Expiration Date"); provided, however, that Options under this Agreement (i) may be only exercised by written notice of members of Management owning not less than 66-2/3% of the unexercised Options as identified on Exhibit A and (ii) must be exercised pro rata by each member of Management. Such Options shall be exercised by delivery of the relevant Exercise Price in cash and written notice of exercise to the Funds and the members of Management who did not initiate such exercise pursuant to the procedures provided in Section 14 (the "Exercise Notice"). The Exercise Notice shall also indicate the time and place of the closing of the exercise, which time and place shall be reasonably acceptable to the Funds. Such notice shall be irrevocable, except that closing may be conditioned upon the consummation of a related public offering or a sale of the Company, in which event such exercise shall be deemed not to be effective if such public offering or sale of the Company is not consummated. The express intention of the foregoing provisions is to require that each such exercise be pro rata among each member of Management and each Fund."     3.  Miscellaneous.  Except for the restatement of the final paragraph of Section 2 as provided herein, the Stock Option remains in full force and effect. The miscellaneous provisions contained in Section 16, 17, 19, 20 and 22 shall apply to this Second Amendment to Amended and Restated Memorandum of Understanding and Stock Option Agreement. (Signature Page Follows) --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have duly executed this Second Amendment to Amended and Restated Memorandum of Understanding and Stock Option Agreement as required by Section 15 of the Stock Option, effective as of the first date set forth above.     /s/ LARRY THOMAS    -------------------------------------------------------------------------------- Larry Thomas     /s/ MARTY ALBERTSON    -------------------------------------------------------------------------------- Marty Albertson     J.P. MORGAN PARTNERS (SBIC), LLC     /s/ DAVID L. FERGUSON    -------------------------------------------------------------------------------- By: David L. Ferguson Its: Managing Director     WELLS FARGO SMALL BUSINESS INVESTMENT COMPANY, INC.     /s/ STEVEN W. BURGE    -------------------------------------------------------------------------------- By: Steven W. Burge Its: Managing Director     WESTON PRESIDIO CAPITAL II, L.P.     By: WESTON PRESIDIO CAPITAL MANAGEMENT II, L.P. Its: General Partner     /s/ MICHAEL P. LAZARUS    -------------------------------------------------------------------------------- By: Michael P. Lazarus Its: General Partner S–1 -------------------------------------------------------------------------------- QuickLinks SECOND AMENDMENT TO AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING AND STOCK OPTION AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 LOAN AND SECURITY AGREEMENT (Full Recourse)     This Loan and Security Agreement ("Agreement") is entered into as of July 26, 2001 between PDS Gaming Corporation—Nevada a Nevada corporation ("Borrower"), having its principal place of business at 6171 McLeod Drive, Las Vegas, Nevada 89120, and Sun West Bank, a Nevada corporation ("Lender") having its principal place of business at 5830 W. Flamingo Road, Las Vegas, NV 89103. PRELIMINARY STATEMENT     Lender understands that Borrower is engaged in the sale or lease of various Eligible Equipment (this and all other capitalized terms are defined in Section 1.1 below), and that Borrower may from time to time offer to Lender the opportunity to finance leases, installment sale contracts and other chattel paper arising out of such business. This Agreement sets forth the terms and conditions which will be applicable to any leases, installment sale compacts and other chattel paper that Lender may finance under an ongoing term loan facility. ARTICLE I DEFINITIONS     1.1 Definitions. As used in this Agreement and in the other Loan Documents, unless otherwise expressly indicated herein or therein, the following terms shall have the following meanings (such definitions to be applicable both to the singular and plural terms defined):     Acquisition Cost: all costs and expenses incurred by an End-User (in the case of installment/conditional sales contracts) or by Borrower (in the case of any Leases with Borrower as lessor) in connection with the acquisition of any Eligible Equipment. Including, without limitation, sales or use taxes, freight or installation costs, and license fees, but excluding any deposits (including security deposits) or down/advance payments made by End-User, or manufacturer's discounts.     Advance: a loan which is part of the Facility.     Affiliate: any Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with another Person. The term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For the purposes hereof, any Person which owns or controls, directly or indirectly, 51% or more of the securities of another Person shall be deemed to "control" such Person.     Agreement or Loan and Security Agreement: this Loan and Security Agreement, as amended or supplemented at any time.     Amortization Schedule: a schedule approved by Lender for the repayment of each Advance.     Approved Contract Term: without the prior written approval of Lender, a period of time not less than 6 months and not more than 48 months.     Assignment: the assignment of Contracts, and any Lien applicable thereto in the form of Exhibit A executed by Borrower in favor of Lender.     Borrower Event of Default: any of the Events of Default described in Section 8.1.     Borrower Lien: a Lien on Collateral granted by an End-User to Borrower, which Lien has been assigned by Borrower to Lender pursuant to an Assignment. 1 --------------------------------------------------------------------------------     Borrower's Obligations: (i) all liabilities, obligations and covenants imposed upon Borrower pursuant to the terms of the Loan Documents, and (ii) all costs of litigation, collection, reasonable attorneys' fees and other costs expended or incurred in connection with the enforcement of Lender's rights hereunder and with respect to the Contracts and the Facility Equipment.     Business Day: any day other than (i) a Saturday (ii) Sunday or (iii) other day on which Lender is closed.     Casualty: an event in which any item of Facility Equipment or any portion thereof is lost, damaged (and such damage cannot reasonably be repaired by Borrower or an End-User of such Facility Equipment within 60 days), destroyed, stolen, confiscated, requisitioned or condemned regardless of cause.     Casualty Payments: all proceeds of the Collateral which arise out of any Casualty, including, without limitation, insurance claims, tort claims, or reimbursement payments with respect to claims for indemnity.     Certificate of Acceptance: a certificate of delivery and acceptance executed by an End-User pursuant to a Contract with respect to Facility Equipment, substantially in the form included in Schedule 1.     Closing: the execution by Borrower and Lender of the Loan Documents.     Closing Certificate: a certificate in the form of Exhibit C executed by a Responsible Officer on behalf of Borrower.     Closing Date: the date upon or as of which the Closing occurs.     Collateral: the Property described in Section 3.2.     Contract: (i) a lease of Eligible Equipment by and between Borrower, as lessor, and an End-User, as lessee, or (ii) a note and security agreement/conditional sale contract by and between Borrower, as secured party, and an End-User, as debtor.     Contract Event of Default: the Event of Default described in Section 8.3.1.     Contract Funding Request: a request for an Advance in the form of Exhibit D delivered by Borrower to Lender, with all attachments as specified therein.     Contract Payment Letter: a letter in the form of Exhibit E.     Contract Proceeds: funds received by Borrower with respect to any Facility or any Facility Equipment which is the subject of a Facility Contract.     Default Rate: an annual rate equal to 5.00% plus the Facility Rate, as applicable.     Default Rate Period: a period of time commencing on the date that the default first exists as identified by Lender in writing to Borrower, and ending on the date that the Borrower Event of Default is cured or waived.     Disbursement Date: any date on or after the Closing Date upon which the proceeds of any Advance are disbursed.     Eligible Contract: a Contract (i) as to which the applicable Facility Funding Amount will not exceed the sum of $250,000.00 nor be less than $25,000.00 without the prior written approval of Lender, and (ii) meets all of the requirements set forth in Section 5.9 and all subsections thereunder.     Eligible End-User: an End-User (i) which is not in bankruptcy or receivership or subject to a reorganization proceeding of any kind or insolvent, (ii) which is not in default or breach under any of the terms of the applicable Contract, and (iii) which, Borrower has reasonably determined, is a 2 -------------------------------------------------------------------------------- financially responsible and creditworthy commercial or institutional entity (other than a Governmental Body).     Eligible Equipment: gaming or other equipment (i) which is new or used, (ii) which is in good condition, repair and working order, (iii) which is insured in the manner provided in the applicable Contract, (iv) (A) which is owned by Borrower free and clear of all Liens except a Lender Lien, or (B) in which the End-User thereof has granted Borrower a security interest free and clear of all Liens except Permitted Liens, (v) which is located within the State of Nevada, (vi) which is subject to an Eligible Contract, and (vii) which is not subject to a software licensing agreement for its re-marketing.     End-User: the end-user under a Contract.     Equipment: equipment which has been approved by Lender, free and clear of all liens and encumbrances, together with all substitutions and replacements for such equipment and all accessories, attachments, parts, upgrades, features and peripheral equipment now or hereafter attached to or used in connection therewith.     Estimated Residual: as reflected on the Amortization Schedule to each Promissory Note, Borrower's estimated value, as of the end of the related primary Contract term, of Facility Equipment.     Event of Default: any Borrower Event of Default or Contract Event of Default.     Evidence of Insurance: either (i) an original certificate of insurance. (ii) documentation sufficient to establish coverage under a previously approved policy of Borrower, or (iii) if approved in writing by Lender, evidence of self-insurance by an End-User under a Facility Contract.     Facility: the Advances to be made by Lender to Borrower pursuant to Article II and Section 4.2.     Facility Contract: an Eligible Contract which is subject to an Advance, along with all applicable related documentation.     Facility Equipment: any Eligible Equipment which is the subject of a Facility Contract.     Facility Funding Amount: with respect to each Facility Contract which is proposed to be made the subject of an Advance, the lesser of: (i)100% of the Acquisition Cost for each item of Facility Equipment, or (ii)the present value of the remaining payments, including the Estimated Residual, calculated using the implicit rate of the Eligible Contract.     Facility Note: a full recourse promissory note in the form of Exhibit F executed by Borrower in favor of Lender in conjunction with each Advance.     Facility Rate: with respect to each Advance interest shall accrue at a floating rate equal to Lender's announced Base Rate plus 1.25% (Lender's Base Rate as of the date of this Agreement is 6.75%); provided, however, that the Facility Rate shall never be less than 8.25% per annum.     GAAP: generally accepted accounting principles as in effect from time to time, which shall include the official interpretations thereof by the Financial Accounting Standards Board, consistently applied.     Gaming Authorities: the governmental agencies and/or commissions having jurisdiction over Borrower in the various states in which Borrower does business.     Gaming Laws: the statutes and regulations relating to gaming and the operation of Gaming Device Goods promulgated by the various states and Gaming Authorities in which Borrower does business.     Gaming Device Goods: Equipment consisting of electronic and mechanical gaming devices with integral attachments. 3 --------------------------------------------------------------------------------     Good Funds: United States dollars available to Lender in Federal funds at or before 2:00 p.m. Las Vegas time on a Business Day.     Governmental Body: any foreign, federal, state, municipal or other government or any department, commission, board, bureau, agency, public authority or instrumentality thereof or any court or arbitrator.     Guaranty: the continuing guaranty to be executed and delivered by PDS Financial Corporation, substantially in the form of Exhibit J, as amended, supplemented or otherwise modified from time to time.     Incipient Default: any event or condition which, with the giving of notice or the lapse of time, or both, would become an Event of Default.     Lease: any lease agreement or master lease agreement pertaining to Eligible Equipment between Borrower, as lessor and another Person, as lessee.     Lender Lien: the Lien on the Collateral granted by Borrower to Lender pursuant to Article III of this Agreement.     Lien: any mortgage, deed of trust, hypothecation, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing), any conditional sale or other title retention agreement or any lease in the nature of any of the foregoing.     Loan Documents: this Agreement, the Notes, the Guaranty, the Assignments, the Contract Funding Requests, the Closing Certificate, UCC financing statements, and all other documents, Instruments, and certificates executed by Borrower pursuant to this Agreement.     Loan Repayment Amount: with respect to an Advance at any time, the aggregate unpaid principal of, and accrued interest (including any interest accrued at the Default Rate) computed in accordance with the Simple Interest Method on such Advance. "Simple Interest Method" as used herein is defined as the annual interest rate for an Advance computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.     Notes: the Facility Note executed in conjunction with each Advance.     Permitted Liens: any of the following Liens: (i) the Lender Lien; (ii) any Borrower Lien; (iii) any Liens expressly subordinate to (i) and/or (ii) above; and (iv) Liens for taxes or assessments and similar charges, which either are (A) not delinquent or (B) being contested diligently and in good faith by appropriate proceedings, and as to which Borrower has set aside adequate reserves on its books.     Person: any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization association, corporation, institution, entity, party or Governmental Body.     Property: all types of real, personal, or mixed property and all types of tangible or intangible property.     Residuals: all proceeds (net of refurbishment costs, if any) derived from the Equipment as a result of (i) extended or renewal Contract payments, (ii) exercised purchase options, and/or (iii) sale or lease of the Equipment to third parties.     Responsible Officer: any of the Chairman, President, Treasurer, Secretary or Vice President of Borrower.     UCC: the Nevada Uniform Commercial Code, NRS 104.1101 et seq.     1.2 Time Periods. In this Agreement and the other Loan Documents, in the computation of periods of time from a specified date to a later specified date (i) the word "from" means "from and 4 -------------------------------------------------------------------------------- including," (ii) the words "to" and "until" each mean "to, but excluding" and (iii) the words "through," "end of" and "expiration" each mean "through and including." All references in this Agreement and the other Loan Documents to "month," "quarter" or "year" shall be deemed to refer to a calendar month, quarter or year.     1.3 Accounting. Unless otherwise specified in this Agreement, all accounting terms used herein shall be construed, all accounting determinations hereunder shall be made, and all financial statements required to be delivered pursuant hereto shall be prepared in accordance with GAAP.     1.4 References. All references in this Agreement to an "Article," "Section," "subsection," "subparagraph," "clause," "Schedule" or "Exhibit," unless otherwise indicated, shall be deemed to refer to an Article, Section, subsection, subparagraph, clause, Schedule or Exhibit, as applicable, of or to this Agreement.     1.5 Lender's Discretion. Whenever the terms "satisfactory to," "determined by," "acceptable to," "shall elect," "shall request," or similar terms are used in this Agreement or any of the other Loan Documents to apply to Lender, except as otherwise specifically provided herein or therein, such terms shall mean satisfactory to, at the election of, determined by, acceptable to, or requested by, Lender, in its sole, but reasonable, discretion.     1.6 Statements as to Knowledge. Any statements, representations or warranties which are based upon the best knowledge of Borrower shall be deemed to have been made after due inquiry with respect to the matter in question. ARTICLE II FACILITY AND PAYMENT/PREPAYMENT TERMS     2.1 The Revolving Term Facility. The Facility is one or more full recourse Advances made by Lender from time to time to fund Eligible Contracts, subject to the provisions of Article II and Section 4.2. Notwithstanding anything contained herein to the contrary, the maximum amount outstanding at any one time shall not exceed One Million Dollars ($1,000,000.00). Notwithstanding anything contained herein to the contrary, the Facility, and Lender's obligation to make additional or future Advances shall terminate on a date one (1) year from the date of this Agreement, unless previously terminated in accordance with Paragraph 2.2 below.     2.2 Voluntary Termination of Facility. Upon not less than thirty (30) days' prior written notice, either party may notify the other of its intention, for any reason or no reason, not to seek/provide any further financing hereunder; provided, however, that notwithstanding the foregoing, all of Borrower's Obligations shall survive any expiration or termination of this Agreement and/or the termination of any Facility Contract.     2.3 Interest Rate, Computation. Each Advance shall be indicated by a Facility Note, which shall bear interest at the Facility Rate noted thereon, which shall be computed on the basis of a year consisting of 360 days and charged for the actual number of days during the period for which interest is being charged.     2.4 Servicing and Payments. Borrower, at its sole cost and expense, shall be responsible for the billing and collecting of the payments due under any Contract(s). Borrower shall pay to Lender the amounts due under the related Facility Contracts by the 10th of the following month, whether or not such amounts have been remitted by the respective End-Users. All payments made pursuant to this subsection 2.4 shall be applied first, to accrued and unpaid interest then due Lender calculated at the Facility Rate through the last date of such immediately preceding month; second, to principal due Lender on the applicable Advances until paid in full;, and third, to any accrued and unpaid fees and expenses then owed by Borrower to Lender.. In the event Borrower fails to perform the foregoing 5 -------------------------------------------------------------------------------- billing and collecting duties in a manner satisfactory to Lender in its sole discretion, Lender may terminate Borrower's authorization under this subparagraph.     2.5 Loan, Documentation and Attorney Fees. Upon the execution of this Agreement, Borrower shall pay to Lender a Loan fee of $5,000.00, a documentation fee of $250.00, and all reasonable fees and expenses incurred by Lender's legal counsel in connection with this transaction not to exceed $2,500. In addition, Borrower shall pay to Lender a documentation, processing and UCC Filing/Release fee of $135.00 for each Advance, which fee is due and payable at the time of funding such Advance.     2.6 Prepayment.     2.6.1 Voluntary Prepayment. Voluntary prepayment by Borrower of any Advances shall be permitted without penalty upon ten (10) days prior written notice to Lender.     2.6.2 Mandatory Prepayment.     2.6.2.1 Termination of Contract. If an End-User voluntarily terminates or fails to perform under a Facility Contract before its scheduled expiration, Borrower shall prepay the associated Advance within ten (10) Business Days of such termination or failure.     2.6.2.2 Casualty. If any Equipment subject to an Advance is lost or damaged, and cannot be repaired or replaced with substantially similar Equipment by the first due date occurring not less than sixty (60) days after such loss or damage, Borrower shall prepay the associated Advance within ten (10) Business Days thereafter.     2.6.2.3 Early Termination without End-User Buyout. If a Facility Contract is voluntarily terminated by an End-User prior to the scheduled expiration, without the exercise of a purchase option, Borrower shall prepay the associated Advance within thirty (30) days of such event.     2.6.2.4 Upgrades and Additions. Borrower may agree with an End-User under a Facility Contract that the Equipment subject to such Contract shall be upgraded or that additional Eligible Equipment should be added, resulting in a new Facility Contract or replacement Facility Contract. If Borrower and such End-User amend such Facility Contract to increase the payments payable thereunder in consideration of such upgrade or addition, Borrower shall prepay the obligations relating to the Facility Contract. Borrower may request that Lender finance the amended Contract as a new Facility Contract, subject to the terms outlined herein.     2.7 Late Charges; Default Rate. If any payment of principal or interest to be made by Borrower to Lender under the Facility becomes past due for a period of 10 days, Borrower shall pay to Lender on demand a late charge of five percent (5%) of the amount of such overdue payment. In addition, during a Default Rate Period, Borrower's Obligations pertaining to the Facility shall bear interest at the Default Rate.     2.8 Payment after Borrower Event of Default. Upon the occurrence and during the continuation of a Borrower Event of Default, all Contract Proceeds pertaining to Facility Contracts and/or Facility Equipment shall be applied by Lender in such manner as Lender shall determine.     2.9 Maximum Interest. Notwithstanding any provision to the contrary herein contained, Lender shall not collect a rate of interest on any obligation or liability due and owing by Borrower to Lender in excess of the maximum contract rate of interest permitted by applicable law. Lender and Borrower have agreed that all laws including the interest rate laws of the State of Nevada shall govern the relationship between them, but in the event of a final adjudication to the contrary, Borrower shall be obligated to pay to Lender such interest as then shall be permitted by the applicable laws of the State of Nevada. All interest found in excess of that rate of interest allowed and collected by Lender shall be 6 -------------------------------------------------------------------------------- applied to the Advances in such manner as to prevent the payment and collection of interest in excess of the rate permitted by applicable Nevada law.     2.10 Method of Payment; Good Funds. All payments which are to be made by Borrower to Lender pursuant to the Loan Documents shall be made by wire transfer to Sun West Bank, ABA #122402010, and reference the applicable note number as designated by Lender. Payment shall not be deemed to be received until Lender is in receipt of Good Funds. ARTICLE III NOTES: SECURITY INTEREST     3.1 Notes. Borrower's Obligations described in clause (i) of the definition of such term shall be evidenced by the Notes.     3.2 Grant of Security Interest. As security for the payment and performance of Borrower's Obligations, Borrower hereby grants to Lender, subject to all mandatory provisions of law, including without limitation, the Gaming Laws, a Lien in the following described collateral (the "Collateral"), such Lien to be superior and prior to all other Liens other than Permitted Liens:     (a) Facility Equipment. All of Borrower's right, title and interest (including any residual interest) in and to the Facility Equipment, whatever its condition, insured status, lien status, location, or relationship to an Eligible Contract.     (b) The Contracts. All chattel paper and Contracts pertaining to any Facility Equipment, including, without limitation, all of Borrower's right, title and interest in, to and under each Facility Contract relating to each item of Facility Equipment and the right to receive all payments thereunder.     (c) Books and Records. All of the books and records of Borrower pertaining to the Property described in subparagraphs (a) and (b) above.     (d) Proceeds. All attachments, additions, accessions, upgrades, accessories and replacements pertaining to the items described in subparagraphs (a) through (c) above, as applicable, including all cash and non-cash proceeds (including Casualty Payments and other insurance proceeds) pertaining thereto.     Lender shall not be required to look to the Collateral for the payment of Borrower's Obligations, but may proceed against Borrower in such manner as Lender deems desirable. All of the Collateral assigned to Lender hereunder shall secure the payment and performance of all of Borrower's Obligations, and whether now existing or in the future, and wherever located; provided, however, that upon the payment and performance in full of all of Borrower's Obligations with respect to a Facility Contract, the Loan Documents applicable to such Facility Contract and such Facility Equipment shall automatically terminate. Lender shall execute and deliver to Borrower such UCC termination statements and other instruments as may be necessary to release the applicable Lender Lien(s) in the related Collateral, and shall return all items of chattel paper to Borrower with respect thereto. ARTICLE IV CONDITIONS OF CLOSING; ADVANCES     4.1 Conditions of Closing. The Closing shall not take place unless all of the conditions set forth in this Section 4.1 have been satisfied in a manner, form and substance satisfactory to Lender:     4.1.1 Representations and Warranties. On the Closing Date, the representations and warranties of Borrower set forth in the Loan Documents shall be true and correct in all material respects. 7 --------------------------------------------------------------------------------     4.1.2 Delivery. The following shall have been delivered to Lender, each duly authorized and executed:     (a) the Agreement with all Exhibits and Schedules, the Guaranty; and the Closing Certificate;     (b) a certificate of the Secretary or an Assistant Secretary of Borrower in the form of Exhibit G, with all attachments noted therein;     (c) a certified copy of the forms of Contract used by Borrower, to be attached to the Agreement as Schedule 1;     (d) such additional instruments, documents, certificates, consents, financing statements, waivers and opinions as Lender reasonably may request.     4.1.3 Security Interests. All UCC financing statements, including UCC-l(s) naming Borrower as debtor and Lender as secured party to be filed where applicable, using the collateral description substantially in the form attached hereto as Exhibit B, shall have been filed and confirmation thereof received by Lender.     4.1.4 Opinion of Counsel. Lender shall have received from a legal counsel satisfactory to both Borrower and Lender, an opinion dated the Closing Date, addressed to Lender in the form of Exhibit H.     4.1.5 Performance; No Default. Borrower shall have performed and complied with all agreements and conditions contained in the Loan Documents to be performed by or complied with prior to or at the Closing Date.     4.1.6 Approval of Loan Documents and Security Interests. The approval and/or consent shall have been obtained from all Governmental Bodies and all other Persons whose approval or consent is necessary or required to enable Borrower to (i) enter into and perform its obligations under the Loan Documents, (ii) grant to Lender the Lender Lien and (iii) consummate the Advances.     4.1.7 Material Adverse Change. Since the issuance of Borrower's most recent fiscal year-end financial statements, no event shall have occurred which has a material adverse effect on (i) the financial condition, Property, business, operations, ownership, structure, prospects or profits of Borrower, (ii) the ability of Borrower to perform its obligations under the Loan Documents, or (iii) the Collateral.     4.2 Procedures for and Conditions to Advances     4.2.1 DISCRETIONARY BORROWING/LENDING. NOTWITHSTANDING THE OTHER PROVISIONS OF THIS AGREEMENT, ADVANCES SHALL BE MADE ONLY WHEN BOTH (I) BORROWER, IN ITS SOLE DISCRETION, DESIRES TO BORROW MONEY FROM LENDER AND (II) LENDER, IN ITS SOLE DISCRETION, DESIRES TO LOAN MONEY TO BORROWER; IT BEING AGREED THAT THIS AGREEMENT SHALL NOT BE CONSTRUED AS IMPOSING ANY DUTY ON BORROWER TO BORROW FROM LENDER NOR ANY DUTY ON LENDER TO LOAN TO BORROWER. IN CONSTRUING THE PURPOSE AND INTENT OF THIS AGREEMENT, THIS SECTION 4.2.1 SHALL TAKE PRECEDENCE OVER ALL OTHER PROVISIONS.     4.2.2 Procedure for Advance(s). Subject to the satisfaction of the terms and conditions set forth in this Section 4.2, on or after the Closing Date, Borrower may request Lender to disburse the proceeds of any Advance as set forth by Borrower in the related Contract Funding Request. The Contract Funding Request shall specify: (A) the date such Advance is to be made, which shall be a Business Day not less than 5 Business Days after the delivery to Lender of such Contract 8 -------------------------------------------------------------------------------- Funding Request, and (B) the amount of Advance, which shall not exceed the applicable Facility Funding Amount. Lender shall not be obligated to consider making any Advance (i) if an Incipient Default or Event of Default exists or will occur if the requested Advance is made or (ii) with respect to any Contact which Lender determines is not an Eligible Contract or for an End-User which Lender determines is not an Eligible End-User.     4.2.3 Conditions of Advances. Lender shall not be obligated to consider making any Advance(s) on or after the Closing Date unless all of the conditions set forth in this Section 4.2 have been satisfied in a manner, form and substance satisfactory to Lender, including the following:     4.2.3.1 Representations and Warranties. On the date of such Advance, the representations and warranties of Borrower set forth in the Loan Documents shall be true and correct in all material respects.     4.2.3.2 Delivery of Documents. In addition to the documents previously delivered to Lender pursuant to Section 4.1, the following shall have been delivered to Lender, each duly authorized and executed:     (a) the Contract Funding Requests for the Advances to be made, with all attachments noted therein:     (b) such additional instruments, documents, certificates, consents, financing statements, waivers and opinions as Lender reasonably may request, including any opinions of outside counsel required under Section 4.1.4 not previously received by Lender.     4.2.3.3 Security Interests. All UCC financing statements, including, but not limited to:     (a) in the case of Facility Contracts under which Borrower is the owner of the Equipment, UCC-l(s) naming Borrower as debtor, and Lender as secured party, to be filed with the Secretary of State's office where the Equipment is located and with the Secretary of State in which Borrower maintains its principal place of business.     (b) UCC-l(s) naming End-User as debtor or lessee, and Borrower as secured party or lessor, to be filed in the state(s) where the Equipment is located.     (c) In the event that Lender has not been named as assignee on the UCC-l(s) referred to in subsection 4.2.3.3(b), UCC- 2(s), as required, naming Lender as assignee shall be filed in the jurisdiction(s) where the UCC-1(s) referred to in subsection 4.2.3.3(b) are filed, and     (d) all other filings and actions necessary to perfect and maintain the Lender Lien as a valid and perfected Lien in the Collateral shall have been flied and confirmation thereof received by Lender. 9 -------------------------------------------------------------------------------- ARTICLE V REPRESENTATIONS AND WARRANTIES     Borrower hereby represents and warrants to Lender as follows:     5.1 Organization, Power, Authority, etc. Borrower (i) is duly organized, validly existing and in good standing under the laws of the State of Nevada, (ii) is qualified to do business in every jurisdiction in which the character of the Property owned or leased by it or the business conducted by it makes such qualification necessary and the failure to so qualify would permanently preclude Borrower from enforcing its rights with respect to any Facility Contract or Facility Equipment or would expose Borrower to any material loss or liability, (iii) has the power and authority to carry on its business, (iv) has the power and authority to execute and perform this Agreement and the other Loan Documents, and (v) has duly authorized the execution, delivery and performance of this Agreement and the other Loan Documents.     5.2 Validity, etc., of Loan Documents. This Agreement and the other Loan Documents constitute the legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles (whether or not any action to enforce such document is brought at law or in equity). The execution, delivery and performance of the Loan Documents by Borrower (i) has not violated and will not violate any provision of law, any order of any Governmental Body, or the Certificate of Incorporation or Bylaws of Borrower (or the equivalent of the foregoing if Borrower is not a corporation), or any indenture, agreement or other instrument to which Borrower is a party, (ii) is not in conflict with, will not result in a breach of or, with the giving of notice, or the passage of time, or both, will not constitute a default under any such indenture, agreement or other instrument, and (iii) will not result in the creation or imposition of any Lien of any nature whatsoever upon any of the Property of Borrower, for Permitted Liens.     5.3 Other Agreements. Borrower is not a party to any agreement or instrument materially adversely affecting its present or proposed business, properties, or assets, and Borrower is not in default in the performance, observance or fulfillment of any material obligation, covenant or condition set forth in any agreement or instrument to which it is a party, which default would have a material adverse effect on the ability of Borrower to consummate any of the transactions contemplated by the Loan Documents or to perform any of its obligations under any of the Loan Documents.     5.4 Principal Place of Business. The principal place of business of Borrower and its chief executive office are at 6171 McLeod Drive, Las Vegas, Nevada 89120. Borrower has not done business under any name other than PDS Financial Corporation—Nevada.     5.5 Priority. The Lender Lien is subject to no prior Liens other than Permitted Liens, and all Borrower Liens have been or will be assigned to Lender pursuant to an Assignment.     5.6 Financial Statements. Borrower has delivered to Lender the financial statements described on Schedule 2. Such financial statements present fairly the financial condition and results of operations of Borrower as of the dates and for the periods indicated therein. All of the foregoing financial statements, except as otherwise indicated therein, have been prepared in accordance with GAAP.     5.7 Litigation. Except as set forth in Schedule 3, there are no actions, suits, arbitrations, proceedings or claims (whether or not purportedly on behalf of Borrower) pending or to the best knowledge of Borrower, threatened, against Borrower or maintained by Borrower, at law or in equity or before any Governmental Body which, if adversely determined, would have a material adverse effect on the ability of Borrower to consummate any of the transactions contemplated by the Loan Documents or perform any of its obligations under any of the Loan Documents. 10 --------------------------------------------------------------------------------     5.8 Necessary Property. Borrower has all necessary rights in its Property (including all patents or trademarks) which are necessary to conduct the business of Borrower as now conducted.     5.9 Validity and Enforceability of Contracts. At the time a Contract is assigned to Lender (and thereupon becomes a Facility Contract) and, unless expressly limited to that point in time, at all future times with respect to each of the Facility Contracts, all rights assigned as part of the Facility Contracts, including without limitation all Facility Equipment covered thereby:     (i)  Any material modifications of a Contract from the form approved by Lender, as attached to this Agreement as part of Schedule 1, are identified in the related Contract Funding Request; all Contracts have been originated by Borrower as either lessor or secured party; all Contracts arise from a bona fide non-cancelable contract for Eligible Equipment with an Eligible End-User for an Approved Contract Term; and all Equipment described in the Contracts is in all respects in accord with the requirements of the Contracts and has been delivered to and unqualifiedly accepted by the End-User thereunder; unless specifically agreed to by Lender in writing, none of the Equipment, after delivery and acceptance by the End-User, is a fixture under the applicable laws of any state where such Equipment is or may be located nor is located outside the United States;     (ii) All Contracts and related Equipment comply with all applicable laws and regulations, including, without limitation, interest/usury, truth-in-lending and disclosure laws; all Contracts are genuine, valid, binding and enforceable in accordance with their terms, accurately describe the related Equipment and the Payments due under the Contracts, and are in all respects what they purport to be; all Contracts, the related Equipment and all proceeds thereof are not subject to any lien, claim or security interest except the interest of the End-User, which shall be assigned to Lender contemporaneously herewith, and Permitted Liens; and all Contracts, and related rights, agreements, documents and instruments are assignable to Lender without consent of any person, including without limitation, any End-User or any Governmental Body or agency and no such assignment will delegate, create or impose any duty, obligation or liability on Lender;     (iii) At the time of Borrower's assignment of the Contracts, subject to compliance with all mandatory provisions of law, including without limitation, the Gaming Laws, Borrower has (A) good title to all of the Contracts, including the right to receive the payments due thereunder, (B) either good title to or a first, prior and perfected lien in all related Equipment; (B) all legal power, right and authority to sell the Contracts and grant the security interest described herein to Lender; (C) not sold, transferred, encumbered, assigned or pledged any part of the Contracts or related Equipment to any other Person; and (D) paid in full all vendors of the Equipment subject to the Contracts, or will agree to have Lender pay such vendors with the proceeds of the applicable Advance;     (iv) All counterparts of all Contracts have been clearly marked to indicate that only one thereof is the "Original" and assignable, and such "Original" shall be delivered to Lender at the time of Borrower's assignment of the Contract;     (v) Except for any master leases, ACH forms, or Secretary Certificates copies of which have been provided to Lender, Borrower has provided Lender with an original of all material agreements entered into in connection with the Contracts, and the Equipment related to the Contracts; the Contract constitutes the entire agreement and there are no oral representations, warranties or agreements related thereto; the Contracts employ substantially standard pricing and documentation (including, without limitation, provisions concerning payment terms, assignment maintenance, termination, renewal insurance and stipulated loss provisions); the Contracts contain no purchase option to or for the End-User which has not been disclosed in writing to Lender; 11 --------------------------------------------------------------------------------     (vi) Each party to each Contract has all the legal capacity, power and right required for it to enter into such Contract and any supplemental agreements, and to perform its obligations thereunder; all such actions have received all corporate or governmental authorization required by any applicable charter, by-law constitution, law, rule or regulation;     (vii) None of the following existed at the time of Borrower's assignment to Lender of the Contracts: (i) any payment owing with respect to any Contract is past due more than ten (10) days, (ii) any End-User is otherwise in default under a Contract or (iii) any End-User has canceled or terminated or given notice of or attempted to cancel or terminate any Contract;     (viii) There exist no setoffs, abatements, recoupments, claims, counterclaims or defenses on the part of any End-User under the Contracts to any claims against or obligations of any End-User thereunder, nor do the Contracts by their terms give rise to any such right of setoff, abatement, recoupment, claims, counterclaims or defenses against Borrower or assignee of Borrower;     (ix) Borrower has not done anything that might impair the value of the Contracts or any Equipment covered by the Contracts;     (x) All sales, gross receipts, property or other taxes, assessments, fines, fees and other liabilities relating to the Contracts, the related Equipment, or the proceeds thereof have been paid when due and all filings in respect of any such taxes, assessments, fines, fees and other liabilities have been timely made;     (xi) Borrower is not in default which has continued beyond any applicable grace periods or cure rights of any of its obligations under the Contracts, including without limitation, any obligation to repair, maintain or replace any Equipment or to provide service as provided in the Contracts;     (xii) The Contracts have not been altered, modified, changed or amended except as such alterations, modifications, changes or amendments are set forth in writing and provided to Lender prior to Borrower's assignment of the Contracts; nor will Borrower agree to any alterations, modifications, changes or amendments after Borrower's assignment without Lender's prior written consent;     (xiii) At the time of Borrower's assignment of the Contracts, no amounts have been prepaid on the Contracts except advance payments which are required by the express written terms of the Contracts;     (xiv) Borrower has not withheld any information or material facts in connection with any Contracts or Equipment which would make any information furnished to Lender misleading and Borrower has no knowledge of any Contract Event of Default or of any fact which may impair the validity, value or enforceability of any Contract or Equipment;     (xv) To the best of Borrower's knowledge, all information provided to Lender by Borrower with respect to any End-User is true and correct in all material respects;     (xvi) All Equipment covered by the Contract (A) is in good condition and repair and suitable for the purposes for which it is intended; (B) is covered by comprehensive physical damage insurance for the full insurable value thereof, unless otherwise mutually agreed to by Borrower and Lender, and, if applicable, general public liability coverage. Borrower, its assigns and/or collateral assigns, specifically including Lender, have been named as "Loss Payee" and, if applicable, as "Additional Insured" on any policies procured by the End-User. Said insurance is in full force and effect, and has not lapsed or been cancelled by the End-User or the respective insurers;     (xvii) The Contract will not be canceled or terminated or attempted to be canceled or terminated prior to the full term indicated for such Contract; 12 --------------------------------------------------------------------------------     (xviii) Borrower has not breached any representation, warranty or guarantee under the Contract or any agreement document or instrument related thereto;     (xix) Upon recording financing statements with respect to the Contracts and the related Equipment and Lender's possession of the original chattel paper with respect thereto, Lender's security interest therein shall be perfected and shall have priority over all other liens, claims, rights of other persons and security interests with respect thereto; and     (xx) Borrower has not filed any UCC-1 or other document in the public records against any End-User or End-User guarantor concerning any proposed Facility Contract or Equipment except those which have been disclosed and either assigned or subordinated to Lender's interest in the Facility Contracts and the related Equipment and Proceeds, and there are no other UCC-1's or other public record filings concerning any part of any Facility Contracts or Equipment whether executed by or in favor of Borrower. ARTICLE VI AFFIRMATIVE COVENANTS     Borrower covenants and agrees with Lender as follows:     6.1 Payment of Borrower's Obligations. Borrower shall pay and perform all of Borrower's Obligations as and when the same become due, payable and/or performable, as applicable.     6.2 Preservation of Existence. Borrower shall maintain its existence and rights in full force and effect to the extent necessary to perform its obligations under the Loan Documents.     6.3 Legal Requirements. Borrower (i) promptly and faithfully shall comply with, conform to and obey all applicable present and future laws, ordinances, rules, regulations and other requirements that could materially adversely affect the conduct of its operations, including, but not limited to, maintain its gaming licenses in the States where it is currently operating its business, and (ii) shall use or cause the portion of the Collateral consisting of Facility Equipment to be used in a manner and for the use contemplated by the manufacturer thereof, and in material compliance with all laws, rules and regulations of every Governmental Body having jurisdiction over such Facility Equipment.     6.4 Financial Covenants, Statements and Other Reports.     6.4.1 Financial Statements and Other Reports. Borrower shall maintain full and complete books of account and other records reflecting the results of Borrower's operations, all in accordance with GAAP, and shall furnish or cause to be furnished to Lender the following:     (a) within 30 days after the end of each month: (i) a delinquency report in the form attached hereto as Exhibit I, (ii) a report setting forth leasing, remarketing activities and insurance settlements with respect to Facility Equipment, and (iii) a report identifying the Facility Contracts which terminated during the previous thirty (30) days. All reports shall be certified by a Responsible Officer.     (b) Within 90 days after Borrower's fiscal year end, an audited financial statement;     (c) Within 30 days of each quarter, Borrower's updated financial statement.     6.4.2 Financial Covenants. Borrower shall maintain the same measures of financial performance and condition as detailed for other lenders with whom Borrower has a committed lending arrangement in an aggregate amount in excess of $1,000,000 (the "Financial Performance and Conditions"). Borrower acknowledges and agrees that any default in the covenants set forth in any agreement executed by Borrower in connection with a committed lending arrangement with any other lender shall constitute a Borrower Event of Default hereunder, entitling Lender to avail 13 -------------------------------------------------------------------------------- itself of any and all remedies set forth in this Agreement, and any other documents or instruments executed in connection herewith.     6.5 Removal of Facility Equipment. Promptly after a Responsible Officer learns that any Facility Equipment has been moved by a End-User from one location to another, Borrower will inform Lender or will cause such End-User to inform Lender of such move and will execute such additional financing statements as Lender reasonably may request.     6.6 Damage to Equipment. Promptly after a Responsible Officer learns that any Facility Equipment is damaged, and if such Facility' Equipment can be repaired in accordance with the terms of the applicable Facility Contract so as to restore the same to good and working order, Borrower shall cause such repairs to be made in accordance with the terms of such Facility Contract.     6.7 Books and Records; Inspections.     6.7.1 Books and Records. Borrower shall keep and maintain, or cause to be kept and maintained, complete and accurate books and records and make all necessary entries therein to reflect the transactions contemplated hereby and all payments, credits, adjustments and calculations relative thereto.     6.7.2 Inspections/Audits. Upon reasonable prior notice, Lender shall have full and complete access to the books and records of Borrower pertaining to the Collateral. In addition, from time to time, but not more often than twice each year (and upon the occurrence and during the continuation of a Borrower Event of Default as often as Lender in its sole discretion deems necessary in order to monitor the business activities of Borrower), representatives of Lender shall have the right to conduct an audit of the books and records of Borrower. Borrower shall pay to Lender on demand the actual, reasonable, out-of-pocket travel expenses incurred by Lender for any employee of Lender who may conduct or assist in conducting any such audit.     6.8 Maintenance. Borrower, pursuant to the applicable Facility Contracts shall cause all Facility Equipment to be maintained and serviced so as to keep such Facility Equipment in good operating condition, ordinary wear and tear from normal use excepted.     6.9 Notice of Defaults; Change in Business and Adverse Events. Borrower, immediately after any Responsible Officer becomes aware thereof, shall give Lender written notice of the occurrence of (i) any Event of Default or any Incipient Default, accompanied by a statement of such Responsible Officer setting forth what action Borrower proposes to take in respect thereof, (ii) any change in the (A) executive officers or key employees of Borrower, or (B) location of the chief place of business of Borrower or any sale or purchase outside the regular course of business of Borrower, (iii) any event which may have a material adverse effect on the (A) enforceability of the Lender Lien or (B) ability of Borrower to perform any of its obligations under any of the Loan Documents, (iv) any material default in payment or performance by Borrower or any End-User under any Facility Contract or (v) any material damage to or irreparable malfunction of any Facility Equipment.     6.10  Insurance/Maintenance. All Facility Equipment shall be covered by comprehensive physical damage insurance for the full insurable value thereof unless otherwise mutually agreed to by Borrower and Lender, and general public liability, coverage, and Borrower and/or its assigns, including collateral assigns, shall be named and continue to be named as "Loss Payee" and "Additional Insured" as its interests may appear. Said insurance shall continue to be in full force and effect, and shall not lapse or be cancelled by the End-Users. Borrower, pursuant to the applicable Facility Contract, will cause the End-User under each Facility Contract to maintain all Facility Equipment in accordance with the terms of all insurance policies which are or may be in effect with respect thereto so as not to alter or impair any of the benefits or coverage to which Borrower or the applicable End-User is entitled under any such insurance policies. 14 --------------------------------------------------------------------------------     6.11  Taxes. Borrower shall pay or, pursuant to each Contract, shall cause the End-User thereunder to pay promptly when due all taxes, levies, and governmental charges upon or relating to Facility Equipment for which Borrower or the applicable End-User is or may be liable.     6.12  Contracts. With respect to each of the Contracts, Borrower shall: (i) perform all acts necessary to preserve the validity and enforceability of each such Contract; (ii) take all actions reasonably necessary to assist Lender in collecting when due all amounts owing to Borrower with respect to each such Contract; (iii) at all times keep accurate and complete records of performance by Borrower and the End-User under each such Contract; and (iv) upon request of Lender verify with the End-User under each Facility Contract the payments due to Borrower under such Facility Contract except that (A) prior to the occurrence of a Borrower Event of Default or Incipient Default such requests shall not occur any more frequently than once each year and (B) after the occurrence and during the continuation of an Incipient Default or a Borrower Event of Default such requests may occur as often as Lender shall require. ARTICLE VII NEGATIVE COVENANTS     Until Borrower's Obligations are paid and performed in full, Borrower shall not:     7.1 Liens. Create or incur or suffer to exist any Lien on the Collateral other than Permitted Liens.     7.2 Borrowing. Create, incur, assume or suffer to exist any indebtedness which is secured by Liens on the Collateral other than the Advances or Permitted Liens.     7.3 Modifications of Facility Contracts. Without the prior, written consent of Lender; amend, supplement, modify, compromise or waive any of the terms of any Facility Contract if the effect of such amendment, supplement, modification, compromise or waiver is to (A) reduce or waive the amount of any payment thereunder, (B) extend the term thereof or (C) waive any provisions thereof with respect to taxes, insurance or maintenance.     7.4 Maintenance of Perfected Lender Lien. Change the location of its chief executive office or principal place of business, except if Borrower has (i) given Lender at least 30 days prior written notice thereof and (ii) caused to be filed all UCC financing statements which in the opinion of Lender are necessary or advisable to maintain the perfection of the applicable Lender Lien.     7.5 Merger and Acquisition. Without the prior, written consent of Lender, which consent will not be unreasonably withheld or delayed, consolidate with or merge into any Person, or acquire all or substantially all of the stock or Property of any Person, which would have a material adverse effect on Borrower's ability to repay this loan as determined by Lender.     7.7 Sale or Transfer of Assets. Sell, lease, assign, exchange, transfer or otherwise dispose of any Property except (i) dispositions of Property (other than Equipment), which is not necessary to the continued operation of the business of Borrower, (ii) disposition of the real estate now owned or hereafter acquired by Borrower, provided no Incipient Default or Event of Default is in existence or will occur as a result of the consummation of any such sale, (iii) the leasing of real property, (iv) dispositions of Property in the ordinary course of Borrowers business, or (v) disposition of any obsolete or unusable Property, provided that if such Property is necessary to the continued operation of the business of Borrower, such Property promptly is replaced with Property of like function and value to such Property when the same was not obsolete or unusable, as applicable, which would have a material adverse effect on Borrower's ability to repay this loan as determined by Lender.     7.8 Delinquency Covenant. Allow Facility Contract Total Delinquency to be greater than twelve percent (12%) of the Aggregate Portfolio Outstandings, i.e. at the end of any calendar month, the total 15 -------------------------------------------------------------------------------- outstanding balances to Borrower of all Facility Contracts that have outstanding payments 30 days or more past due, divided by the total outstanding balances on all Facility Contracts.     7.9 Transactions with Affiliates. Except for (i) transactions in the normal course of business, which transactions comply with the provisions of clauses (y) and (z) of this Section 7.9, and (ii) purchases of Equipment from PDS Gaming Corporation, which purchases shall comply with the provisions of clauses (y) and (z) of this Section 7.9, Borrower shall not sell, lease, assign, transfer or otherwise dispose of any Property to any Affiliate or lease Property, render or receive services or purchase assets from any Affiliate, except with the prior written consent of Lender, which consent shall not unreasonably be withheld or delayed, and except that Borrower may enter into any such transaction with any such Affiliate in the ordinary course of business if (y) the monetary or business consideration arising therefrom would be substantially as advantageous to Borrower as the monetary or business consideration which could be obtained by Borrower in a comparable arm's-length transaction with a Person which is not an Affiliate and (z) no other provision of this Agreement would be violated as a result thereof. ARTICLE VIII BORROWER AND CONTRACT EVENTS OF DEFAULT—DEFINITIONS AND REMEDIES     8.1 Borrower Events of Default—Definition. The occurrence of any of the following shall constitute a Borrower Event of Default hereunder:     (a) Default in Payment. (i) If Borrower shall fail to remit to Lender when due any payment that Borrower is required to make hereunder when and as the same shall become due and payable, and such failure shall continue for a period of 10 days after such payment becomes due; and (ii) if at any time during the term of a Facility Note the scheduled payment amount due from the End-User under the respective Contract is less than the payment amount due from the Borrower under the Facility Note.     (b) Breach of Representation or Warranty. If any representation made by Borrower to Lender in any Loan Document or in any report, certificate, opinion, financial statement (other than those financial statements provided by and pertaining to any End-User) or other document or statement furnished pursuant thereto shall be false or misleading in any material respect when made, or any warranty given by Borrower shall be breached by Borrower, unless (i) the fact, circumstance or condition is made true within ten (10) Business Days after notice thereof is given to Borrower by Lender, and (ii) in Lender's judgment, such cure removes any adverse effect on Lender.     (c) Breach of Covenant. If Borrower shall fail to duly observe or perform any covenant condition or agreement set forth in Articles VI or VII of the Agreement on its part to be performed or observed for ten (10) Business Days after a Responsible Officer has knowledge thereof.     (d) Bankruptcy, Receivership, Insolvency, etc.     (i)  If Borrower or Guarantor shall (A) apply for or consent to the appointment of a receiver, trustee or liquidator for it or any of its Property, (B) be unable to pay its debts as they mature, (C) make a general assignment for the benefit of creditors, (D) be adjudicated a bankrupt or insolvent or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt dissolution or liquidation law or statute, or file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or if action shall be taken by Borrower or Guarantor for the purpose of effecting any of the foregoing, or 16 --------------------------------------------------------------------------------     (ii) If any Governmental Body of competent jurisdiction shall enter an order appointing, without consent of Borrower or Guarantor, a custodian, receiver, trustee or other officer with similar powers with respect to Borrower or Guarantor, or with respect to any substantial part of the Property belonging to Borrower or Guarantor, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of' Borrower or Guarantor, or if any petition for any such relief shall be filed against Borrower or Guarantor, and such petition shall not be dismissed within 45 days.     (e) Non-Payment of Other Indebtedness. Default by Borrower or Guarantor (other than in payment of Borrower's Obligations) in the (i) payment when due (subject to any applicable grace period or cure period), whether by acceleration or otherwise, of any indebtedness, where the amount thereof is in excess of $500,000 or (ii) performance or observance of any obligation or condition with respect to any indebtedness of Borrower or Guarantor, where the amount of such indebtedness is in excess of $500,000 (other than in payment of Borrower's Obligations) if the effect of such default is to accelerate the maturity of any such indebtedness or to permit the holder thereof to cause such indebtedness to become due and payable prior to its expressed maturity.     (f)  Other Material Obligations. Default in the payment when due, or in the performance or observance of any material obligation of, or condition agreed to by, Borrower or Guarantor with respect to any purchase or lease of goods or services, where (i) the amount with respect to any such purchase or lease of goods or services is in excess of $500,000 and (ii) any grace period or cure period with respect to any such payment performance or observance has lapsed (except such default in payment performance or observance shall not be deemed to constitute a default hereunder if the existence of any such default is being contested by Borrower or Guarantor in good faith and by appropriate proceedings diligently pursued).     (g) Guaranty/Guarantor. If a Default or an Event of Default shall occur under the Guaranty.     In any such event in addition to Lender's other remedies under this Agreement, Lender may, by notice to Borrower, Immediately cease making further Advances.     8.2 Borrower Events of Default—Remedies. If a Borrower Event of Default shall have occurred, and has not been cured by Borrower (or by Lender, at its option) within an applicable cure period, or a Material Adverse Change occurs of the type set forth in Section 4.1.7 (i) or (ii), then Lender shall have the right to do any or all of the following:     (a) If Lender has not already done so pursuant to Section 2.4, complete and deliver to the End-Users the Contract Payment Letters to commence direct billing and collection with respect to the Facility Contracts, and deduct from such receipts and remittances a fee equal to five percent (5%) of the aggregate monthly receipts ("Administration Fee") from the payment on the Facility Contracts as compensation for the additional administrative burden;     (b) (i) exercise of any of Borrower's rights under any of the Facility Contracts, or (ii) by written notice, require Borrower to exercise on behalf of Lender as secured party under this Agreement any and all of the rights available to Borrower under any Facility Contract to the extent not already exercised by Borrower, whereupon Borrower shall immediately take all requested action;     (c) proceed against Borrower and/or Guarantor for all rights and remedies Lender may have in law or in equity under the Loan Documents;     (d) declare the entire amount of Borrower's Obligations and Administration Fee due and payable immediately, and exercise in respect of the Facility Equipment all the rights and remedies 17 -------------------------------------------------------------------------------- of a secured party upon default under the UCC, including, at any reasonable time, to enter Borrower's premises and take physical possession of any master leases to which the related Facility Contracts pertain.     Provided the End User is not in default under a Facility Contract, Lender shall not take any action or exercise any right that would disturb any End-User's full and quiet enjoyment of all of such End-User's rights under that Facility Contract. Lender will give Borrower reasonable notice of the time and place of any public sale of any Collateral or of the time after which any public or private sale of such Collateral or any other intended disposition thereof is to be made. Unless otherwise provided by law, the requirement of reasonable notice shall be met if such notice is delivered at least ten (10) days before, or mailed, postage prepaid, to Borrower, at least twenty (20) days before the time of such sale or disposition.     All actual costs and expenses incurred by Lender in connection with the enforcement and/or exercise of any of its rights or remedies (including, without limitation, reasonable attorneys fees) hereunder shall (i) be payable by Borrower to Lender immediately upon demand, (ii) constitute a portion of Borrower's Obligations and (iii) be secured by the Lender Lien.     8.3 Contract Events of Default.     8.3.1 Definition. The occurrence of a default by any End-User pursuant to the terms of a Facility Contract which default entitles Borrower to accelerate or terminate such Facility Contract or to repossess the related Facility Equipment shall constitute a Contract Event of Default.     8.3.2 Acceleration. Upon the occurrence of a Contract Event of Default, Borrower, at any time (unless such Contract Event of Default shall have been cured), at its option, by notice to End-User, may terminate such Facility Contract and accelerate all payments due thereunder.     8.3.3 Contract Event of Default—Remedies. Upon the occurrence of a Contract Event of Default, Borrower shall, if known to Borrower, immediately deliver to Lender written notice thereof which notice shall identify the Facility Contract which is in default and the applicable Advance, and describe the nature of such default and the actions Borrower proposes to undertake with respect to such default. If any payment(s) under a Facility Contract becomes 120 calendar days past due, whether or not such payment(s) have been cured by Borrower, then Borrower shall prepay in full the unpaid portion of the Advance pertaining to such Facility Contract.     Lender, with respect to the Facility Equipment subject to such Facility Contract, shall have and may exercise against Borrower all the rights and remedies of a secured party under the Nevada UCC and/or the UCC applicable to the location of the related Facility Equipment, and any other applicable laws, subject to all mandatory provisions of law, including without limitation, the Gaming Laws. Lender will give Borrower reasonable notice of the time and place of any public sale of any Collateral or of the time after which any public or private sale of such Collateral or any other intended disposition thereof is to be made. Furthermore:     (i)  Lender only shall be entitled to exercise the rights and remedies set forth in this Section 8.3.3 with respect to the Facility Contract, the End-User and the Facility Equipment which are the subject of such Contract Event of Default, unless a Borrower Event of Default also exists with respect to said Facility Contract.     (ii) upon payment and performance in full of all of Borrower's Obligations pertaining to the Facility Contract which is the subject of such Contract Event of Default, both (A) the Contract Event of Default with respect to such Facility Contract, and (B) any related Borrower Event of Default shall be deemed to be cured.     8.4 Power of Attorney. In order to permit Lender to exercise the rights and remedies set forth herein, Borrower hereby irrevocably appoints Lender as its attorney-in-fact and agent with full power of 18 -------------------------------------------------------------------------------- substitution, in the name of Lender or in the name of Borrower, to perform any of the following acts upon the occurrence of a Borrower Event of Default, subject to all mandatory provisions of law, including without limitation, the Gaming Laws: (i) receive, open and examine all mail addressed to Borrower and retain any such mail relating to the Collateral and return to Borrower only that mail which is not so related; (ii) endorse the name of Borrower on any checks or other instruments or evidences of payment or other documents, drafts, or instruments arising in connection with or pertaining to the Collateral, to the extent that any such items come into the possession of Lender; (iii) compromise, prosecute or defend any action, claim, or proceeding concerning the Collateral; (iv) perform any and all acts which Borrower is obligated to perform under the Loan Documents; (v) exercise such rights as Borrower might exercise with respect to the Collateral, including, without limitation, the leasing or other utilization thereof and the collection of any such rents or other payments applicable thereto; (vi) give notice of the existence of the Lender's Lien, including, without limitation, notification to End-Users and/or other account debtors of the existence of such Lender's Lien with respect to the rents and other payments due to Borrower relative to the Collateral; or (vii) execute in Borrower's name and file any notices, financing statements and other documents or instruments Lender determines are necessary or required to carry out fully the intent and purpose of the Loan Documents or to perfect the Lender Lien. Borrower hereby ratifies and approves all that Lender shall do or cause to be done by virtue of the power of attorney granted herein and agrees that neither Lender nor any of Lenders employees, agents, officers, or its attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law made while acting in good faith pursuant to the provisions of this subparagraph, unless such act, omission, error of judgment or mistake of fact or law is determined by a court of competent jurisdiction in a decision which no longer is subject to appeal to be the result of the gross negligence or the willful or wanton misconduct of Lender or any such employees, agents, officers or attorneys of Lender. The appointment of Lender as Borrower's attorney-in-fact is a power coupled with an interest, and therefore shall remain irrevocable until all of Borrower's Obligations have been paid and performed in full.     8.5 Expenses. All actual costs and reasonable expenses incurred by Lender in connection with the enforcement and/or exercise of any of its rights or remedies (including, without limitation, reasonable attorneys fees) hereunder shall (i) be payable by Borrower to Lender immediately upon demand, (ii) constitute a portion of Borrower's Obligations and (iii) be secured by the Lender Lien.     8.6 Application of Funds. Any funds received by Lender pursuant to the exercise of any rights accorded to Lender pursuant to or by the operation of any of the terms of any of the Loan Documents shall be applied by Lender in the following order of priority:     (i)  Expenses. First to the payment of all (A) actual fees and expenses, including, without limitation, court costs, fees of appraisers, title charges, costs of maintaining and preserving the Collateral, costs of sale, reasonable attorneys' fees, and all other costs incurred by Lender in exercising any rights accorded to Lender pursuant to the Loan Documents or by applicable law;     (ii) Borrower's Obligations. Next, to the payment of Borrower's Obligations, in such order as Lender may determine; and     (iii) Surplus. Any surplus, to the Person or Persons legally entitled thereto. ARTICLE IX MISCELLANEOUS     9.1 Rights, Remedies and Powers. Each and every right, remedy and power granted to Lender hereunder shall be cumulative and in addition to any other right, remedy or power not specifically granted herein or now or hereafter existing in equity, at law, by virtue of statute or otherwise and may be exercised by Lender from time to time concurrently or independently as open and in such order as 19 -------------------------------------------------------------------------------- Lender may deem expedient. Any failure or delay on the part of Lender in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect Lender's right thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power. Acceptance of payments in arrears shall not waive or affect any right to accelerate Borrower's Obligations.     9.2 Modifications. Waivers and Consents. Any modification or waiver of any provision of this Agreement, or any consent to any departure by Borrower therefrom, shall not be effective in any event unless the same is in writing and signed by Lender, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on Borrower in any event not specifically required of Lender hereunder shall not entitle Borrower to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.     9.3 Communications. All notices, consents, approvals and other communications under the Loan Documents shall be in writing and shall be (i) delivered in person, (ii) sent by telephonic facsimile ("FAX") or (iii) mailed, postage prepaid, either by (A) registered or certified mail, return receipt requested, or (B) overnight express carrier, addressed in each case as follows: To Lender:   Sun West Bank Attention: Carla Jewell, Vice President 5830 West Flamingo P.O. Box 81710 Las Vegas, NV 89180-1710 FAX No.: (702) 949-2288 To Borrower:   PDS Gaming Corporation—Nevada Attention: Peter Cleary, President 6171 McLeod Drive Las Vegas, Nevada 89120 FAX No.: (702) 736-0700 or to such other address, as to either of the parties hereto, as such party shall designate in a written notice to the other party, hereto. All notices sent pursuant to the terms of this Section 9.3 shall be deemed received (i) if sent by FAX during regular business hours on the day sent if a Business Day, or if such day is not a Business Day (or a Business Day after regular business hours), then on the next Business Day, (ii) if sent by overnight, express carrier, on the next Business Day immediately following the day sent, or (iii) if sent by registered or certified mail, on the fifth Business Day following the day sent.     9.4 Severability. If any provision of this Agreement is prohibited by, or is unlawful or unenforceable under, any applicable law of any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof; provided, however, that where the provisions of any such applicable law may be waived, they hereby are waived by Borrower to the full extent permitted by law so that this Agreement shall be deemed to be an agreement which is valid and binding in accordance with its terms.     9.5 Survival. The warranties, representations, covenants and agreements set forth herein shall survive the making of the Advances and the execution and delivery of the Loan Documents and shall continue in full force and effect until Borrower's Obligations have been paid and performed in full.     9.6 Attorneys' Fees and Other Expenses. Borrower agrees to pay to Lender on demand any actual out-of-pocket costs or expenses, together with reasonable attorneys' fees, incurred by Lender in 20 -------------------------------------------------------------------------------- connection with the enforcement or collection against Borrower of any provision of any of the Loan Documents, whether or not suit is instituted, including, but not limited to, such actual costs or expenses arising from the enforcement or collection against Borrower of any provision of any of the Loan Documents in any state or Federal bankruptcy or reorganization proceeding.     9.7 Indemnity. Borrower agrees to indemnity and save Lender and its successors, assigns, agents and servants harmless of and from any claims, actions, suits, losses, costs, liabilities, damages or expenses including actual expenses and reasonable attorneys' fees) incurred by Lender in connection with the transactions contemplated by this Agreement, including without limitation: (i) any loss, cost, liability, damage or expense (including actual expenses and reasonable attorneys' fees) incurred in connection with the Facility Contracts; (ii) the delivery, ownership, alteration, operation, maintenance, return or other disposition of the Collateral; (iii) from any documentation deficiencies or changes to the basic format of the Facility Contract; (iv) from the existence of any party having an interest, lien or claim in the Facility Contract(s), and/or the Facility Equipment covered thereby, and/or the proceeds thereof which interest, lien or claim is prior to the interest therein assigned to Lender hereby; (v) the construction of Lender and Borrower as having the relationship of joint venturers or partners, or (vi) the determination that Lender or Borrower has acted as agent for the other Borrower's obligations with respect to the indemnity set forth in this Section 9.7 shall survive repayment of all amounts due pursuant to the Loan Documents, the cancellation of the Notes and the release and/or cancellation of any and all of the Loan Documents, Lender agrees to promptly notify Borrower of any matters in respect of which this indemnity may apply. If notified in writing of any action or claim brought or threatened against Lender based on a claim for which Borrower is to provide indemnity and given full authority, information, and assistance for the defense of same by Lender, Borrower shall, without limitation, defend those actions or claims at its expense and pay the costs and damages and attorneys' fees awarded in any such action or arising from any such claim, provided that Borrower shall have the right to control the defense and settlement of all such actions and claims Lender will take all such actions (at the expense of Borrower) as may be reasonably requested by Borrower to assist Borrower in connection with such defense or settlement.     9.8 Binding Effect. This Agreement shall be binding upon the successors and assigns of Borrower and shall inure to the benefit of the successors and assigns of Lender.     9.9 Assignments: Participations. Lender shall be entitled to sell, assign or transfer any portion of its interest in the Facility, provided, however, Lender hereby agrees to deliver to Borrower notice of such proposed sale, assignment or transfer not less than 30 days prior to the proposed date for the consummation thereof, which notice shall include a description of the financial institution to which such sale, assignment or transfer is proposed to be made. In connection with any such sale, assignment or transfer, Lender may disclose such information with respect to Borrower, its business and financial affairs and the Facility as Lender reasonably deems necessary, unless any such information which has been provided by Borrower to Lender is confidential in nature, in which case such confidential information shall not be disclosed without the prior written consent of Borrower, which consent shall not unreasonably be withheld or delayed.     9.10 Further Assurances. Each of Borrower and Lender agrees that upon the request of the other party hereto at any time and from time to time after the execution of this Agreement it shall execute and deliver such further instructions, documents, and certificates and take such further actions as such party reasonably may request     9.11 GOVERNING LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EXCEPT WITH RESPECT TO ENFORCEMENT OF SECURITY INTERESTS IN GAMING DEVICE GOODS (WHICH SHALL BE GOVERNED BY THE STATE IN WHICH SUCH GAMING DEVICE GOODS ARE SITUATED), THIS AGREEMENT, EACH OF THE OTHER LOAN DOCUMENTS, AND ANY ASSIGNMENT EXECUTED IN CONNECTION THEREWITH 21 -------------------------------------------------------------------------------- SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEVADA. BORROWER DOES HEREBY SUBMIT, AT LENDER'S ELECTION, TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS (FEDERAL, STATE OR LOCAL) HAVING A SITUS WITHIN THE COUNTY OF CLARK AND THE STATE OF NEVADA WITH RESPECT TO ANY DISPUTE, CLAIM, OR SUIT, WHETHER DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY RELATED NOTE OR ANY OF BORROWER'S OBLIGATIONS OR INDEBTEDNESS HEREUNDER, BORROWER EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF BORROWER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF. BORROWER HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT THE COUNTY OF CLARK, STATE OF NEVADA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE THE EXCLUSIVE CHOICE OF FORUM SET FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION BY LENDER TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION.     9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. THIS WAIVER IS INTENDED TO BE EFFECTIVE WITH RESPECT TO ALL DISPUTES WHICH ARISE OUT OF ANY OF THE LOAN DOCUMENTS OR PERTAIN TO THE TRANSACTIONS CONTEMPLATED THEREBY. THIS WAIVER IS IRREVOCABLE, AND MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SUCH WAIVER SET FORTH HEREIN SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. 22 -------------------------------------------------------------------------------- This Agreement has been executed and delivered by each of the parties hereto by a duly authorized officer of each such party on the date first set forth above. SUN WEST BANK   PDS GAMING CORPORATION—NEVADA By:   /s/ CARLA JEWELL    --------------------------------------------------------------------------------   By:   /s/ MARTIE VLCEK    -------------------------------------------------------------------------------- Its:   VP/Commercial Loan Officer --------------------------------------------------------------------------------   Its:   C.F.O. -------------------------------------------------------------------------------- 23 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.1 LOAN AND SECURITY AGREEMENT (Full Recourse) PRELIMINARY STATEMENT ARTICLE I DEFINITIONS ARTICLE II FACILITY AND PAYMENT/PREPAYMENT TERMS ARTICLE III NOTES: SECURITY INTEREST ARTICLE IV CONDITIONS OF CLOSING; ADVANCES ARTICLE V REPRESENTATIONS AND WARRANTIES ARTICLE VI AFFIRMATIVE COVENANTS ARTICLE VII NEGATIVE COVENANTS ARTICLE VIII BORROWER AND CONTRACT EVENTS OF DEFAULT—DEFINITIONS AND REMEDIES ARTICLE IX MISCELLANEOUS

364 DAY CREDIT AGREEMENT by and among CVS CORPORATION, THE LENDERS PARTY HERETO, CREDIT SUISSE FIRST BOSTON and FIRST UNION NATIONAL BANK as Co-Documentation Agents, and FLEET NATIONAL BANK, as Administrative Agent -------------------------------------------------------------------------------- Dated as of  May 21, 2001 -------------------------------------------------------------------------------- BNY CAPITAL MARKETS, INC. and FLEET SECURITIES, INC., as Lead Arrangers and Book Runners TABLE OF CONTENTS 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION   1.1 Definitions   1.2 Principles of Construction 2. AMOUNT AND TERMS OF LOANS   2.1 Revolving Credit Loans   2.2 [Intentionally Omitted]   2.3 Notice of Borrowing Revolving Credit Loans   2.4 Competitive Bid Loans and Procedure   2.5 Use of Proceeds   2.6 Termination or Reduction of Commitments   2.7 Prepayments of Loans 3. PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD PROTECTION AND FEES   3.1 Disbursement of the Proceeds of the Loans   3.2 Payments   3.3 Conversions; Other Matters   3.4 Interest Rates and Payment Dates   3.5 Indemnification for Loss   3.6 Reimbursement for Costs, Etc.   3.7 Illegality of Funding   3.8 Option to Fund; Substituted Interest Rate   3.9 Certificates of Payment and Reimbursement   3.10 Taxes; Net Payments   3.11 Fees   3.12 [Intentionally Omitted]   3.13 Replacement of Lender 4. REPRESENTATIONS AND WARRANTIES   4.1 Existence and Power   4.2 Authority   4.3 Binding Agreement   4.4 Litigation   4.5 No Conflicting Agreements   4.6 Taxes   4.7 Compliance with Applicable Laws; Filings   4.8 Governmental Regulations   4.9 Federal Reserve Regulations; Use of Proceeds   4.10 No Misrepresentation   4.11 Plans   4.12 Environmental Matters   4.13 Financial Statements 5. CONDITIONS OF LENDING - FIRST LOANS ON THE FIRST BORROWING DATE   5.1 Evidence of Corporate Action   5.2 Notes   5.3 Existing Bank Indebtedness   5.4 Opinion of Counsel to the Borrower 6. CONDITIONS OF LENDING - ALL LOANS   6.1 Compliance   6.2 Requests   6.3 Loan Closings 7. AFFIRMATIVE COVENANTS   7.1 Legal Existence   7.2 Taxes   7.3 Insurance   7.4 Performance of Obligations   7.5 Condition of Property   7.6 Observance of Legal Requirements   7.7 Financial Statements and Other Information   7.8 Records   7.9 Authorizations 8. NEGATIVE COVENANTS   8.1 Subsidiary Indebtedness   8.2 Liens   8.3 Dispositions   8.4 Merger or Consolidation, Etc.   8.5 Acquisitions   8.6 Restricted Payments   8.7 Limitation on Upstream Dividends by Subsidiaries   8.8 Limitation on Negative Pledges   8.9 Ratio of Consolidated Indebtedness to Total Capitalization 9. DEFAULT   9.1 Events of Default   9.2 Remedies 10. AGENT   10.1 Appointment   10.2 Delegation of Duties   10.3 Exculpatory Provisions   10.4 Reliance by Administrative Agent   10.5 Notice of Default   10.6 Non–Reliance   10.7 Indemnification   10.8 Administrative Agent in Its Individual Capacity   10.9 Successor Administrative Agent   10.10 Co-Documentation Agents 11. OTHER PROVISIONS   11.1 Amendments, Waivers, Etc.   11.2 Notices   11.3 No Waiver; Cumulative Remedies   11.4 Survival of Representations and Warranties   11.5 Payment of Expenses and Taxes; Indemnified Liabilities   11.6 Lending Offices   11.7 Successors and Assigns   11.8 Counterparts   11.9 Set–off and Sharing of Payments   11.10 Indemnity   11.11 Governing Law   11.12 Severability   11.13 Integration   11.14 Treatment of Certain Information   11.15 Acknowledgments   11.16 Consent to Jurisdiction   11.17 Service of Process   11.18 No Limitation on Service or Suit   11.19 WAIVER OF TRIAL BY JURY   11.20 Effective Date   11.21   Notice of Commitment Termination   EXHIBITS           Exhibit A List of Commitments and Lending and Notice Offices Exhibit B-1 Form of Revolving Credit Note Exhibit B-2 Form of Competitive Bid Note Exhibit C Form of Borrowing Request Exhibit D Form of Opinion of Counsel to the Borrower Exhibit E Form of Assignment and Acceptance Agreement Exhibit F Form of Competitive Bid Request Exhibit G Form of Invitation to Bid Exhibit H Form of Competitive Bid Exhibit I Form of Competitive Bid Accept/Reject Letter              364 DAY CREDIT AGREEMENT, dated as of May 21, 2001, by and among CVS CORPORATION, a Delaware corporation (the “Borrower”), the Lenders party hereto from time to time (each a “Lender” and, collectively, the “Lenders”), CREDIT SUISSE FIRST BOSTON and FIRST UNION NATIONAL BANK, as co-documentation agents, (in such capacity, each a “Co-Documentation Agent”), and FLEET NATIONAL BANK (“FNB”), as administrative agent for the Lenders (in such capacity, the “Administrative Agent”). 1.          DEFINITIONS AND PRINCIPLES OF CONSTRUCTION              1.1        Definitions                            When used in any Loan Document (as defined below), each of the following terms shall have the meaning ascribed thereto unless the context otherwise specifically requires:              “ABR Advances”: the Revolving Credit Loans (or any portions thereof) at such time as they (or such portions) are made or are being maintained at a rate of interest based upon the Alternate Base Rate.              “Accumulated Funding Deficiency”: as defined in Section 302 of ERISA.              “Acquisition”: with respect to any Person, the purchase or other acquisition by such Person, by any means whatsoever (including by devise, bequest, gift, through a dividend or otherwise), of (a) stock of, or other equity securities of, any other Person if, immediately thereafter, such other Person would be either a consolidated subsidiary of such Person or otherwise under the control of such Person, (b) any business, going concern or division or segment thereof, or (c) the Property of any other Person other than in the ordinary course of business, provided that (i) no acquisition of substantially all of the assets, or any division or segment, of such other Person shall be deemed to be in the ordinary course of business and (ii) no redemption, retirement, purchase or acquisition by any Person of the stock or other equity securities of such Person shall be deemed to constitute an Acquisition.              “Administrative Agent”: as defined in the preamble.              “Affected Advance”: as defined in Section 3.8(b).              “Affiliate”: with respect to any Person at any time and from time to time, any other Person (other than a wholly-owned subsidiary of such Person) which, at such time (a) controls such Person, (b) is controlled by such Person or (c) is under common control with such Person.  The term “control”, as used in this definition with respect to any Person, means the power, whether direct or indirect through one or more intermediaries, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract or otherwise.              “Aggregate Commitment Amount”: at any time, the sum of the Commitment Amounts of the Lenders at such time under this Agreement.              “Aggregate Credit Exposure”: at any time, the sum at such time of (a) the aggregate Committed Credit Exposure of the Lenders at such time under this Agreement and (b) the aggregate outstanding principal balance of all Competitive Bid Loans at such time under this Agreement.              “Agreement”: this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time.              “Alternate Base Rate”: for any day, a rate per annum equal to the greater of (a) the FNB Rate in effect on such day, or (b) 0.50% plus the Federal Funds Effective Rate (rounded, if necessary, to the nearest 1/100th of 1% or, if there is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) in effect on such day.              “Applicable Margin”: (i) with respect to the unpaid principal balance of ABR Advances, the applicable percentage set forth below in the column entitled “ABR Advances”, (ii) with respect to the unpaid principal balance of Eurodollar Advances, the applicable percentage set forth below in the column entitled “Eurodollar Advances”, (iii) with respect to the Facility Fee, the applicable percentage set forth below in the column entitled “Facility Fee”, and (iv) with respect to the Utilization Fee, the applicable percentage set forth below in the column entitled “Utilization Fee”, in each case opposite the applicable Pricing Level: Pricing Level ABR Advances   Eurodollar Advances   Facility Fee   Utilization Fee   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   Pricing Level I 0 % 0.155 % 0.045 % 0.050 % Pricing Level II 0 % 0.195 % 0.055 % 0.050 % Pricing Level III 0 % 0.235 % 0.065 % 0.050 % Pricing Level IV 0 % 0.300 % 0.075 % 0.050 % Pricing Level V 0 % 0.350 % 0.100 % 0.100 % Pricing Level VI 0 % 0.425 % 0.125 % 0.100 % Pricing Level VII 0 % 0.500 % 0.150 % 0.100 % Decreases in the Applicable Margin resulting from a change in Pricing Level shall become effective upon the delivery by the Borrower to the Administrative Agent of a notice pursuant to Section 7.7(d).  Increases in the Applicable Margin resulting from a change in Pricing Level shall become effective on the effective date of any downgrade or withdrawal in the rating by Moody’s or S&P of the senior unsecured long term debt rating of the Borrower.              “Assignment”: as defined in Section 11.7(c).              “Assignment and Acceptance Agreement”: an assignment and acceptance agreement executed by an assignor and an assignee pursuant to which, subject to the terms and conditions hereof and thereof, the assignor assigns to the assignee all or any portion of such assignor’s Loans, Notes and Commitment, substantially in the form of Exhibit E.              “Assignment Fee”: as defined in Section 11.7(c).              “Benefited Lender”: as defined in Section 11.9(b).              “Borrower”: as defined in the preamble.              “Borrowing Date”: (i) in respect of Revolving Credit Loans, any Domestic Business Day or Eurodollar Business Day, as the case may be, on which the Lenders shall make Revolving Credit Loans pursuant to a Borrowing Request and (ii) in respect of Competitive Bid Loans, any Domestic Business Day on which a Lender shall make a Competitive Bid Loan pursuant to a Competitive Bid Request.              “Borrowing Request”: a request for Revolving Credit Loans in the form of Exhibit C.               “Change of Control”:  any of the following:                            (i)          any Person or group (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), (a) shall have or acquire beneficial ownership of securities having 30% or more of the ordinary voting power of the Borrower or (b) shall possess, directly or indirectly, the power to direct or cause the direction of the management and policies of the Borrower, whether through the ownership of voting securities, by contract or otherwise; or                            (ii)         the Continuing Directors shall cease for any reason to constitute a majority of the board of directors of the Borrower then in office.              “Co-Documentation Agent”: as defined in the preamble.              “Commitment”: in respect of any Lender, such Lender’s undertaking to make Revolving Credit Loans, subject to the terms and conditions hereof, in an aggregate outstanding principal amount not to exceed the Commitment Amount of such Lender.              “Commitment Amount”: at any time and with respect to any Lender, the amount set forth adjacent to such Lender’s name under the heading “Commitment Amount” in Exhibit A at such time or, in the event that such Lender is not listed on Exhibit A, the “Commitment Amount” which such Lender shall have assumed from another Lender in accordance with Section 11.7 on or prior to such time, as the same may be adjusted from time to time pursuant to Sections 2.6, 2.11 and 11.7(c).              “Commitment Percentage”: at any time and with respect to any Lender, a fraction the numerator of which is such Lender’s Commitment Amount at such time, and the denominator of which is the Aggregate Commitment Amount at such time.              “Commitment Period”: the period commencing on the Effective Date and ending on the Commitment Termination Date, or on such earlier date as all of the Commitments shall have been terminated in accordance with the terms hereof.              “Commitment Termination Date”: the earlier of May 20, 2002 and the date on which the Loans shall become due and payable, whether by acceleration, notice of intention to prepay or otherwise.              “Committed Credit Exposure”: with respect to any Lender at any time, the sum at such time of the outstanding principal balance of such Lender’s Revolving Credit Loans.              “Competitive Bid”: an offer by a Lender, in the form of Exhibit H, to make one or more Competitive Bid Loans.              “Competitive Bid Accept/Reject Letter”: a notification made by the Borrower pursuant to Section 2.4(d) in the form of Exhibit I.              “Competitive Bid Loan”: as defined in Section 2.4(a).              “Competitive Bid Note”: as defined in Section 2.4(h).              “Competitive Bid Rate”: as to any Competitive Bid made by a Lender pursuant to Section 2.4(b), the fixed rate of interest (which shall be expressed in the form of a decimal to no more than four decimal places) offered by such Lender and accepted by the Borrower.              “Competitive Bid Request”: a request by the Borrower, in the form of Exhibit F, for Competitive Bids.              “Competitive Interest Period”: as to any Competitive Bid Loan, the period commencing on the date of such Competitive Bid Loan and ending on the date requested in the Competitive Bid Request with respect thereto, which shall not be earlier than 3 days after the date of such Competitive Bid Loan or later than 180 days after the date of such Competitive Bid Loan; provided that if any Competitive Interest Period would end on a day other than a Domestic Business Day, such Interest Period shall be extended to the next succeeding Domestic Business Day, unless such next succeeding Domestic Business Day would be a date on or after the Commitment Termination Date, in which case such Competitive Interest Period shall end on the next preceding Domestic Business Day.  Interest shall accrue from and including the first day of a Competitive Interest Period to but excluding the last day of such Competitive Interest Period.              “Consolidated”: the Borrower and the Subsidiaries on a consolidated basis in accordance with GAAP.              “Contingent Obligation”: as to any Person (the “secondary obligor”), any obligation of such secondary obligor (a) guaranteeing or in effect guaranteeing any return on any investment made by another Person, or (b) guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend or other obligation (“primary obligation”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of such secondary obligor, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to  maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the beneficiary of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, (iv) otherwise to assure or hold harmless the beneficiary of such primary obligation against loss in respect thereof, and (v) in respect of the Indebtedness of any partnership in which such secondary obligor is a general partner, except to the extent that such Indebtedness of such partnership is nonrecourse to such secondary obligor and its separate Property; provided that the term “Contingent Obligation” shall not include the indorsement of instruments for deposit or collection in the ordinary course of business.              “Continuing  Director”:  any member of the board of directors of the Borrower who (i) is a member of that board of directors on the Effective Date or (ii) was nominated for election by the board of directors a majority of whom were directors on the Effective Date or whose election or nomination for election was previously approved by one or more of such directors.              “Control Person”: as defined in Section 3.6.              “Convert”, “Conversion” and “Converted”: each, a reference to a conversion pursuant to Section 3.3 of one Type of Revolving Credit Loan into another Type of Revolving Credit Loan.              “Costs”:  as defined in Section 3.6.              “Default”: any of the events specified in Section 9.1, whether any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.              “Disposition”: with respect to any Person, any sale, assignment, transfer or other disposition by such Person by any means, of:              (a)         the Stock of, or other equity interests of, any other Person,              (b)        any business, operating entity, division or segment thereof, or              (c)         any other Property of such Person, other than (i) the sale of inventory (other than in connection with bulk transfers), (ii) the disposition of equipment and (iii) the sale of cash investments.              “Dividend Restrictions”:  as defined in Section 8.7.              “Dollar” or “$”: lawful currency of the United States of America.              “Domestic Business Day”: any day (other than a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City.              “Effective Date”: as defined in Section 11.20.              “Eligible SPC”: a special purpose corporation that (i) is organized under the laws of the United States or any state thereof, (ii) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s.              “Employee Benefit Plan”: an employee benefit plan, within the meaning of Section 3(3) of ERISA, maintained, sponsored or contributed to by the Borrower, any Subsidiary or any ERISA Affiliate.              “ERISA”: the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor thereto, and the rules and regulations issued thereunder, as from time to time in effect.              “ERISA Affiliate”: when used with respect to an Employee Benefit Plan, ERISA, the PBGC or a provision of the Internal Revenue Code pertaining to employee benefit plans, any Person that is a member of any group of organizations within the meaning of Sections 414(b) or (c) of the Internal Revenue Code or, solely with respect to the applicable provisions of the Internal Revenue Code, Sections 414(m) or (o) of the Internal Revenue Code, of which the Borrower or any Subsidiary is a member.              “ESOP Guaranty”: the guaranty of the 8.52% ESOP Note maturing 2008 in the aggregate unpaid principal amount, as of December 30, 2000, of $240,600,000.              “Eurodollar Advance”: a portion of the Revolving Credit Loans selected by the Borrower to bear interest during a Eurodollar Interest Period selected by the Borrower at a rate per annum based upon a Eurodollar Rate determined with reference to such Interest Period, all pursuant to and in accordance with Section 2.1 or 3.3.              “Eurodollar Business Day”: any Domestic Business Day, other than a Domestic Business Day on which banks are not open for dealings in Dollar deposits in the interbank eurodollar market.              “Eurodollar Interest Period”: the period commencing on any Eurodollar Business Day selected by the Borrower in accordance with Section 2.1 or Section 3.3 and ending one, two, three or six months thereafter, as selected by the Borrower in accordance with either such Sections, subject to the following:                            (i) if any Interest Period would otherwise end on a day which is not a Eurodollar Business Day, such Interest Period shall be extended to the immediately succeeding Eurodollar Business Day unless the result of such extension would be to carry the end of such Interest Period into another calendar month, in which event such Interest Period shall end on the Eurodollar Business Day immediately preceding such day; and                            (ii) if any Interest Period shall begin on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), such Interest Period shall end on the last Eurodollar Business Day of such latter calendar month.              “Eurodollar Rate”: with respect to each Eurodollar Advance and as determined by the Administrative Agent, the rate of interest per annum (rounded, if necessary, to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) equal to a fraction, the numerator of which is the rate per annum quoted by FNB at approximately 11:00 A.M.  (or as soon thereafter as practicable) two Eurodollar Business Days prior to the first day of such Interest Period to leading banks in the interbank eurodollar market as the rate at which FNB is offering Dollar deposits in an amount approximately equal to its Commitment Percentage of such Eurodollar Advance and having a period to maturity approximately equal to the Interest Period applicable to such Eurodollar Advance, and the denominator of which is an amount equal to 1.00 minus the aggregate of the then stated maximum rates during such Interest Period of all reserve requirements  (including marginal, emergency, supplemental and special reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority to which FNB and other major United States money center banks are subject, in respect of eurocurrency liabilities.              “Event of Default”: any of the events specified in Section 9.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition has been satisfied.              “Existing Bank Indebtedness”:  all Indebtedness under the Existing Credit Agreement and all accrued and unpaid monetary obligations of the Borrower under the Existing Credit Agreement.              “Existing Credit Agreement”: the 364 Day Credit Agreement, dated as of May 26, 2000, by and among the Borrower, the lenders party thereto, Fleet National Bank, as syndication agent, Credit Suisse First Boston, as documentation agent, and The Bank of New York, as administrative agent thereunder.              “Expiration Date”: the first date, occurring after the Commitments shall have terminated or been terminated in accordance herewith, upon which there shall be no Loans outstanding.              “Facility Fee”: as defined in Section 3.11(a).              “Federal Funds Effective Rate”: for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Domestic Business Day, for the next preceding Domestic Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Domestic Business Day, the average (rounded, if necessary, to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.              “Fees”: as defined in Section 3.2.              “Financial Statements”: as defined in Section 4.13.              “FNB”: as defined in the preamble.              “FNB Rate”: a rate of interest per annum equal to the rate of interest publicly announced in Boston, Massachusetts by FNB from time to time as its prime commercial lending rate, such rate to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate.              “GAAP”: generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination, consistently applied.              “Governmental Authority”: any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof, or any court or arbitrator.              “Granting Lender”:  as defined in Section 11.7(f).              “Highest Lawful Rate”: as to any Lender, the maximum rate of interest, if any, which at any time or from time to time may be contracted for, taken, charged or received on the Loans or the Notes or which may be owing to such Lender pursuant to this Agreement under the laws applicable to such Lender and this Agreement.              “Indebtedness”: as to any Person at a particular time, all items of such Person which constitute, without duplication, (a) indebtedness for borrowed money or the deferred purchase price of Property (other than trade payables and accrued expenses incurred in the ordinary course of business), (b) indebtedness evidenced by notes, bonds,  debentures or similar instruments, (c) indebtedness with respect to any conditional sale or other title retention agreement, (d) indebtedness arising under acceptance facilities and the amount available to be drawn under all letters of credit (excluding for purposes of Sections 8.1 and 8.10 letters of credit obtained in the ordinary course of business by the Borrower or any Subsidiary) issued for the account of such Person and, without duplication, all drafts drawn thereunder to the extent such Person shall not have reimbursed the issuer in respect of the issuer’s payment of such drafts, (e) that portion of any obligation of such Person, as lessee, which in accordance with GAAP is required to be capitalized on a balance sheet of such Person, (f) all indebtedness described in (a) - (e) above secured by any Lien on any Property owned by such Person even though such Person shall not have assumed or otherwise become liable for the payment thereof (other than carriers’, warehousemen’s, mechanics’, repairmen’s or other like non–consensual Liens arising in the ordinary course of business), and (g) Contingent Obligations in respect of any indebtedness described in items (a) - (f) above; provided that, for purposes of this definition, Indebtedness shall not include Intercompany Debt and obligations in respect of interest rate caps, collars, exchanges, swaps or other, similar agreements.              “Indemnified Liabilities”: as defined in Section 11.5.              “Indemnified Person”:  as defined in Section 11.10.              “Intercompany Debt”: (i) Indebtedness of the Borrower to one or more of the Subsidiaries of the Borrower and (ii) demand Indebtedness of one or more of the Subsidiaries of the Borrower to the Borrower or any one or more of the other Subsidiaries of the Borrower.              “Intercompany Disposition”: a Disposition by the Borrower or any of the Subsidiaries of the Borrower to the Borrower or to any of the other Subsidiaries of the Borrower.              “Interest Payment Date”: (i) as to any ABR Advance, the last day of each March, June, September and December, commencing on the first of such days to occur after such ABR Advance is made or any Eurodollar Advance is converted to an ABR Advance, (ii) as to any Eurodollar Advance in respect of which the Borrower has selected a Eurodollar Interest Period of one, two or three months, the last day of such Eurodollar Interest Period, (iii) as to any Competitive Bid Loan in respect of which the Borrower has selected a Competitive Interest Period of 90 days or less the last day of such Competitive Interest Period and (iv) as to any Eurodollar Advance or Competitive Bid Loan in respect of which the Borrower has selected an Interest Period greater than three months or 90 days, as the case may be, the last day of the third month or the 90th day, as the case may be, of such Interest Period and the last day of such Interest Period.              “Interest Period”: a Eurodollar Interest Period or a Competitive Interest Period, as the case may be.              “Internal Revenue Code”: the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto, and the rules and regulations issued thereunder, as from time to time in effect.              “Invitation to Bid”: an invitation by the Administrative Agent to the Lenders to make Competitive Bids in the form of Exhibit G.              “Lender”: as defined in the preamble.              “Lien”: any mortgage, pledge, hypothecation, assignment, lien, deposit arrangement, charge, encumbrance or other security arrangement or security interest of any kind, or the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.              “Loan”: a Revolving Credit Loan or a Competitive Bid Loan, as the case may be.              “Loan Documents”: this Agreement and, upon the execution and delivery thereof, the Notes.              “Loans”: the Revolving Credit Loans and the Competitive Bid Loans.              “Margin Stock”: any “margin stock”, as said term is defined in Regulation U of the Board of Governors of the Federal Reserve System, as the same may be amended or supplemented from time to time.              “Material Adverse”: with respect to any change or effect, a material adverse change in, or effect on, as the case may be, (i) the financial condition, operations, business, or Property of the Borrower and the Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the ability of the Administrative Agent or any Lender to enforce the Loan Documents.              “Moody’s”: Moody’s Investors Service, Inc.              “Multiemployer Plan”: a Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.              “Net Worth”: at any date of determination, the sum of all amounts which would be included under shareholders’ equity on a Consolidated balance sheet of the Borrower and the Subsidiaries determined in accordance with GAAP as at such date.              “Note”: a Revolving Credit Note or a Competitive Bid Note, as the case may be.              “Other Credit Agreement”: the Five Year Credit Agreement, dated as of May 21, 2001, by and among the Borrower, the lenders party thereto, Credit Suisse First Boston and First Union National Bank, as co-documentation agents, and The Bank of New York, as administrative agent, as the same may be amended, supplemented or otherwise modified from time to time.              “PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the functions thereof.              “Pension Plan”: at any time, any Employee Benefit Plan (including a Multiemployer Plan) subject to Section 302 of ERISA or Section 412 of the Internal Revenue Code, the funding requirements of which are, or at any time within the six years immediately preceding the time in question, were in whole or in part, the responsibility of the Borrower, any Subsidiary or an ERISA Affiliate.              “Person”: any individual, firm, partnership, limited liability company, joint venture, corporation, association, business trust, joint stock company, unincorporated association, trust, Governmental Authority or any other entity, whether acting in an individual, fiduciary, or other capacity, and for the purpose of the definition of “ERISA Affiliate”, a trade or business.              “Pricing Level”:  Pricing Level I, Pricing Level II, Pricing Level III, Pricing Level IV, Pricing Level V, Pricing Level VI or Pricing Level VII, as the case may be.              “Pricing Level I”: any time when the senior unsecured long term debt rating of the Borrower by (x) S&P is AA- or higher or (y) Moody’s is Aa3 or higher.              “Pricing Level II”: any time when (i) the senior unsecured long term debt rating of the Borrower by (x) S&P is A+ or higher or (y) Moody’s is A1 or higher and (ii) Pricing Level I does not apply.              “Pricing Level III”: any time when (i) the senior unsecured long term debt rating of the Borrower by (x) S&P is A or higher or (y) Moody’s is A2 or higher and (ii) neither Pricing Level I nor II applies.              “Pricing Level IV”:  any time when (i) the senior unsecured long term debt rating of the Borrower by (x) S&P is A- or higher or (y) Moody’s is A3 or higher and (ii) none of Pricing Level I, II or III applies.              “Pricing Level V”:  any time when (i) the senior unsecured long term debt rating of the Borrower by (x) S&P is BBB+ or higher or (y) Moody’s is Baa1 or higher and (ii) none of Pricing Level I, II, III or IV applies.              “Pricing Level VI”: any time when (i) the senior unsecured long term debt rating of the Borrower by (x) S&P is BBB or higher or (y) Moody’s is Baa2 or higher and (ii) none of Pricing Level I, II, III, IV or V applies.              “Pricing Level VII”: any time when none of Pricing Level I, II, III, IV, V or VI applies.              Notwithstanding each definition of Pricing Level set forth above, if at any time the senior unsecured long term debt ratings of the Borrower by S&P and Moody’s differ by more than one equivalent rating level, then the applicable Pricing Level shall be determined based upon the lower such rating adjusted upwards to the next higher rating level.              “Principal Office”: from time to time, the principal office of FNB, located on the date hereof in Boston, Massachusetts.              “Prohibited Transaction”: a transaction that is prohibited under Section 4975 of the Internal Revenue Code or Section 406 of ERISA and not exempt under Section 4975 of the Internal Revenue Code or Section 408 of ERISA.              “Property”: in respect of any Person, all types of real, personal or mixed property and all types of tangible or intangible property owned or leased by such Person.              “Regulatory Change”: (a) the introduction or phasing in of any law, rule or regulation after the date hereof, (b) the issuance or promulgation after the date hereof of any directive, guideline or request from any central bank or United States or foreign Governmental Authority (whether or not having the force of law), or (c) any change after the date hereof in the interpretation of any existing law, rule, regulation, directive, guideline or request by any central bank or United States or foreign Governmental Authority charged with the administration thereof, in each case applicable to the transactions contemplated by this Agreement.              “Replaced Lender”:  as defined in Section 3.13.              “Replacement Lender”:  as defined in Section 3.13.              “Reportable Event”: with respect to any Pension Plan, (a) any event set forth in Sections 4043(c) (other than a Reportable Event as to which the 30 day notice requirement is waived by the PBGC under applicable regulations), 4062(e) or 4063(a) of ERISA, or the regulations thereunder, (b) an event requiring the Borrower, any Subsidiary or any ERISA Affiliate to provide security to a Pension Plan under Section 401(a)(29) of the Internal Revenue Code, or (c) the failure to make any payment required by Section 412(m) of the Internal Revenue Code.              “Required Lenders”: (a) at any time prior to the Commitment Termination Date or such earlier date as all of the Commitments shall have terminated or been terminated in accordance herewith, Lenders having Commitment Amounts equal to or more than 51% of the Aggregate Commitment Amount, and (b) at all other times, Lenders holding Notes having an unpaid principal balance equal to or more than 51% of all Loans outstanding.              “Restricted Payment”:  with respect to any Person, any of the following, whether direct or indirect: (a) the declaration or payment by such Person of any dividend or distribution on any class of Stock of such Person, other than a dividend payable solely in shares of that class of Stock to the holders of such class, (b) the declaration or payment by such Person of any distribution on any other type or class of equity interest or equity investment in such Person, and (c) any redemption, retirement, purchase or acquisition of, or sinking fund or other similar payment in respect of, any class of Stock of, or other type or class of equity interest or equity investment in, such Person.              “Restrictive Agreement”:  as defined in Section 8.7.              “Revolving Credit Loans”: as defined in Section 2.1(a).              “Revolving Credit Note”: as defined in Section 2.1(b).               “S&P”: Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.              “Solvent”: with respect to any Person on a particular date, the condition that on such date, (i) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person does not intend to, and does not believe that it will,  incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (iv) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute an unreasonably small amount of capital.  For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, 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 after taking into account probable payments by co-obligors.              “Special Counsel”: such counsel as the Administrative Agent may engage from time to time.              “Subsidiary”: at any time and from time to time, any corporation, association, partnership, limited liability company, joint venture or other business entity of which the Borrower and/or any Subsidiary of the Borrower, directly or indirectly at such time, either (a) in respect of a corporation, owns or controls more than 50% of the outstanding stock having ordinary voting power to elect a majority of the board of directors or similar managing body, irrespective of whether a class or classes shall or might have voting power by reason of the happening of any contingency, or (b) in respect of an association, partnership, limited liability company, joint venture or other business entity, is entitled to share in more than 50% of the profits and losses, however determined.              “Tangible Net Worth”: at any date of determination, Net Worth less all assets of the Borrower and its Subsidiaries included in such Net Worth, determined on a Consolidated basis at such date, that would be classified as intangible assets in accordance with GAAP.              “Termination Event”: with respect to any Pension Plan, (a) a Reportable Event, (b) the termination of a Pension Plan under Section 4041(c) of ERISA, or the filing of a notice of intent to terminate a Pension Plan under Section 4041(c) of ERISA, or the treatment of a Pension Plan amendment as a termination under Section 4041(e) of ERISA (except an amendment made after such Pension Plan satisfies the requirement for a standard termination under Section 4041(b) of ERISA), (c) the institution of proceedings by the PBGC to terminate a Pension Plan under Section 4042 of ERISA, or (d) the appointment of a trustee to administer any Pension Plan under Section 4042 of ERISA.              “Total Capitalization”: at any date, the sum of the Borrower’s Consolidated Indebtedness and shareholders’ equity on such date, determined in accordance with GAAP.              “Type”: with respect to any Revolving Credit Loan, the characteristic of such Loan as an ABR Advance or a Eurodollar Advance, each of which constitutes a Type of Revolving Credit Loan.              “Unqualified Amount”: as defined in Section 3.4(c).              “Upstream Dividends”: as defined in Section 8.7.              “Utilization Fee”: as defined in Section 3.11(b).              1.2        Principles of Construction              (a)         All capitalized terms defined in this Agreement shall have the meanings given such capitalized terms herein when used in the other Loan Documents or in any certificate, opinion or other document made or delivered pursuant hereto or thereto, unless otherwise expressly provided therein.              (b)        Unless otherwise expressly provided herein, the word “fiscal” when used herein shall refer to the relevant fiscal period of the Borrower.  As used in the Loan Documents and in any certificate, opinion or other document made or delivered pursuant thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP.              (c)         The words “hereof”, “herein”, “hereto” and “hereunder” and similar words when used in each Loan Document shall refer to such Loan Document as a whole and not to any particular provision of such Loan Document, and Section, schedule and exhibit references contained therein shall refer to Sections thereof or schedules or exhibits thereto unless otherwise expressly provided therein.              (d)        All references herein to a time of day shall mean the then applicable time in New York, New York, unless otherwise expressly provided herein.              (e)         Section headings have been inserted in the Loan Documents for convenience only and shall not be construed to be a part thereof.  Unless the context otherwise requires, words in the singular number include the plural, and words in the plural include the singular.              (f)         Whenever in any Loan Document or in any certificate or other document made or delivered pursuant thereto, the terms thereof require that a Person sign or execute the same or refer to the same as having been so signed or executed, such terms shall mean that the same shall be, or was, duly signed or executed by (i) in respect of any Person that is a corporation, any duly authorized officer thereof, and (ii) in respect of any other Person (other than an individual), any analogous counterpart thereof.              (g)        The words “include” and “including”, when used in each Loan Document, shall mean that the same shall be included “without limitation”, unless otherwise specifically provided. 2.          AMOUNT AND TERMS OF LOANS              2.1        Revolving Credit Loans                            (a)         Subject to the terms and conditions hereof, each Lender severally (and not jointly) agrees to make loans under this Agreement (each a “Revolving Credit Loan” and, collectively with each other Revolving Credit Loan of such Lender and/or with each Revolving Credit Loan of each other Lender, the “Revolving Credit Loans”) to the Borrower from time to time during the Commitment Period, during which period the Borrower may borrow, prepay and reborrow in accordance with the provisions hereof.  Immediately after making each Revolving Credit Loan and after giving effect to all Competitive Bid Loans repaid on the same date, the Aggregate Credit Exposure will not exceed the Aggregate Commitment Amount.  With respect to each Lender, at the time of the making of any Revolving Credit Loan, the sum of (I) the principal amount of such Lender’s Revolving Credit Loan constituting a part of the Revolving Credit Loans to be made and (II) the aggregate principal balance of all other Revolving Credit Loans (exclusive of Revolving Credit Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the Revolving Credit Loans to be made) then outstanding from such Lender will not exceed the Commitment of such Lender at such time.  During the Commitment Period, the Borrower may borrow, prepay in whole or in part and reborrow Revolving Credit Loans under the Commitments, all in accordance with the terms and conditions hereof.  At the option of the Borrower, indicated in a Borrowing Request, Revolving Credit Loans may be made as ABR Advances or Eurodollar Advances.                            (b)        Revolving Credit Loans made by each Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit B-1 (each, as indorsed or modified from time to time, a “Revolving Credit Note”), payable to the order of such Lender, dated the Effective Date, and in the maximum stated principal amount equal to such Lender’s Commitment Amount and evidencing the obligation of the Borrower to pay such Commitment Amount, or, if less, the aggregate unpaid principal balance of the Revolving Credit Loans made by such Lender, with interest thereon as provided herein.                            (c)         The aggregate outstanding principal balance of all Revolving Credit Loans shall be due and payable on the Commitment Termination Date or on such earlier date upon which all of the Commitments shall have been voluntarily terminated by the Borrower in accordance with Section 2.6.              2.2        [Intentionally Omitted]              2.3        Notice of Borrowing Revolving Credit Loans                            The Borrower agrees to notify the Administrative Agent, which notification shall be irrevocable, no later than (a) 10:00 A.M.  on the proposed Borrowing Date in the case of Revolving Credit Loans to consist of ABR Advances and (b) 10:00 A.M.  at least two Eurodollar Business Days prior to the proposed Borrowing Date in the case of Revolving Credit Loans to consist of Eurodollar Advances.  Each such notice shall specify (i) the aggregate amount requested to be borrowed under the Commitments, (ii) the proposed Borrowing Date, (iii) whether a borrowing of Revolving Credit Loans is to be of ABR Advances or Eurodollar Advances, and the amount of each thereof and (iv) the Interest Period for such Eurodollar Advances.  Each such notice shall be promptly confirmed by delivery to the Administrative Agent of a Borrowing Request.  Each Eurodollar Advance to be made on a Borrowing Date, when aggregated with all amounts to be Converted to Eurodollar Advances on such date and having the same Interest Period as such Eurodollar Advance, shall equal no less than $10,000,000, or an integral multiple of $1,000,000 in excess thereof.  Each ABR Advance made on each Borrowing Date shall equal no less than $5,000,000 or an integral multiple of $500,000 in excess thereof.  The Administrative Agent shall promptly notify each Lender (by telephone or otherwise, such notification to be confirmed by fax or other writing) of each such Borrowing Request.  Subject to its receipt of each such notice from the Administrative Agent and subject to the terms and conditions hereof, each Lender shall make immediately available funds available to the Administrative Agent at the address therefor set forth in Section 11.2 not later than 1:00 P.M. on each Borrowing Date in an amount equal to such Lender’s Commitment Percentage of the Revolving Credit Loans requested by the Borrower on such Borrowing Date.              2.4        Competitive Bid Loans and Procedure                            (a)         Subject to the terms and conditions hereof, the Borrower may request competitive bid loans under this Agreement (each a “Competitive Bid Loan”) during the Commitment Period.  In order to request Competitive Bids, the Borrower shall deliver by hand or fax to the Administrative Agent a duly completed Competitive Bid Request not later than 11:00 A.M., one Domestic Business Day before the proposed Borrowing Date therefor.  A Competitive Bid Request that does not conform substantially to the format of Exhibit F may be rejected by the Administrative Agent in the Administrative Agent’s reasonable discretion, and the Administrative Agent shall promptly notify the Borrower of such rejection by fax and telephone.  Each Competitive Bid Request shall specify (x) the proposed Borrowing Date for the Competitive Bid Loans then being requested (which shall be a Domestic Business Day) and the aggregate principal amount thereof and (y) the Competitive Interest Period or Interest Periods (which shall not exceed ten different Interest Periods in a single Competitive Bid Request), with respect thereto (which may not end after the Domestic Business Day immediately preceding the Commitment Termination Date).  Promptly after its receipt of each Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by fax (in the form of Exhibit G) the Lenders to bid, on the terms and conditions of this Agreement, to make Competitive Bid Loans pursuant to such Competitive Bid Request.                            (b)        Each Lender, in its sole and absolute discretion, may make one or more Competitive Bids to the Borrower responsive to a Competitive Bid Request.  Each Competitive Bid by a Lender must be received by the Administrative Agent not later than 10:00 A.M. on the proposed Borrowing Date for the relevant Competitive Bid Loan.  Multiple bids will be accepted by the Administrative Agent.  Bids to make Competitive Bid Loans that do not conform substantially to the format of Exhibit H may be rejected by the Administrative Agent after conferring with, and upon the instruction of, the Borrower, and the Administrative Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable.  Each Competitive Bid shall be irrevocable and shall specify (x) the principal amount (which (1) shall be in a minimum principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and (2) may equal the entire principal amount requested by the Borrower) of the Competitive Bid Loan or Competitive Bid Loans that the Lender is willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Competitive Bid Loan or Competitive Bid Loans, and (z) the Competitive Interest Period with respect to each such Competitive Bid Loan and the last day thereof.  If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent by fax not later than 10:00 A.M.  on the proposed Borrowing Date therefor, provided that the failure by any Lender to give any such notice shall not obligate such Lender to make any Competitive Bid Loan in connection with the relevant Competitive Bid Request.                            (c)         With respect to each Competitive Bid Request, the Administrative Agent shall (i) notify the Borrower by fax by 11:00 A.M.  on the proposed Borrowing Date with respect thereto of each Competitive Bid made, the Competitive Bid Rate applicable thereto and the identity of the Lender that made such Competitive Bid, and (ii) send a list of all Competitive Bids to the Borrower for its records as soon as practicable after completion of the bidding process.  Each notice and list sent by the Administrative Agent pursuant to this Section 2.4(c) shall list the Competitive Bids in ascending yield order.                            (d)        The Borrower may in its sole and absolute discretion, subject only to the provisions of this Section 2.4(d), accept or reject any Competitive Bid made in accordance with the procedures set forth in this Section 2.4, and the Borrower shall notify the Administrative Agent by telephone, confirmed by fax in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it has decided to accept or reject any or all of such Competitive Bids not later than 12:00 Noon on the proposed Borrowing Date therefor, provided that the failure by the Borrower to give such notice shall be deemed to be a rejection of all such Competitive Bids.  In connection with each acceptance of one or more Competitive Bids by the Borrower:                                         (1)         the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower has decided to reject a Competitive Bid made at a lower Competitive Bid Rate unless the acceptance of such lower Competitive Bid would subject the Borrower to any requirement to withhold any taxes or deduct any amount from any amounts payable under the Loan Documents, in which case the Borrower may reject such lower Competitive Bid,                                         (2)         the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the principal amount specified in the Competitive Bid Request therefor,                                         (3)         if the Borrower shall desire to accept a Competitive Bid made at a particular Competitive Bid Rate, it must accept all other Competitive Bids at such Competitive Bid Rate, except for any such Competitive Bid the acceptance of which would subject the Borrower to any requirement to withhold any taxes or deduct any amount from any amounts payable under the Loan Documents, provided that if the acceptance of all such other Competitive Bids would cause the aggregate amount of all such accepted Competitive Bids to exceed the amount requested, then such acceptance shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate,                                         (4)         except pursuant to clause (3) above, no Competitive Bid shall be accepted unless the Competitive Bid Loan with respect thereto shall be in a minimum  principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and                                         (5)         no Competitive Bid shall be accepted and no Competitive Bid Loan shall be made, if immediately after giving effect thereto, the Aggregate Credit Exposure would exceed the Aggregate Commitment Amount.                            (e)         The Administrative Agent shall promptly fax to each bidding Lender (with a copy to the Borrower) a Competitive Bid Accept/Reject Letter advising such Lender whether its Competitive Bid has been accepted (and if accepted, in what amount and at what Competitive Bid Rate), and each successful bidder so notified will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which each of its Competitive Bids has been accepted by making immediately available funds available to the Administrative Agent at its address set forth in Section 11.2 not later than 1:00 P.M. on the Borrowing Date for such Competitive Bid Loan in the amount thereof.                            (f)         Anything herein to the contrary notwithstanding, if the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the Borrower not later than 9:30 A.M.  on the relevant proposed Borrowing Date.                            (g)        All notices required by this Section shall be given in accordance with Section 11.2.                            (h)        The Competitive Bid Loans made by each Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit B-2 (each, as indorsed or modified from time to time, a “Competitive Bid Note”), payable to the order of such Lender, dated the Effective Date, evidencing the obligation of the Borrower to pay the aggregate unpaid principal balance of all Competitive Bid Loans made by such Lender to the Borrower, together with interest thereon as provided herein.  Each Competitive Bid Loan shall be due and payable on the last day of the Interest Period applicable thereto or on such earlier date upon which the Loans shall become due and payable hereunder, whether by acceleration or otherwise.              2.5        Use of Proceeds                            The Borrower agrees that the proceeds of the Loans shall be used solely for its general corporate purposes not inconsistent with the provisions hereof, including as a backup for the Borrower’s commercial paper and to refinance all outstanding Indebtedness under the Existing Credit Agreement.  Notwithstanding anything to the contrary contained in any Loan Document, the Borrower further agrees that no part of the proceeds of any Loan will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any Governmental Authority, including the provisions of Regulations U or X of the Board of Governors of the Federal Reserve System, as amended or any provision of this Agreement, including, without limitation, the provisions of Section 4.9.              2.6        Termination or Reduction of Commitments                            (a)         Voluntary Termination or Reductions.  At the Borrower’s option and upon at least three Domestic Business Days’ prior irrevocable notice to the Administrative  Agent, the Borrower may (i) terminate the Commitments at any time or (ii) permanently reduce the Aggregate Commitment Amount, in part at any time and from time to time, provided that (1) each such partial reduction shall be in an amount equal to at least $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (2) immediately after giving effect to each such reduction, (i) the Aggregate Commitment Amount shall equal or exceed the sum of the aggregate outstanding principal balance of all Loans, and provided further that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities (such notice to specify the proposed effective date), in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to such specified effective date) if such condition is not satisfied and the Borrower shall indemnify the Lenders in accordance with Section 3.5.                            (b)        In General.  Each reduction of the Aggregate Commitment Amount shall be made by reducing each Lender’s Commitment Amount by a sum equal to such Lender’s Commitment Percentage of the amount of such reduction.              2.7        Prepayments of Loans                            (a)         Voluntary Prepayments.  The Borrower may prepay Revolving Credit Loans and Competitive Bid Loans, in whole or in part, without premium or penalty, but subject to Section 3.5 at any time and from time to time, by notifying the Administrative Agent, which notification shall be irrevocable, at least two Eurodollar Business Days, in the case of a prepayment of Eurodollar Advances, two Domestic Business Days, in the case of Competitive Bid Loans, or one Domestic Business Day, in the case of a prepayment of ABR Advances, prior to the proposed prepayment date specifying (i) the Loans to be prepaid, (ii) the amount to be prepaid, and (iii) the date of prepayment.  Upon receipt of each such notice, the Administrative Agent shall promptly notify each Lender thereof.  Each such notice given by the Borrower pursuant to this Section shall be irrevocable, provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments, as contemplated by Section 2.6, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.6, and the Borrower shall indemnify the Lenders in accordance with Section 3.5.  Each partial prepayment under this Section shall be in a minimum amount of $1,000,000 ($500,000 in the case of ABR Advances) or an integral multiple of $1,000,000 ($100,000 in the case of ABR Advances) in excess thereof.                            (b)        In General.  Simultaneously with each prepayment hereunder, the Borrower shall prepay all accrued interest on the amount prepaid through the date of prepayment and indemnify the Lenders in accordance with Section 3.5. 3.          PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD PROTECTION AND FEES              3.1        Disbursement of the Proceeds of the Loans                                         The Administrative Agent shall disburse the proceeds of the Loans at its office specified in Section 11.2 by crediting or otherwise transferring the funds received from each Lender to such account(s) as the Borrower shall designate in its applicable Borrowing Request.  Unless the Administrative Agent shall have received prior notice from a Lender (by telephone or otherwise, such notice to be confirmed by fax or other writing) that such Lender will not make available to the Administrative Agent such Lender’s Commitment Percentage of the Revolving Credit Loans, or the amount of any Competitive Bid Loan, to be made by it on a Borrowing Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Borrowing Date in accordance with this Section, provided that, in the case of a Revolving Credit Loan, such Lender received notice thereof from the Administrative Agent in accordance with the terms hereof, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such Borrowing Date a corresponding amount.  If and to the extent such Lender shall not have so made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to pay to the Administrative Agent, forthwith on demand, such corresponding amount (to the extent not previously paid by the other), together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is paid to the Administrative Agent, at a rate per annum equal to, in the case of the Borrower, the applicable interest rate set forth in Section 3.4(a) and, in the case of such Lender, the Federal Funds Effective Rate from the date such payment is due until the third day after such date and, thereafter, at the Federal Funds Effective Rate plus 2%.  Any such payment by the Borrower shall be without prejudice to its rights against such Lender.  If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender’s Loan as part of such Loans for purposes of this Agreement, which Loan shall be deemed to have been made by such Lender on the Borrowing Date applicable to such Loans.              3.2        Payments                            (a)         Each borrowing of Revolving Credit Loans by the Borrower from the Lenders, any Conversion of Revolving Credit Loans from one Type to another, and any reduction in the Commitments shall be made pro rata according to the Commitment Percentage of each Lender.  Each payment, including each prepayment, of principal and interest on the Loans and of the Facility Fee and the Utilization Fee (collectively, together with all of the other fees to be paid to the Administrative Agent and the Lenders in connection with the Loan Documents, the “Fees”), and of all of the other amounts to be paid to the Administrative Agent and the Lenders in connection with the Loan Documents shall be made by the Borrower to the Administrative Agent at its office specified in Section 11.2 in funds immediately available in Boston, Massachusetts by 3:00 P.M. on the due date for such payment.  The failure of the Borrower to make any such payment by such time shall not constitute a default hereunder, provided that such payment is made on such due date, but any such payment made after 3:00 P.M.  on such due date shall be deemed to have been made on the next Domestic Business Day or Eurodollar Business Day, as the case may be, for the purpose of calculating interest on amounts outstanding on the Loans.  If the Borrower has not made any such payment prior to 3:00 P.M., the Borrower hereby authorizes the Administrative Agent to deduct the amount of any such payment from such account(s) as the Borrower may from time to time designate in writing to the Administrative Agent, upon which the Administrative Agent shall apply the amount of such deduction to such payment.  Promptly upon receipt thereof by the Administrative Agent, each payment of principal and interest on the:  (i) Revolving Credit  Loans shall be remitted by the Administrative Agent in like funds as received to each Lender (a) first, pro rata according to the amount of interest which is then due and payable to the Lenders, and (b) second, pro rata  according to the amount of principal which is then due and payable to the Lenders and (ii) Competitive Bid Loans shall be remitted by the Administrative Agent in like funds as received to each applicable Lender.  Each payment of the Fees payable to the Lenders shall be promptly transmitted by the Administrative Agent in like funds as received to each Lender pro rata according to such Lender’s Commitment Amount or, if the Commitments shall have terminated or been terminated, according to the outstanding principal amount of such Lender’s Revolving Credit Loans.                            (b)        If any payment hereunder or under the Loans shall be due and payable on a day which is not a Domestic Business Day or Eurodollar Business Day, as the case may be, the due date thereof (except as otherwise provided in the definition of Eurodollar Interest Period or Competitive Interest Period) shall be extended to the next Domestic Business Day or Eurodollar Business Day, as the case may be, and (except with respect to payments in respect of the Facility Fee and the Utilization Fee) interest shall be payable at the applicable rate specified herein during such extension.              3.3        Conversions; Other Matters                            (a)         The Borrower may elect at any time and from time to time to Convert one or more Eurodollar Advances to an ABR Advance by giving the Administrative Agent at least one Domestic Business Day’s prior irrevocable notice of such election, specifying the amount to be so Converted.  In addition, the Borrower may elect at any time and from time to time to Convert an ABR Advance to any one or more new Eurodollar Advances or to Convert any one or more existing Eurodollar Advances to any one or more new Eurodollar Advances by giving the Administrative Agent at least two Eurodollar Business Days’ prior irrevocable notice, in the case of a Conversion to Eurodollar Advances, of such election, specifying the amount to be so Converted and the initial Interest Period relating thereto, provided that any Conversion of an ABR Advance to Eurodollar Advances shall only be made on a Eurodollar Business Day.  The Administrative Agent shall promptly provide the Lenders with notice of each such election.  ABR Advances and Eurodollar Advances may be Converted pursuant to this Section in whole or in part, provided that the amount to be Converted to each Eurodollar Advance, when aggregated with any Eurodollar Advance to be made on such date in accordance with Section 2.1 and having the same Interest Period as such first Eurodollar Advance, shall equal no less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof.                            (b)        Notwithstanding anything in this Agreement to the contrary, upon the occurrence and during the continuance of a Default or an Event of Default, the Borrower shall have no right to elect to Convert any existing ABR Advance to a new Eurodollar Advance or to Convert any existing Eurodollar Advance to a new Eurodollar Advance.  In such event, such ABR Advance shall be automatically continued as an ABR Advance or such Eurodollar Advance shall be automatically Converted to an ABR Advance on the last day of the Interest Period applicable to such Eurodollar Advance.  The foregoing shall not affect any other rights or remedies that the Administrative Agent or any Lender may have under this Agreement or any other Loan Document.                            (c)         Each Conversion shall be effected by each Lender by applying the proceeds of each new ABR Advance or Eurodollar Advance, as the case may be, to the existing Advance (or portion thereof) being Converted (it being understood that such Conversion shall not constitute a borrowing for purposes of Sections 4, 5 or 6).                            (d)        Notwithstanding any other provision of any Loan Document:                            (i) if the Borrower shall have failed to elect a Eurodollar Advance under Section 2.3 or this Section 3.3, as the case may be, in connection with any borrowing of new Revolving Credit Loans or expiration of an Interest Period with respect to any existing Eurodollar Advance, the amount of the Revolving Credit Loans subject to such borrowing or such existing Eurodollar Advance shall thereafter be an ABR Advance until such time, if any, as the Borrower shall elect a new Eurodollar Advance pursuant to this Section 3.3,                            (ii) the Borrower shall not be permitted to select a Eurodollar Advance the Interest Period in respect of which ends later than the Commitment Termination Date or such earlier date upon which all of the Commitments shall have been voluntarily terminated by the Borrower in accordance with Section 2.6, and                            (iii) the Borrower shall not be permitted to have more than 10 Eurodollar Advances and Competitive Bid Loans, in the aggregate, outstanding at any one time, it being understood and agreed that each borrowing of Eurodollar Advances or Competitive Bid Loans pursuant to a single Borrowing Request or Competitive Bid Request, as the case may be, shall constitute the making of one Eurodollar Advance or Competitive Bid Loan for the purpose of calculating such limitation.              3.4        Interest Rates and Payment Dates                            (a)         Prior to Maturity.  Except as otherwise provided in Sections 3.4(b) and 3.4(c), the Loans shall bear interest on the unpaid principal balance thereof at the applicable interest rate or rates per annum set forth below: LOANS   RATE       Revolving Credit Loans constituting ABR Advances   Alternate Base Rate applicable thereto plus the Applicable Margin.       Revolving Credit Loans constituting Eurodollar Advances   Eurodollar Rate applicable thereto plus the Applicable Margin.       Competitive Bid Loans   Fixed rate of interest applicable thereto accepted by the Borrower pursuant to Section 2.4(d).                            (b)        After Maturity, Late Payment Rate.  After maturity, whether by acceleration, notice of intention to prepay or otherwise, the outstanding principal balance of the Loans shall bear interest at the Alternate Base Rate plus 2% per annum until paid (whether before or after the entry of any judgment thereon).  Any payment of principal, interest or any Fees not paid on the date when due and payable shall bear interest at the Alternate Base Rate plus 2% per annum from the due date thereof until the date such payment is made (whether before or after the entry of any judgment thereon).                            (c)         Highest Lawful Rate.  Notwithstanding anything to the contrary contained in this Agreement, at no time shall the interest rate payable to any Lender on any of its Loans, together with the Fees and all other amounts payable hereunder to such Lender to the extent the same constitute or are deemed to constitute interest, exceed the Highest Lawful Rate.  If in respect of any period during the term of this Agreement, any amount paid to any Lender hereunder, to the extent the same shall (but for the provisions of this Section 3.4) constitute or be deemed to constitute interest, would exceed the maximum amount of interest permitted by the Highest Lawful Rate during such period (such amount being hereinafter referred to as an “Unqualified Amount”), then (i) such Unqualified Amount shall be applied or shall be deemed to have been applied as a prepayment of the Loans of such Lender, and (ii) if, in any subsequent period during the term of this Agreement, all amounts payable hereunder to such Lender in respect of such period which constitute or shall be deemed to constitute interest shall be less than the maximum amount of interest permitted by the Highest Lawful Rate during such period, then the Borrower shall pay to such Lender in respect of such period an amount (each a “Compensatory Interest Payment”) equal to the lesser of (x) a sum which, when added to all such amounts, would equal the maximum amount of interest permitted by the Highest Lawful Rate during such period, and (y) an amount equal to the aggregate sum of all Unqualified Amounts less all other Compensatory Interest Payments.                            (d)        General.  Interest shall be payable in arrears on each Interest Payment Date, on the Commitment Termination Date and, to the extent provided in Section 2.7(b), upon each prepayment of the Loans.  Any change in the interest rate on the Loans resulting from an increase or a decrease in the Alternate Base Rate or any reserve requirement shall become effective as of the opening of business on the day on which such change shall become effective.  The Administrative Agent shall, as soon as practicable, notify the Borrower and the Lenders of the effective date and the amount of each change in the FNB Rate, but any failure to so notify shall not in any manner affect the obligation of the Borrower to pay interest on the Loans in the amounts and on the dates set forth herein.  Each determination by the Administrative Agent of the Alternate Base Rate, the Eurodollar Rate and the Competitive Rate pursuant to this Agreement shall be conclusive and binding on the Borrower absent manifest error.  The Borrower acknowledges that to the extent interest payable on the Loans is based on the Alternate Base Rate, such rate is only one of the bases for computing interest on loans made by the Lenders, and by basing interest payable on ABR Advances on the Alternate Base Rate, the Lenders have not committed to charge, and the Borrower has not in any way bargained for, interest based on a lower or the lowest rate at which the Lenders may now or in the future make extensions of credit to other Persons.  All interest (other than interest calculated with reference to the FNB Rate) shall be calculated on the basis of a 360–day year for the actual number of days elapsed, and all interest determined with reference to the FNB Rate shall be calculated on the basis of a 365/366-day year for the actual number of days elapsed.              3.5        Indemnification for Loss                            Notwithstanding anything contained herein to the contrary, if: (i) the Borrower shall fail to borrow a Eurodollar Advance or if the Borrower shall fail to Convert a  Eurodollar Advance after it shall have given notice to do so in which it shall have requested a Eurodollar Advance pursuant to Section 2.3 or 3.3, as the case may be, (ii) the Borrower shall fail to borrow a Competitive Bid Loan after it shall have accepted any offer with respect thereto in accordance with Section 2.4, (iii) a Eurodollar Advance or Competitive Bid Loan shall be terminated for any reason prior to the last day of the Interest Period applicable thereto, (iv) any repayment or prepayment of the principal amount of a Eurodollar Advance or Competitive Bid Loan is made for any reason on a date which is prior to the last day of the Interest Period applicable thereto, or (v) the Borrower shall have revoked a notice of prepayment or notice of termination of the Commitments that was conditioned upon the effectiveness of other credit facilities pursuant to Section 2.6 or 2.7, the Borrower agrees to indemnify each Lender against, and to pay on demand directly to such Lender the amount (calculated by such Lender using any method chosen by such Lender which is customarily used by such Lender for such purpose) equal to any loss or expense suffered by such Lender as a result of such failure to borrow or Convert, or such termination, repayment, prepayment or revocation, including any loss, cost or expense suffered by such Lender in liquidating or employing deposits acquired to fund or maintain the funding of such Eurodollar Advance or Competitive Bid Loan, as the case may be, or redeploying funds prepaid or repaid, in amounts which correspond to such Eurodollar Advance or Competitive Bid Loan, as the case may be, and any reasonable internal processing charge customarily charged by such Lender in connection therewith.              3.6        Reimbursement for Costs, Etc.                            If at any time or from time to time there shall occur a Regulatory Change and any Lender shall have reasonably determined that such Regulatory Change (i) shall have had or will thereafter have the effect of reducing (A) the rate of return on such Lender’s capital or the capital of any Person directly or indirectly owning or controlling such Lender (each a “Control Person”), or (B) the asset value (for capital purposes) to such Lender or such Control Person, as applicable, of the Loans, or any participation therein, in any case to a level below that which such Lender or such Control Person could have achieved or would thereafter be able to achieve but for such Regulatory Change (after taking into account such Lender’s or such Control Person’s policies regarding capital), (ii) will impose, modify or deem applicable any reserve, asset, special deposit or special assessment requirements on deposits obtained in the interbank eurodollar market in connection with the Loan Documents (excluding, with respect to any Eurodollar Advance, any such requirement which is included in the determination of the rate applicable thereto), (iii) will subject such Lender or such Control Person, as applicable, to any tax (documentary, stamp or otherwise) with respect to this Agreement or any Note, or (iv) will change the basis of taxation of payments to such Lender or such Control Person, as applicable, of principal, interest or fees payable under the Loan Documents (except, in the case of clauses (iii) and (iv) above, for any tax or changes in the rate of tax on such Lender’s or such Control Person’s net income) then, in each such case, within ten days after demand by such Lender, the Borrower shall pay to such Lender or such Control Person, as the case may be, such additional amount or amounts as shall be sufficient to compensate such Lender or such Control Person, as the case may be, for any such reduction, reserve or other requirement, tax, loss, cost or expense (excluding general administrative and overhead costs) (collectively, “Costs”) attributable to such Lender’s or such Control Person’s compliance during the term hereof with such Regulatory Change.  Each Lender may make multiple requests for compensation under this Section.                            Notwithstanding the foregoing, the Borrower will not be required to compensate any Lender for any Costs under this Section 3.6 arising prior to 45 days preceding the date of demand, unless the applicable Regulatory Change giving rise to such Costs is imposed retroactively.  In the case of retroactivity, such notice shall be provided to the Borrower not later than 45 days from the date that such Lender learned of such Regulatory Change.  The Borrower’s obligation to compensate such Lender shall be contingent upon the provision of such timely notice (but any failure by such Lender to provide such timely notice shall not affect the Borrower’s obligations with respect to (i) Costs incurred from the date as of which such Regulatory Change became effective to the date that is 45 days after the date such Lender reasonably should have learned of such Regulatory Change and (ii) Costs incurred following the provision of such notice).              3.7        Illegality of Funding                            Notwithstanding any other provision hereof, if any Lender shall reasonably determine that any law, regulation, treaty or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for such Lender to make or maintain any Eurodollar Advance as contemplated by this Agreement, such Lender shall promptly notify the Borrower and the Administrative Agent thereof, and (a) the commitment of such Lender to make such Eurodollar Advances or Convert ABR Advances to such Eurodollar Advances shall forthwith be suspended, (b) such Lender shall fund its portion of each requested Eurodollar Advance as an ABR Advance and (c) such Lender’s Loans then outstanding as such Eurodollar Advances, if any, shall be Converted automatically to an ABR Advance on the last day of the then current Interest Period applicable thereto or at such earlier time as may be required.  If the commitment of any Lender with respect to Eurodollar Advances is suspended pursuant to this Section and such Lender shall have obtained actual knowledge that it is once again legal for such Lender to make or maintain Eurodollar Advances, such Lender shall promptly notify the Administrative Agent and the Borrower thereof and, upon receipt of such notice by each of the Administrative Agent and the Borrower, such Lender’s commitment to make or maintain Eurodollar Advances shall be reinstated.  If the commitment of any Lender with respect to Eurodollar Advances is suspended pursuant to this Section, such suspension shall not otherwise affect such Lender’s Commitment.              3.8        Option to Fund; Substituted Interest Rate                            (a)         Each Lender has indicated that, if the Borrower requests a Eurodollar Advance or a Competitive Bid Loan, such Lender may wish to purchase one or more deposits in order to fund or maintain its funding of its Commitment Percentage of such Eurodollar Advance or its Competitive Bid Loan during the Interest Period with respect thereto; it being understood that the provisions of this Agreement relating to such funding are included only for the purpose of determining the rate of interest to be paid in respect of such Eurodollar Advance or Competitive Bid Loan and any amounts owing under Sections 3.5 and 3.6.  Each Lender shall be entitled to fund and maintain its funding of all or any part of each Eurodollar Advance and Competitive Bid Loan in any manner it sees fit, but all such determinations hereunder shall be made as if such Lender had actually funded and maintained its Commitment Percentage of each Eurodollar Advance or its Competitive Bid Loan, as the case may be, during the applicable Interest Period through the purchase of deposits in an amount equal to the amount of its Commitment Percentage of such Eurodollar Advance or the amount of such Competitive Bid Loan, as the case may be, and  having a maturity corresponding to such Interest Period.  Each Lender may fund its Loans from or for the account of any branch or office of such Lender as such Lender may choose from time to time, subject to Section 3.10.                            (b)        In the event that (i) the Administrative Agent shall have determined in good faith (which determination shall be conclusive and binding upon the Borrower) that by reason of circumstances affecting the interbank eurodollar market either adequate and reasonable means do not exist for ascertaining the Eurodollar Rate applicable pursuant to Section 2.3 or Section 3.3, or (ii) the Required Lenders shall have notified the Administrative Agent that they have in good faith determined (which determination shall be conclusive and binding on the Borrower) that the applicable Eurodollar Rate will not adequately and fairly reflect the cost to such Lenders of maintaining or funding loans bearing interest based on such Eurodollar Rate with respect to any portion of the Loans that the Borrower has requested be made as Eurodollar Advances or any Eurodollar Advance that will result from the requested conversion of any portion of the Loans into Eurodollar Advances (each, an “Affected Advance”), the Administrative Agent shall promptly notify the Borrower and the Lenders (by telephone or otherwise, to be promptly confirmed in writing) of such determination on or, to the extent practicable, prior to the requested Borrowing Date or conversion date for such Affected Advances.  If the Administrative Agent shall give such notice, (A) any Affected Advances shall be made as ABR Advances (or, subject to the terms and conditions hereof, Competitive Bid Loans), (B) the Loans (or any portion thereof) that were to have been Converted to Affected Advances shall be Converted to or continued as ABR Advances (or, subject to the terms and conditions hereof, Competitive Bid Loans), and (C) any outstanding Affected Advances shall be Converted, on the last day of the then current Interest Period with respect thereto, to ABR Advances (or, subject to the terms and conditions hereof, Competitive Bid Loans).  Until any notice under clauses (i) or (ii), as the case may be, of this Section 3.8(b) has been withdrawn by the Administrative Agent (by notice to the Borrower) promptly upon either (x) the Administrative Agent having determined that such circumstances affecting the relevant market no longer exist and that adequate and reasonable means do exist for determining the Eurodollar Rate pursuant to Section 2.3 or Section 3.3, or (y) the Administrative Agent having been notified by such Required Lenders that circumstances no longer render the Loans (or any portion thereof) Affected Advances, no further Eurodollar Advances shall be required to be made by the Lenders nor shall the Borrower have the right to Convert all or any portion of the Loans to Eurodollar Advances.              3.9        Certificates of Payment and Reimbursement                            Each Lender agrees, in connection with any request by it for payment or reimbursement pursuant to Section 3.5 or 3.6, to provide the Borrower with a certificate, signed by an officer of such Lender, setting forth a description in reasonable detail of any such payment or reimbursement.  Each determination by each Lender of such payment or reimbursement shall be conclusive absent manifest error.              3.10      Taxes; Net Payments                            (a)         All payments made by the Borrower under the Loan Documents shall be made free and clear of, and without reduction for or on account of, any taxes required by law to be withheld from any amounts payable under the Loan Documents.  In  the event that the Borrower is prohibited by law from making such payments free of deductions or withholdings, then the Borrower shall pay such additional amounts to the Administrative Agent, for the benefit of the Lenders, as may be necessary in order that the actual amounts received by the Lenders in respect of interest and any other amounts payable under the Loan Documents after deduction or withholding (and after payment of any additional taxes or other charges due as a consequence of the payment of such additional amounts) shall equal the amount that would have been received if such deduction or withholding were not required.  In the event that any such deduction or withholding can be reduced or nullified as a result of the application of any relevant double taxation convention, the Lenders and the Administrative Agent will, at the expense of the Borrower, cooperate with the Borrower in making application to the relevant taxing authorities seeking to obtain such reduction or nullification, provided that the Lenders and the Administrative Agent shall have no obligation to (i) engage in any litigation, hearing or proceeding with respect thereto or (ii) disclose any tax return or other confidential information.  If the Borrower shall make any payment under this Section or shall make any deduction or withholding from amounts paid under any Loan Document, the Borrower shall forthwith forward to the Administrative Agent original or certified copies of official receipts or other evidence acceptable to the Administrative Agent establishing each such payment, deduction or withholding, as the case may be, and the Administrative Agent in turn shall distribute copies thereof to each Lender.  If any payment to any Lender under any Loan Document is or becomes subject to any withholding, such Lender shall (unless otherwise required by a Governmental Authority or as a result of any law, rule, regulation, order or similar directive applicable to such Lender) designate a different office or branch to which such payment is to be made from that initially selected thereby, if such designation would avoid such withholding and would not be otherwise disadvantageous to such Lender in any respect.  In the event that any Lender determines that it received a refund or credit for taxes paid by the Borrower under this Section, such Lender shall promptly notify the Administrative Agent and the Borrower of such fact and shall remit to the Borrower the amount of such refund or credit applicable to the payments made by the Borrower in respect of such Lender under this Section.                            (b)        So long as it is lawfully able to do so, each Lender not incorporated under the laws of the United States or any State thereof shall deliver to the Borrower such certificates, documents, or other evidence as the Borrower may reasonably require from time to time as are necessary to establish that such Lender is not subject to withholding under Section 1441, 1442 or 3406 of the Internal Revenue Code or as may be necessary to establish, under any law imposing upon the Borrower, hereafter, an obligation to withhold any portion of the payments made by the Borrower under the Loan Documents, that payments to the Administrative Agent on behalf of such Lender are not subject to withholding.  Notwithstanding any provision herein to the contrary, the Borrower shall have no obligation to pay to any Lender any amount which the Borrower is liable to withhold due to the failure of such Lender to file any statement of exemption required by the Internal Revenue Code.              3.11      Fees                            (a)         Facility Fee.  The Borrower agrees to pay to the Administrative Agent for the pro rata account of each Lender a fee (the “Facility Fee”) during the period commencing on the Effective Date and ending on the Expiration Date, payable quarterly in arrears on the last day of each March, June, September and December of each year, commencing on the last day of the calendar quarter in which the Effective Date shall have occurred, and on the Expiration Date, at a rate per annum equal to the Applicable Margin of (a) prior to the Commitment Termination Date or such earlier date upon which all of the Commitments shall have been voluntarily terminated by the Borrower in accordance with Section 2.6, the Commitment Amount of such Lender (whether used or unused), and (b) thereafter, the outstanding principal balance of all Revolving Credit Loans of such Lender.  Notwithstanding anything to the contrary contained in this Section, on and after the Commitment Termination Date, the Facility Fee shall be payable upon demand.  In addition, upon each reduction of the Aggregate Commitment Amount, the Borrower shall pay the Facility Fee accrued on the amount of such reduction through the date of such reduction.  The Facility Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed.                            (b)        Utilization Fee.  The Borrower agrees to pay to the Administrative Agent for the pro rata account of each Lender a fee (the “Utilization Fee”) for each day during the period commencing on the Effective Date and ending on the Expiration Date (or, if later, the date when the Committed Credit Exposure of such Lender is $0) that the sum of the Aggregate Credit Exposure plus the Aggregate Credit Exposure (as defined in the Other Credit Agreement) on such date exceeds 50% of the sum of the Aggregate Commitment Amount plus the Aggregate Commitment Amount (as defined in the Other Credit Agreement) on such date, payable on each Interest Payment Date (other than an Interest Payment Date applicable solely to Competitive Bid Loans), at a rate per annum equal to the Applicable Margin of the Committed Credit Exposure of such Lender on such date.  Notwithstanding anything to the contrary contained in this Section, on and after the Commitment Termination Date, the Utilization Fee shall be payable upon demand.  The Utilization Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed.              3.12      [Intentionally Omitted]              3.13      Replacement of Lender If the Borrower is obligated to pay to any Lender any amount under Section 3.6 or 3.10, the Borrower shall have the right within 90 days thereafter, in accordance with the requirements of Section 11.7(c), if no Default or Event of Default shall exist, to replace such Lender (the “Replaced Lender”) with one or more other assignees (each a “Replacement Lender”), provided that (i) at the time of any replacement pursuant to this Section, the Replacement Lender shall enter into one or more Assignment and Acceptance Agreements pursuant to Section 11.7(c) (with the Assignment Fee payable pursuant to said Section 11.7(c) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire the Commitment and the outstanding Loans of the Replaced Lender and, in connection therewith, shall pay the following: (a) to the Replaced Lender, an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender and (B) an amount equal to all accrued, but unpaid, fees owing to the Replaced Lender and (b) to the Administrative Agent an amount equal to all amounts owed by such Replaced Lender to the Administrative Agent under this Agreement, including, without limitation, an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, a corresponding amount of which was made available by the Administrative Agent to the Borrower pursuant to Section 3.1 and which has not been repaid to the Administrative Agent by such Replaced Lender or the Borrower, and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement.  Upon the execution of the respective Assignment and Acceptance Agreements and the payment of amounts referred to in clauses (i) and (ii) of this Section 3.13, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement that are intended to survive the termination of the Commitments. 4.          REPRESENTATIONS AND WARRANTIES              In order to induce the Administrative Agent and the Lenders to enter into this Agreement and the Lenders to make the Loans, the Borrower hereby makes the following representations and warranties to the Administrative Agent and the Lenders:              4.1        Existence and Power              Each of the Borrower and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation (except, in the case of the Subsidiaries, where the failure to be in such good standing could not reasonably be expected to have a Material Adverse effect), has all requisite corporate power and authority to own its Property and to carry on its business as now conducted, and is qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases real Property or in which the nature of its business requires it to be so qualified (except those jurisdictions where the failure to be so qualified or to be in good standing could not reasonably be expected to have a Material Adverse effect).              4.2        Authority                            The Borrower has full corporate power and authority to enter into, execute, deliver and perform the terms of the Loan Documents, all of which have been duly authorized by all proper and necessary corporate action and are not in contravention of any applicable law or the terms of its Certificate of Incorporation and By–Laws.  No consent or approval of, or other action by, shareholders of the Borrower, any Governmental Authority, or any other Person (which has not already been obtained) is required to authorize in respect of the Borrower, or is required in connection with the execution, delivery, and performance by the Borrower of the Loan Documents or is required as a condition to the enforceability of the Loan Documents against the Borrower.              4.3        Binding Agreement                            The Loan Documents constitute the valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles relating to the availability of specific performance as a remedy.              4.4        Litigation                            There are no actions, suits, arbitration proceedings or claims (whether purportedly on behalf of the Borrower, any Subsidiary or otherwise) pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary or any of their respective Properties, or maintained by the Borrower or any Subsidiary, at law or in equity, before any Governmental Authority which could reasonably be expected to have a Material Adverse effect.  There are no proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary (a) which call into question the validity or enforceability of any Loan Document, or otherwise seek to invalidate, any Loan Document, or (b) which might, individually or in the aggregate, materially and adversely affect any of the transactions contemplated by any Loan Document.              4.5        No Conflicting Agreements                            (a)         Neither the Borrower nor any Subsidiary is in default under any agreement to which it is a party or by which it or any of its Property is bound the effect of which could reasonably be expected to have a Material Adverse effect.  No notice to, or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower of the Loan Documents.                            (b)        No provision of any existing material mortgage, material indenture, material contract or material agreement or of any existing statute, rule, regulation, judgment, decree or order binding on the Borrower or any Subsidiary or affecting the Property of the Borrower or any Subsidiary conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance by the Borrower of the terms of, any Loan Document.  The execution, delivery or performance by the Borrower of the terms of each Loan Document will not constitute a default under, or result in the creation or imposition of, or obligation to create, any Lien upon the Property of the Borrower or any Subsidiary pursuant to the terms of any such mortgage, indenture, contract or agreement.              4.6        Taxes                            The Borrower and each Subsidiary has filed or caused to be filed all tax returns, and has paid, or has made adequate provision for the payment of, all taxes shown to be due and payable on said returns or in any assessments made against them, the failure of which to file or pay could reasonably be expected to have a Material Adverse effect, and no tax Liens (other than Liens permitted under Section 8.2) have been filed against the Borrower or any Subsidiary and no claims are being asserted with respect to such taxes which are required by GAAP to be reflected in the Financial Statements and are not so reflected, except for taxes which have been assessed but which are not yet due and payable.  The charges, accruals and reserves on the books of the Borrower and each Subsidiary with respect to all federal, state, local and other taxes are considered by the management of the Borrower to be adequate, and the Borrower knows of no unpaid assessment which (a) could reasonably be expected to have a Material Adverse effect, or (b) is or might be due and payable against it or any Subsidiary or any Property of the Borrower or any Subsidiary, except such thereof as are being contested in good faith and by appropriate proceedings diligently conducted, and for which adequate reserves have been set aside in accordance with GAAP or which have been assessed but are not yet due and payable.              4.7        Compliance with Applicable Laws; Filings                            Neither the Borrower nor any Subsidiary is in default with respect to any judgment, order, writ, injunction, decree or decision of any Governmental Authority which default could reasonably be expected to have a Material Adverse effect.  The Borrower and each Subsidiary is complying with all applicable statutes, rules and regulations of all Governmental Authorities, a violation of which could reasonably be expected to have a Material Adverse effect.  The Borrower and each Subsidiary has filed or caused to be filed with all Governmental Authorities all reports, applications, documents, instruments and information required to be filed pursuant to all applicable laws, rules, regulations and requests which, if not so filed, could reasonably be expected to have a Material Adverse effect.              4.8        Governmental Regulations                            Neither the Borrower nor any Subsidiary nor any corporation controlling the Borrower or any Subsidiary or under common control with the Borrower or any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, or is subject to any statute or regulation which regulates the incurrence of Indebtedness.              4.9        Federal Reserve Regulations; Use of Proceeds                            The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended.  No part of the proceeds of the Loans has been or will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any Governmental Authority, including, without limitation, the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System, as amended.  Anything in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to or on behalf of the Borrower in violation of any limitation or prohibition provided by any applicable law, regulation or statute, including said Regulation U.  Following application of the proceeds of each Loan, not more than 25% (or such greater or lesser percentage as is provided in the exclusions from the definition of “Indirectly Secured” contained in said Regulation U as in effect at the time of the making of such Loan) of the value of the assets of the Borrower and the Subsidiaries on a Consolidated basis that are subject to Section 8.2 will be Margin Stock.              4.10      No Misrepresentation                            No representation or warranty contained in any Loan Document and no certificate or written report furnished by the Borrower to the Administrative Agent or any Lender contains or will contain, as of its date, a misstatement of material fact, or omits or will omit to state, as of its date, a material fact required to be stated in order to make the statements therein contained not misleading in the light of the circumstances under which made.              4.11      Plans                            Each Employee Benefit Plan of the Borrower, each Subsidiary and each ERISA Affiliate is in compliance with ERISA and the Internal Revenue Code, where applicable, except where the failure to so comply would not be material.  The Borrower, each Subsidiary and each ERISA Affiliate have complied with the material requirements of Section 515 of ERISA with respect to each Pension Plan which is a Multiemployer Plan, except where the failure to so comply would not be material.  The Borrower, each Subsidiary and each ERISA Affiliate has, as of the date hereof, made all contributions or payments to or under each such Pension Plan required by law or the terms of such Pension Plan or any contract or agreement.  No liability to the PBGC has been, or is reasonably expected by the Borrower, any Subsidiary or any ERISA Affiliate to be, incurred by the Borrower, any Subsidiary or any ERISA Affiliate.  Liability, as referred to in this Section 4.11, includes any joint and several liability, but excludes any current or, to the extent it represents future liability in the ordinary course, any future liability for premiums under Section 4007 of ERISA.  Each Employee Benefit Plan which is a group health plan within the meaning of Section 5000(b)(1) of the Internal Revenue Code is in material compliance with the continuation of health care coverage requirements of Section 4980B of the Internal Revenue Code and with the portability, nondiscrimination and other requirements of Sections 9801, 9802, 9803, 9811 and 9812 of the Internal Revenue Code.              4.12      Environmental Matters                            Neither the Borrower nor any Subsidiary (a) has received written notice or otherwise learned of any claim, demand, action, event, condition, report or investigation indicating or concerning any potential or actual liability which individually or in the aggregate could reasonably be expected to have a Material Adverse effect, arising in connection with (i) any non–compliance with or violation of the requirements of any applicable federal, state or local environmental health or safety statute or regulation, or (ii) the release or threatened release of any toxic or hazardous waste, substance or constituent, or other substance into the environment, (b) to the best knowledge of the Borrower, has any threatened or actual liability in connection with the release or threatened release of any toxic or hazardous waste, substance or constituent, or other substance into the environment which individually or in the aggregate could reasonably be expected to have a Material Adverse effect, (c) has received notice of any federal or state investigation evaluating whether any remedial action is needed to respond to a release or threatened release of any toxic or hazardous waste, substance or constituent or other substance into the environment for which the Borrower or any Subsidiary is or would be liable, which liability would reasonably be expected to have a Material Adverse effect, or (d) has received notice that the Borrower or any Subsidiary is or may be liable to any Person under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.  Section 9601 et seq., or any analogous state law, which liability would reasonably be expected to have a Material Adverse effect.  The Borrower and each Subsidiary is in compliance with the financial responsibility requirements of federal and state environmental laws to the extent applicable, including those contained in 40 C.F.R., parts 264 and 265, subpart H, and any analogous state law, except in those cases in which the failure so to comply would not reasonably be expected to have a Material Adverse effect.              4.13      Financial Statements                            The Borrower has heretofore delivered to the Lenders through the Administrative Agent copies of (i) the audited Consolidated Balance Sheet of the Borrower and its Subsidiaries as of December 30, 2000, and the related Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows for the fiscal year then ended, and (ii) the unaudited Consolidated Balance Sheet of the Borrower and its Subsidiaries as of March 31, 2001, and the related Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows for the fiscal quarter then ended.  The financial statements referred to in (i) and (ii) immediately above, including all related notes and schedules, are herein referred to collectively as the “Financial Statements”.  The Financial Statements fairly present the Consolidated financial condition and results of the operations of the Borrower and the Subsidiaries as of the dates and for the periods indicated therein and, except as noted therein, have been prepared in conformity with GAAP as then in effect.  Neither the Borrower nor any of the Subsidiaries has any obligation or liability of any kind (whether fixed, accrued, contingent, unmatured or otherwise) which, in accordance with GAAP as then in effect, should have been disclosed in the Financial Statements and was not.  During the period from December 30, 2000 to and  including the Effective Date there has been no Material Adverse change, including as a result of any change in law, in the consolidated financial condition, operations, business or Property of the Borrower and the Subsidiaries taken as a whole. 5.          CONDITIONS OF LENDING - FIRST LOANS ON THE FIRST BORROWING DATE              In addition to the requirements set forth in Section 6, the obligation of each Lender on the first Borrowing Date to make one or more Revolving Credit Loans and any Lender to make a Competitive Bid Loan are subject to the fulfillment of the following conditions precedent prior to or simultaneously with the Effective Date:              5.1        Evidence of Corporate Action                            The Administrative Agent shall have received a certificate, dated the Effective Date, of the Secretary or an Assistant Secretary of the Borrower (i) attaching a true and complete copy of the resolutions of its Board of Directors and of all documents evidencing all other necessary corporate action (in form and substance reasonably satisfactory to the Administrative Agent) taken by the Borrower to authorize the Loan Documents and the transactions contemplated thereby, (ii) attaching a true and complete copy of its Certificate of Incorporation and By–Laws, (iii) setting forth the incumbency of the officer or officers of the Borrower who may sign the Loan Documents and any other certificates, requests, notices or other documents now or in the future required thereunder, and (iv) attaching a certificate of good standing of the Secretary of State of the State of Delaware.              5.2        Notes                            The Borrower shall have delivered to the Administrative Agent (for delivery to the Lenders) the Notes, executed by the Borrower.              5.3        Existing Bank Indebtedness                            All Existing Bank Indebtedness shall have been paid in full, the commitments under the Existing Credit Agreement shall have been terminated and the Administrative Agent shall have received satisfactory evidence of the foregoing.              5.4        Opinion of Counsel to the Borrower                            The Administrative Agent shall have received an opinion of Zenon Lankowsky, counsel to the Borrower, dated the Effective Date, and in the form of Exhibit D. 6.          CONDITIONS OF LENDING - ALL LOANS              The obligation of each Lender on any Borrowing Date to make each Revolving Credit Loan and any Lender to make a Competitive Bid Loan are subject to the fulfillment of the following conditions precedent:              6.1        Compliance                            On each Borrowing Date, and after giving effect to the Loans to be made on such Borrowing Date, (a) there shall exist no Default or Event of Default, and (b) the representations and warranties contained in this Agreement shall be true and correct with the same effect as though such representations and warranties had been made on such Borrowing Date, except those which are expressly specified to be made as of an earlier date.              6.2        Requests                            The Administrative Agent shall have received a Borrowing Request from the Borrower.              6.3        Loan Closings                            All documents required by the provisions of this Agreement to have been executed or delivered by the Borrower to the Administrative Agent or any Lender on or before the applicable Borrowing Date shall have been so executed or delivered on or before such Borrowing Date. 7.          AFFIRMATIVE COVENANTS              The Borrower covenants and agrees that on and after the Effective Date and until the later to occur of (a) the Commitment Termination Date and (b) the payment in full of the Loans, the Fees and all other sums payable under the Loan Documents, the Borrower will:              7.1        Legal Existence                            Except as may otherwise be permitted by Sections 8.3 and 8.4, maintain, and cause each Subsidiary to maintain, its corporate existence in good standing in the jurisdiction of its incorporation or formation and in each other jurisdiction in which the failure so to do could reasonably be expected to have a Material Adverse effect, except that the corporate existence of Subsidiaries operating closing or discontinued operations may be terminated.              7.2        Taxes                            Pay and discharge when due, and cause each Subsidiary so to do, all taxes, assessments, governmental charges, license fees and levies upon or with respect to the Borrower and such Subsidiary, and upon the income, profits and Property thereof unless, and only to the extent, that either (i)(a) such taxes, assessments, governmental charges, license fees and levies shall be contested in good faith and by appropriate proceedings diligently conducted by the Borrower or such Subsidiary, and (b) such reserve or other appropriate provision as shall be required by GAAP shall have been made therefor, or (ii) the failure to pay or discharge such taxes, assessments, governmental charges, license fees and levies could not reasonably be expected to have a Material Adverse effect.              7.3        Insurance                            Keep, and cause each Subsidiary to keep, insurance with responsible insurance companies in such amounts and against such risks as is usually carried by  the Borrower or such Subsidiary.              7.4        Performance of Obligations                            Pay and discharge promptly when due, and cause each Subsidiary so to do, all lawful Indebtedness, obligations and claims for labor, materials and supplies or otherwise which, if unpaid, could reasonably be expected to (a) have a Material Adverse effect, or (b) become a Lien on the Property of the Borrower or any Subsidiary, except those Liens permitted under Section 8.2, provided that neither the Borrower nor such Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such Indebtedness, obligation or claim so long as (i) the validity thereof shall be contested in good faith and by appropriate proceedings diligently conducted by the Borrower or such Subsidiary, and (ii) such reserve or other appropriate provision as shall be required by GAAP shall have been made therefor.              7.5        Condition of Property                            Except for ordinary wear and tear, at all times, maintain, protect and keep in good repair, working order and condition, all material Property necessary for the operation of its business (other than Property which is replaced with similar Property) as then being operated, and cause each Subsidiary so to do.              7.6        Observance of Legal Requirements                            Observe and comply in all material respects, and cause each Subsidiary so to do, with all laws, ordinances, orders, judgments, rules, regulations, certifications, franchises, permits, licenses, directions and requirements of all Governmental Authorities, which now or at any time hereafter may be applicable to it or to such Subsidiary, a violation of which could reasonably be expected to have a Material Adverse effect.              7.7        Financial Statements and Other Information                            Maintain, and cause each Subsidiary to maintain, a standard system of accounting in accordance with GAAP, and furnish to each Lender:                            (a)         As soon as available and, in any event, within 120 days after the close of each fiscal year, a copy of (x) the Borrower’s 10-K in respect of such fiscal year, and (y) (i) the Borrower’s Consolidated Balance Sheet as of the end of such fiscal year, and (ii) the related Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows, as of and through the end of such fiscal year, setting forth in each case in comparative form the corresponding figures in respect of the previous fiscal year, all in reasonable detail, and accompanied by a report of the Borrower’s auditors, which report shall state that (A) such auditors audited such financial statements, (B) such audit was made in accordance with generally accepted auditing standards in effect at the time and provides a reasonable basis for such opinion, and (C) said financial statements have been prepared in accordance with GAAP;                            (b)        As soon as available, and in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of (x) the Borrower’s 10–Q in respect of such fiscal quarter, and (y) (i) the Borrower’s Consolidated Balance Sheet as of the end of such quarter and (ii) the related Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows for (A) such quarter and (B) the period from the beginning of the then current fiscal year to the end of such quarter, in each case in comparable form with the prior fiscal year, all in reasonable detail and prepared in accordance with GAAP (without footnotes and subject to year–end adjustments);                            (c)         Simultaneously with the delivery of the financial statements required by clauses (a) and (b) above, a certificate of the chief financial officer or treasurer of the Borrower certifying that no Default or Event of Default shall have occurred or be continuing or, if so, specifying in such certificate all such Defaults and Events of Default, and setting forth computations in reasonable detail demonstrating compliance with Sections 8.1 and 8.10.                            (d)        Prompt notice upon the Borrower becoming aware of any change in a Pricing Level;                            (e)         Promptly upon becoming available, copies of all regular or periodic reports (including current reports on Form 8-K) which the Borrower or any Subsidiary may now or hereafter be required to file with or deliver to the Securities and Exchange Commission, or any other Governmental Authority succeeding to the functions thereof, and copies of all material news releases sent to all stockholders;                                        (f)         Prompt written notice of: (i) any citation, summons, subpoena, order to show cause or other order naming the Borrower or any Subsidiary a party to any proceeding before any Governmental Authority which could reasonably be expected to have a Material Adverse effect, and include with such notice a copy of such citation, summons, subpoena, order to show cause or other order, (ii) any lapse or other termination of any license, permit, franchise or other authorization issued to the Borrower or any Subsidiary by any Governmental Authority, (iii) any refusal by any Governmental Authority to renew or extend any license, permit, franchise or other authorization, and (iv) any dispute between the Borrower or any Subsidiary and any Governmental Authority, which lapse, termination, refusal or dispute, referred to in clause (ii), (iii) or (iv) above, could reasonably be expected to have a Material Adverse effect;                            (g)        Prompt written notice of the occurrence of (i) each Default, (ii) each Event of Default and (iii) each Material Adverse change;                            (h)        Promptly upon receipt thereof, copies of any audit reports delivered in connection with the statements referred to in Section 7.7(a); and                            (i)          From time to time, such other information regarding the financial position or business of the Borrower and the Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request.              7.8        Records                            Upon reasonable notice and during normal business hours, permit representatives of the Administrative Agent and each Lender to visit the offices of the Borrower and each Subsidiary, to examine the books and records (other than tax returns and work papers related to tax returns) thereof and auditors’ reports relating thereto, to discuss the affairs of the Borrower and each Subsidiary with the respective officers thereof, and to meet and discuss the affairs of the Borrower and each Subsidiary with the Borrower’s auditors.              7.9        Authorizations                            Maintain and cause each Subsidiary to maintain, in full force and effect, all copyrights, patents, trademarks, trade names, franchises, licenses, permits, applications, reports, and other authorizations and rights, which, if not so maintained, would individually or in the aggregate have a Material Adverse effect. 8.          NEGATIVE COVENANTS              The Borrower covenants and agrees that on and after the Effective Date and until the later to occur of (a) the Commitment Termination Date and (b) the payment in full of the Loans, the Fees and all other sums which are payable under the Loan Documents, the Borrower will not:              8.1        Subsidiary Indebtedness                            Permit the Indebtedness of all Subsidiaries (excluding the ESOP Guaranty) to exceed (on a combined basis) 10% of Tangible Net Worth.                    8.2        Liens                            Create, incur, assume or suffer to exist any Lien against or on any Property now owned or hereafter acquired by the Borrower or any of the Subsidiaries, or permit any of the Subsidiaries so to do, except any one or more of the following types of Liens: (a) Liens in connection with workers’ compensation, unemployment insurance or other social security obligations (which phrase shall not be construed to refer to ERISA or the minimum funding obligations under Section 412 of the Code), (b) Liens to secure the performance of bids, tenders, letters of credit, contracts (other than contracts for the payment of Indebtedness), leases, statutory obligations, surety, customs, appeal, performance and payment bonds and other obligations of like nature, in each such case arising in the ordinary course of business, (c) mechanics’, workmen’s, carriers’, warehousemen’s, materialmen’s, landlords’ or other like Liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith and by appropriate proceedings diligently conducted, (d) Liens for taxes, assessments, fees or governmental charges the payment of which is not required by Section 7.2, (e) easements, rights of way, restrictions, leases of Property to others, easements for installations of public utilities, title imperfections and restrictions, zoning ordinances and other similar encumbrances affecting Property which in the aggregate do not materially impair its use for the operation of the business of the Borrower or such Subsidiary, (f) Liens on Property of the Subsidiaries under capital leases and Liens on Property of the Subsidiaries acquired (whether as a result of purchase, capital lease, merger or other acquisition) and either existing on such Property when acquired, or created contemporaneously with or within 12 months of such acquisition to secure the payment or financing of the purchase price of such Property (including the construction, development, substantial repair, alteration or improvement thereof), and any renewals thereof,  provided that such Liens attach only to the Property so purchased or acquired (including any such construction, development, substantial repair, alteration or improvement thereof) and provided further that the Indebtedness secured by such Liens is permitted by Section 8.1, (g) statutory Liens in favor of lessors arising in connection with Property leased to the Borrower or any of the Subsidiaries, (h) Liens of attachments, judgments or awards against the Borrower or any of the Subsidiaries with respect to which an appeal or proceeding for review shall be pending or a stay of execution or bond shall have been  obtained, or which are otherwise being contested in good faith and by appropriate proceedings diligently conducted, and in respect of which adequate reserves shall have been established in accordance with GAAP on the books of the Borrower or such Subsidiary, (i) Liens securing Indebtedness of a Subsidiary to the Borrower or another Subsidiary, (j) Liens (other than Liens permitted by any of the foregoing clauses) arising in the ordinary course of its business which do not secure Indebtedness and do not, in the aggregate, materially detract from the value of the business of the Borrower and its Subsidiaries, taken as a whole, and (k) additional Liens securing Indebtedness of the Borrower and the Subsidiaries in an aggregate outstanding Consolidated principal amount not exceeding 10% of Tangible Net Worth.              8.3        Dispositions                            Make any Disposition, or permit any of its Subsidiaries so to do, of all or substantially all of the assets of the Borrower and the Subsidiaries on a Consolidated basis.              8.4        Merger or Consolidation, Etc.                            The Borrower will not consolidate with, be acquired by, or merge into or with any Person unless (x) immediately after giving effect thereto no Default or Event of Default shall or would exist and (y) either (i) the Borrower or (ii) a corporation organized and existing under the laws of one of the States of the United States of America shall be the survivor of such consolidation or merger, provided that if the Borrower is not the survivor, the corporation which is the survivor shall expressly assume, pursuant to an instrument executed and delivered to the Administrative Agent, and in form and substance satisfactory to the Administrative Agent, all obligations of the Borrower under the Loan Documents and the Administrative Agent shall have received such documents, opinions and certificates as it shall have reasonable requested in connection therewith.              8.5        Acquisitions                            Make any Acquisition, or permit any of the Subsidiaries so to do, except any one or more of the following: (a) Intercompany Dispositions permitted by Section 8.3 and (b) Acquisitions by the Borrower or any of the Subsidiaries, provided that immediately before and after giving effect to each such Acquisition no Default or Event of Default shall or would exist.              8.6        Restricted Payments                           Make any Restricted Payment or permit any of the Subsidiaries so to do, except any one or more of the following Restricted Payments: (a) any direct or indirect Subsidiary may make dividends or other distributions to the Borrower or to any other direct or indirect Subsidiary, and (b) the Borrower may make Restricted Payments provided that, in the case of this clause (b), immediately before and after giving effect thereto, no Event of Default shall or would exist.  Nothing in this Section 8.6 shall prohibit or restrict the declaration or payment of dividends in respect of the Series One ESOP Convertible Preferred Stock of the Borrower.              8.7        Limitation on Upstream Dividends by Subsidiaries                            Permit or cause any of the Subsidiaries to enter into or agree, or otherwise be or become subject, to any agreement, contract or other arrangement (other than this Agreement) with any Person (each a “Restrictive Agreement”) pursuant to the terms of which (a) such Subsidiary is or would be prohibited from declaring or paying any cash dividends on any class of its stock owned directly or indirectly by the Borrower or any of the other Subsidiaries or from making any other distribution on account of any class of any such stock (herein referred to as “Upstream Dividends”), or (b) the declaration or payment of Upstream Dividends by a Subsidiary to the Borrower or another Subsidiary, on an annual or cumulative basis, is or would be otherwise limited or restricted (“Dividend Restrictions”).  Notwithstanding the foregoing, nothing in this Section 8.7 shall prohibit:                            (i)          Dividend Restrictions set forth in any Restrictive Agreement in effect on the date hereof and any extensions, refinancings, renewals or replacements thereof; provided that the Dividend Restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Lenders than those Dividend Restrictions that are then in effect and that are being extended, refinanced, renewed or replaced;                                  (ii)         Dividend Restrictions existing with respect to any Person acquired by the Borrower or any Subsidiary and existing at the time of such acquisition, which Dividend Restrictions are not applicable to any Person or the property or assets of any Person other than such Person or its property or assets acquired, and any extensions, refinancings, renewals or replacements of any of the foregoing; provided that the Dividend Restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Lenders than those Dividend Restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; or                            (iii)        Dividend Restrictions consisting of customary net worth, leverage and other financial covenants, customary covenants regarding the merger of or sale of assets of a Subsidiary, customary restrictions on transactions with affiliates, and customary subordination provisions governing Indebtedness owed to the Borrower or any Subsidiary contained in, or required by, any agreement governing Indebtedness owed to the Borrower or any Subsidiary contained in, or required by, any agreement governing Indebtedness incurred by a Subsidiary in accordance with Section 8.1.              8.8        Limitation on Negative Pledges                            Enter into any agreement, other than (i) this Agreement, (ii) the Other Credit Agreement, (iii) any other credit agreement that is substantially similar to this Agreement, and (iv) purchase money mortgages or capital leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), or permit any Subsidiary so to do, which prohibits or limits the ability of the Borrower or such Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired.              8.9        Ratio of Consolidated Indebtedness to Total Capitalization                            Permit its ratio of Consolidated Indebtedness to Total Capitalization at the end of any fiscal quarter to exceed 0.6:1.0. 9.          DEFAULT              9.1        Events of Default                            The following shall each constitute an “Event of Default” hereunder:                            (a)         The failure of the Borrower to make any payment of principal on any Loan when due and payable; or                            (b)        The failure of the Borrower to make any payment of interest on any Loan or of any Fee on any date when due and payable and such default shall continue unremedied for a period of 5 Domestic Business Days after the same shall be due and payable; or                            (c)         The failure of the Borrower to observe or perform any covenant or agreement contained in Sections 2.5 and 7.1 or in Section 8; or                            (d)        The failure of the Borrower to observe or perform any other covenant or agreement contained in this Agreement, and such failure shall have continued unremedied for a period of 30 days after the Borrower shall have become aware of such failure; or                            (e)         [Intentionally Omitted]                            (f)         Any representation or warranty of the Borrower (or of any of its officers on its behalf) made in any Loan Document, or made in any certificate, report, opinion (other than an opinion of counsel) or other document delivered on or after the date hereof shall in any such case prove to have been incorrect or misleading (whether because of misstatement or omission) in any material respect when made; or                            (g)        (i)  Obligations in an aggregate Consolidated amount in excess of $25,000,000 of the Borrower (other than its obligations hereunder and under the Notes) and the Subsidiaries, whether as principal, guarantor, surety or other obligor, for the payment of any Indebtedness or any net liability under interest rate swap, collar, exchange or cap agreements, (A) shall become or shall be declared to be due and payable prior to the expressed maturity thereof, or (B) shall not be paid when due or within any grace period for the payment thereof, or (ii) any holder of any such obligations shall have the right to declare the Indebtedness evidenced thereby due and payable prior to its stated maturity; or                            (h)        The Borrower or any Subsidiary shall (i) suspend or discontinue its business (except for store closings in the ordinary course of business and except in connection with a permitted Disposition under Section 8.3 and as may otherwise be expressly permitted herein), or (ii) make an assignment for the benefit of creditors, or (iii) generally not be paying its debts as such debts become due, or (iv) admit in writing its inability to  pay its debts as they become due, or (v) file a voluntary petition in bankruptcy, or (vi) become insolvent (however such insolvency shall be evidenced), or (vii) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment of debt, liquidation or dissolution or similar relief under any present or future statute, law or regulation of any jurisdiction (including under any law applicable to insurance companies), or (viii) petition or apply to any tribunal, or any other Governmental Authority, for any receiver, custodian or any trustee for any substantial part of its Property, or (ix) be the subject of any proceeding specified in clause (vii) or (viii) filed against it which remains undismissed for a period of 60 consecutive days, or (x) file any answer admitting or not contesting the material allegations of any such petition filed against it, or of any order, judgment or decree approving such petition in any such proceeding, or (xi) seek, approve, consent to, or acquiesce in any such proceeding, or in the appointment of any trustee, receiver, custodian, liquidator, or fiscal agent for it, or any substantial part of its Property, or an order is entered appointing any such trustee, receiver, custodian, liquidator or fiscal agent and such order remains unstayed and in effect for 60 consecutive days, or (xii) take any formal action for the purpose of effecting any of the foregoing (except as may otherwise be expressly permitted herein); or                                     (i)          An order for relief is entered under the United States bankruptcy laws or any other decree or order is entered by a court or other Governmental Authority having jurisdiction and continues unstayed and in effect for a period of 60 consecutive days (i) adjudging the Borrower or any Subsidiary bankrupt or insolvent, or (ii) approving as properly filed a petition seeking reorganization, liquidation, arrangement, adjustment or composition of, or in respect of the Borrower or any Subsidiary under the United States bankruptcy laws or any other applicable Federal or state law, or (iii) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any Subsidiary or of substantially all of the Property of any thereof, or (iv) ordering the winding up or liquidation of the affairs of the Borrower or any Subsidiary; or                            (j)          Judgments or decrees in an aggregate Consolidated amount in excess of $25,000,000 against the Borrower and the Subsidiaries shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 60 days; or                            (k)         After the Effective Date a Change of Control shall occur; or                            (l)          (i)  Any Termination Event shall occur (x) with respect to any Pension Plan (other than a Multiemployer Plan) or (y) with respect to any other retirement plan subject to Section 302 of ERISA or Section 412 of the Internal Revenue Code, which plan, during the five year period prior to such Termination Event, was the responsibility in whole or in part of the Borrower, any Subsidiary or any ERISA Affiliate, provided that this clause (y) shall only apply if, in connection with such Termination Event, it is reasonably likely that liability under Section 4069 of ERISA in an aggregate Consolidated amount in excess of $25,000,000 will be imposed upon the Borrower, any Subsidiary or any ERISA Affiliate; (ii) any Accumulated Funding Deficiency, whether or not waived, in an aggregate Consolidated amount in excess of $25,000,000 shall exist with respect to any Pension Plan (other than that portion of a Multiemployer Plan’s Accumulated Funding Deficiency to the extent such Accumulated Funding Deficiency is attributable to employers other than Borrower, any Subsidiary or any ERISA Affiliate); (iii) any Person shall engage in any Prohibited Transaction involving any Employee Benefit Plan; (iv) the Borrower, any Subsidiary or any ERISA Affiliate shall fail to pay when due an  amount which is payable by it to the PBGC or to a Pension Plan (including a Multiemployer Plan) under Title IV of ERISA; (v) the imposition of any tax under Section 4980(B)(a) of the Internal Revenue Code; or (vi) the assessment of a civil penalty with respect to any Employee Benefit Plan under Section 502(c) of ERISA; in each case, to the extent such event or condition would have a Material Adverse effect.              9.2        Remedies                            (a)         Upon the occurrence of an Event of Default or at any time thereafter during the continuance of an Event of Default, the Administrative Agent, at the written request of the Required Lenders, shall notify the Borrower that the Commitments have been terminated and/or that all of the Loans and the Notes and all accrued and unpaid interest on any thereof and all other amounts owing under the Loan Documents have been declared immediately due and payable, provided that upon the occurrence of an Event of Default under Section 9.1(h) or (i) with respect to the Borrower, the Commitments shall automatically terminate and all of the Loans and the Notes and all accrued and unpaid interest on any thereof and all other amounts owing under the Loan Documents shall become immediately due and payable without declaration or notice to the Borrower.  To the fullest extent not prohibited by law, except for the notice provided for in the preceding sentence, the Borrower expressly waives any presentment, demand, protest, notice of protest or other notice of any kind in connection with the Loan Documents and its obligations thereunder.  To the fullest extent not prohibited by law, the Borrower further expressly waives and covenants not to assert any appraisement, valuation, stay, extension, redemption or similar law, now or at any time hereafter in force which might delay, prevent or otherwise impede the performance or enforcement of the Loan Documents.                            (b)        In the event that the Commitments shall have been terminated or all of the Loans and the Notes shall have been declared due and payable pursuant to the provisions of this Section, the Administrative Agent and the Lenders agree, among themselves, that any funds received from or on behalf of the Borrower under any Loan Document by any Lender (except funds received by any Lender as a result of a purchase pursuant to the provisions of Section 11.9) shall be remitted to the Administrative Agent, and shall be applied by the Administrative Agent in payment of the Loans, and the other obligations of the Borrower under the Loan Documents in the following manner and order: (1) first, to reimburse the Administrative Agent and the Lenders, in that order, for any expenses due from the Borrower pursuant to the provisions of Section 11.5, (2) second, to the payment of the Fees, (3) third, to the payment of any expenses or amounts (other than the principal of and interest on the Loans and the Notes) payable by the Borrower to the Administrative Agent or any of the Lenders under the Loan Documents, (4) fourth, to the payment, pro rata according to the outstanding principal balance of the Loans, of interest due on the Loans, (5) fifth, to the payment, pro rata according to the outstanding principal balance of the Loans, of the aggregate outstanding principal balance of the Loans, and (6) sixth, any remaining funds shall be paid to whosoever shall be entitled thereto or as a court of competent jurisdiction shall direct.                            (c)         In the event that the Loans and the Notes shall have been declared due and payable pursuant to the provisions of this Section 9.2, the Administrative Agent upon the written request of the Required Lenders, shall proceed to enforce the rights of the holders of the Notes by suit in equity, action at law and/or other appropriate proceedings, whether for payment or the specific performance of any covenant or agreement  contained in the Loan Documents.  In the event that the Administrative Agent shall fail or refuse so to proceed, each Lender shall be entitled to take such action as the Required Lenders shall deem appropriate to enforce its rights under the Loan Documents. 10.        AGENT              10.1      Appointment                            Each Lender hereby irrevocably designates and appoints FNB as the Administrative Agent of such Lender under the Loan Documents and each Lender irrevocably authorizes the Administrative Agent to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary contained in the Loan Documents, the Administrative Agent shall not have any duties or responsibilities except those expressly set forth in the Loan Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against the Administrative Agent.              10.2      Delegation of Duties                            The Administrative Agent may execute any of its duties under the Loan Documents by or through agents or attorneys–in–fact and shall be entitled to rely upon the advice of counsel concerning all matters pertaining to such duties, and shall not be liable for any action taken or omitted to be taken in good faith upon the advice of such counsel.              10.3      Exculpatory Provisions                            None of the Administrative Agent or any of its officers, directors, employees, agents, attorneys–in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by the Administrative Agent or such Person under or in connection with the Loan Documents (except the Administrative Agent for its own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any party contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, the Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the Loan Documents or for any failure of the Borrower or any other Person to perform its obligations thereunder.  The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire into the observance or performance of any of the covenants or agreements contained in, or conditions of, the Loan Documents, or to inspect the Property, books or records of the Borrower or any Subsidiary.  The Administrative Agent shall not be under any liability or responsibility to the Borrower or any other Person as a consequence of any failure or delay in performance, or any breach, by any Lender of any of its obligations under any of the Loan Documents.  The Lenders acknowledge that the Administrative Agent shall not be under any duty to take any discretionary action permitted under the Loan Documents unless the Administrative Agent shall be requested in writing to do so by the Required Lenders.              10.4      Reliance by Administrative Agent                            The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, request, consent, certificate, affidavit, opinion, letter, cablegram, telegram, fax, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent.  The Administrative Agent may treat each Lender, or the Person designated in the last notice filed under Section 11.7, as the holder of all of the interests of such Lender in its Loans and Notes until written notice of transfer, signed by such Lender (or the Person designated in the last notice filed with the Administrative Agent) and by the Person designated in such written notice of transfer, in form and substance satisfactory to the Administrative Agent, shall have been filed with the Administrative Agent and all requirements of Section 11.7 have been satisfied.  The Administrative Agent shall not be under any duty to examine or pass upon the validity, effectiveness or genuineness of the Loan Documents or any instrument, document or communication furnished pursuant thereto or in connection therewith, and the Administrative Agent shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be.  The Administrative Agent shall be fully justified in failing or refusing to take any action not expressly required under the Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate.  The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Required Lenders or, if required by Section 11.1, all Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Borrower, all the Lenders and all future holders of the Notes.              10.5      Notice of Default                            The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent shall have received written notice thereof from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating such notice is a “Notice of Default.” In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders.  The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders, provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action or give such directions, or refrain from taking such action or giving such directions, with respect to such Default or Event of Default as it shall deem to be in the best interests of the Lenders.              10.6      Non–Reliance                            Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in–fact or Affiliates  has made any representations or warranties to such Lender and that no act by the Administrative Agent hereafter, including any review of the affairs of the Borrower or the Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender.  Each Lender represents to the Administrative Agent that such Lender has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own evaluation of and investigation into the business, operations, Property, financial and other condition and creditworthiness of the Borrower and the Subsidiaries and has made its own decision to enter into this Agreement.  Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, evaluations and decisions in taking or not taking action under the Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, Property, financial and other condition and creditworthiness of the Borrower and the Subsidiaries.  Each Lender acknowledges that a copy of this Agreement and all exhibits and schedules hereto have been made available to it and its individual counsel for review, and each Lender acknowledges that it is satisfied with the form and substance thereof.  Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, Property, financial and other condition or creditworthiness of the Borrower or the Subsidiaries which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys–in–fact or Affiliates.              10.7      Indemnification                            Each Lender agrees to indemnify the Administrative Agent in its capacity as such (to the extent not promptly reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), pro rata according to (i) at any time when no Loans are outstanding, its Commitment Percentage, or if no Commitments then exist, its Commitment Percentage on the last day on which Commitments did exist, and (ii) at any time when Loans are outstanding (x) if the Commitments then exist, its Commitment Percentage or (y) if the Commitments have been terminated or otherwise no longer exist, the percentage equal to the fraction (A) the numerator of which is such Lender’s share of the Aggregate Credit Exposure and (B) the denominator of which is the Aggregate Credit Exposure, from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever, including any amounts paid to the Lenders by or for the account of the Borrower pursuant to the terms of the Loan Documents that are subsequently rescinded or avoided (or must otherwise be restored or returned), which may at any time (including at any time following the payment of the Loans and the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by the Administrative Agent under or in connection therewith; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the gross negligence or willful misconduct of the Administrative Agent. The agreements in this Section shall survive the payment of the Loans and the Notes and all other amounts payable under the Loan Documents.  If the Administrative Agent is subsequently reimbursed by the Borrower for such amounts, the Administrative Agent shall remit to the Lenders their pro rata shares of such reimbursement to the extent they previously paid such amounts.              10.8      Administrative Agent in Its Individual Capacity                            FNB and each Affiliate thereof, may make loans to, accept deposits from, issue letters of credit for the account of and generally engage in any kind of business with the Borrower and the Subsidiaries as though it were not the Administrative Agent.  With respect to the Commitment made or renewed by FNB and each Note issued to FNB, FNB shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the term “Lender” shall include FNB.              10.9      Successor Administrative Agent                            If at any time the Administrative Agent deems it advisable, in its sole discretion, it may submit to each Lender a written notification of its resignation as Administrative Agent under the Loan Documents, such resignation to be effective on the earlier to occur of (a) the thirtieth day after the date of such notice, and (b) the date upon which any successor to the Administrative Agent, in accordance with the provisions of this Section, shall have accepted in writing its appointment as successor Administrative Agent.  Upon any such resignation, the Required Lenders shall have the right to appoint from among the Lenders a successor Administrative Agent, which successor Administrative Agent, provided that no Default or Event of Default shall then exist, shall be reasonably satisfactory to the Borrower.  If no such successor Administrative Agent shall have been so appointed by the Required Lenders and accepted such appointment within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which successor Administrative Agent shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000.  Upon the written acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall automatically become a party to this Agreement and shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent’s rights, powers, privileges and duties as Administrative Agent under the Loan Documents shall be terminated.  The Borrower and the Lenders shall execute such documents as shall be necessary to effect such appointment.  After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent.  If at any time there shall not be a duly appointed and acting Administrative Agent, upon notice duly given, the Borrower agrees to make each payment when due under the Loan Documents directly to the Lenders entitled thereto during such time.              10.10    Co-Documentation Agents                            The Co-Documentation Agents shall have no duties or obligations under the Loan Documents in their capacity as Co-Documentation Agents. 11.        OTHER PROVISIONS              11.1      Amendments, Waivers, Etc.                            With the written consent of the Required Lenders, the Administrative Agent and the Borrower may, from time to time, enter into written amendments, supplements or modifications of the Loan Documents and, with the written consent of the Required Lenders, the Administrative Agent on behalf of the Lenders may execute and deliver to any such parties a written instrument waiving or consenting to the departure from, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of the Loan Documents or any Default or Event of Default and its consequences, provided that no such amendment, supplement, modification, waiver or consent shall, without the consent of all of the Lenders (i) increase the Commitment Amount of any Lender (provided that no waiver of a Default or Event of Default shall be deemed to constitute such an increase), (ii) extend the Commitment Period, (iii) reduce the amount, or extend the time of payment, of the Fees, (iv) reduce the rate, or extend the time of payment of, interest on any Revolving Credit Loan or any Revolving Credit Note (other than the applicability of any post–default increase in such rate of interest), (v) reduce the amount, or extend the time of payment of any payment of any principal on any Revolving Credit Loan or any Revolving Credit Note, (vi) decrease or forgive the principal amount of any Revolving Credit Loan or any Revolving Credit Note, (vii) consent to any assignment or delegation by the Borrower of any of its rights or obligations under any Loan Document, (viii) change the provisions of this Section 11.1,  (ix) change the definition of Required Lenders, (x) change the several nature of the obligations of the Lenders, or (xi) change the sharing provisions among Lenders.  Notwithstanding the foregoing, no such amendment, supplement, modification, waiver or consent shall (A) amend, modify or waive any provision of Section 10 or otherwise change any of the rights or obligations of the Administrative Agent under any Loan Document without the written consent of the Administrative Agent or (B) change the amount or the time of payment of any Competitive Bid Loan or interest thereon without the written consent of the Lender holding such Competitive Bid Loan.  Any such amendment, supplement, modification, waiver or consent shall apply equally to each of the Lenders and shall be binding upon the parties to the applicable Loan Document, the Lenders, the Administrative Agent and all future holders of the Notes.  In the case of any waiver, the Borrower, the Lenders and the Administrative Agent shall be restored to their former position and rights under the Loan Documents, but any Default or Event of Default waived shall not extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.              11.2      Notices                            Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing and, if in writing, shall be deemed to have been duly given or made (a) when delivered by hand, (b) one Domestic Business Day after having been sent by overnight courier service at the cost of the sender, (c) five Domestic Business Days after having been deposited in the mail, first–class postage prepaid, or (d) in the case of fax notice, when sent, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in Exhibit A in the case of each of the Lenders, or to such other addresses as to which the Administrative Agent may be hereafter notified by the respective parties hereto or any future holders of the Notes: The Borrower:     CVS Corporation   1 CVS Drive   Woonsocket, Rhode Island  02895   Attention: Philip C.  Galbo,   Senior Vice President and Treasurer   Facsimile: (401) 770-5192   Telephone: (401) 765-1500 (Ext.  3508)       with a copy, in the case of a notice of Default or Event of Default, to:       CVS Corporation   1 CVS Drive   Woonsocket, Rhode Island  02895   Attention: Legal Department   Facsimile: (401) 765-7887   Telephone: (401) 765-1500     The Administrative Agent:         in the case of each Borrowing Request, each notice of prepayment under Section 2.7, each Competitive Bid Request, each Competitive Bid, and each Competitive Bid Accept/Reject Letter:           Fleet National Bank     Agency Services     MADE 10307C     100 Federal Street     Boston, Massachusetts 02110     Attention: Mary Joyce     Facsimile: (617) 346-5833     Telephone: (617) 346-4918,           in all other cases:           Fleet National Bank     Retail & Apparel Division     MADE 10008F     100 Federal Street     Boston, Massachusetts 02110     Attention: Thomas J. Bullard, Director,     Facsimile: (617) 434-6685     Telephone: (617) 434-3824,   except that any notice, request or demand by the Borrower to or upon the Administrative Agent or the Lenders pursuant to Sections 2.3, 2.4, 2.6, 2.7, 2.11 or 3.3 shall not be effective until received.  Any party to a Loan Document may rely on signatures of the parties thereto which are transmitted by fax or other electronic means as fully as if originally signed.              11.3      No Waiver; Cumulative Remedies                            No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.              11.4      Survival of Representations and Warranties                            All representations and warranties made in the Loan Documents and in any document, certificate or statement delivered pursuant thereto or in connection therewith shall survive the execution and delivery of the Loan Documents.              11.5      Payment of Expenses and Taxes; Indemnified Liabilities                            The Borrower agrees, promptly upon presentation of a statement or invoice therefor setting forth in reasonable detail the items thereof, and whether any Loan is made, (a) to pay or reimburse the Administrative Agent and its Affiliates for all its reasonable costs and expenses actually incurred in connection with the development, syndication, preparation and execution of, and any amendment, waiver, consent, supplement or modification to, the Loan Documents, any documents prepared in connection therewith and the consummation of the transactions contemplated thereby, whether such Loan Documents or any such amendment, waiver, consent, supplement or modification to the Loan Documents or any documents prepared in connection therewith are executed and whether the transactions contemplated thereby are consummated, including the reasonable fees and disbursements of Special Counsel, (b) to pay, indemnify, and hold the Administrative Agent and the Lenders harmless from any and all recording and filing fees and any and all liabilities and penalties with respect to, or resulting from any delay (other than penalties to the extent attributable to the negligence of the Administrative Agent or the Lenders, as the case may be, in failing to pay such fees or other liabilities when due) in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Loan Documents and any such other documents, and (c) to pay, reimburse, indemnify and hold each Indemnified Person harmless from and against any and all other liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including reasonable counsel fees and disbursements of counsel (including the allocated costs of internal counsel) and such local counsel as may be required) actually incurred with respect to the enforcement, performance of, and preservation of rights under, the Loan Documents (all the foregoing, collectively, the “Indemnified Liabilities”) and, if and to the extent that the foregoing indemnity may be unenforceable for any  reason, the Borrower agrees to make the maximum payment permitted under applicable law; provided that the Borrower shall have no obligation hereunder to pay Indemnified Liabilities to an Indemnified Person to the extent arising from its gross negligence or willful misconduct.  The agreements in this Section shall survive the termination of the Commitments and the payment of the Loans and the Notes and all other amounts payable under the Loan Documents.              11.6      Lending Offices                            Each Lender shall have the right at any time and from time to time to transfer any Loan to a different office of such Lender, subject to Section 3.10.              11.7      Successors and Assigns                            (a)         The Loan Documents shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns; provided that the Borrower shall not assign, transfer or delegate any of its rights or obligations under the Loan Documents without the prior consent of the Administrative Agent and all of the Lenders.                            (b)        Notwithstanding Section 11.7(c), but subject to Section 11.7(e), each Lender may at any time assign all or any portion of its rights under any Loan Document to any Federal Reserve Bank.                                       (c)         In addition to its rights under Section 11.7(b), each Lender shall have the right, at any time, upon written notice to the Administrative Agent of its intent to do so, to sell, assign, transfer or negotiate (each an “Assignment”) all or any portion of all of its Loans, its Commitment and its Notes and its interest in the Loan Documents to any subsidiary or Affiliate of such Lender, to any other Lender or, with the prior written consent of the Administrative Agent and the Borrower (which consents shall not be unreasonably withheld and, in the case of the Borrower, shall not be required if, at the time of such Assignment, an Event of Default shall exist), to any other bank, insurance company, pension fund, mutual or other similar fund or other financial institution, provided that (i) each such Assignment shall be of a constant, and not varying, percentage of all of the assigning Lender’s rights and obligations under the Loan Documents and be in a minimum amount of $5,000,000 (which minimum amount shall not be applicable to an Assignment by a Lender to a subsidiary or Affiliate of such Lender) or the full amount of such Lender’s Commitment, and (ii) the parties to each such Assignment (excluding the Borrower if the Borrower is a party to such assignment) shall execute and deliver to the Administrative Agent an Assignment and Acceptance Agreement, together with a fee (the “Assignment Fee”), payable to the Administrative Agent, of $3,500.  Upon receipt of each such executed Assignment and Acceptance Agreement together with the Assignment Fee therefor, the Administrative Agent shall execute the same and, in the event that either the assignee thereunder is a Lender (or a subsidiary or Affiliate thereof) or the Borrower shall have consented to such assignment (to the extent that such consent  was not unreasonably withheld and is required as aforesaid), (i) record the same and execute two copies of such Assignment and Acceptance Agreement in the appropriate place, deliver one copy to the assignor and one copy to the assignee, and (ii) request the Borrower to execute and deliver (1) to such assignee, one or more Notes, in an aggregate principal amount equal to the Loans assigned to, and Commitment assumed by, such assignee, and (2) to such assignor, in the event that such assignor shall retain any Loans and Commitment, one or more Notes in an aggregate principal amount equal to the balance of such assignor Lender’s Loans and Commitment, in each case against receipt of such assignor Lender’s existing Note or Notes, as the case may be, appropriately marked to indicate their substitution.  The Borrower agrees that it shall, upon each such request of the Administrative Agent, execute and deliver such new Notes at its own cost and expense.  Upon such delivery, acceptance and recording by the Administrative Agent, from and after the effective date specified in such Assignment and Acceptance Agreement, the assignee thereunder shall be a party hereto and shall for all purposes of the Loan Documents be deemed a “Lender” and, to the extent provided in such Assignment and Acceptance Agreement, the assignor Lender thereunder shall be released from its obligations under the Loan Documents.                            (d)        In addition to the participations provided for in Section 11.9(b), each Lender may grant participations in all or any part of its Loans, its Notes and its Commitment to one or more banks, insurance companies, pension funds, mutual funds or other financial institutions, provided that (i) such Lender’s obligations under the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties to the Loan Documents for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under the Loan Documents, and (iv) the voting rights of any holder of any participation shall be limited to decisions that in accordance with Section 11.1 require the consent of all of the Lenders.  The Borrower acknowledges and agrees that any such participant shall for purposes of Section 3.5, 3.6, 3.10 and 11.5 be deemed to be a “Lender”, provided that in no event shall the Borrower be liable for any amounts under said Sections in excess of the amounts for which it would be liable but for such participation.                            (e)         No Lender shall, as between and among the Borrower, the Administrative Agent and such Lender, be relieved of any of its obligations under the Loan Documents as a result of any assignment of or granting of participations in, all or any part of its Loans, its Commitment and its Notes, except that a Lender shall be relieved of its obligations to the extent of any such assignment of all or any part of its Loans, its Commitment or its Notes pursuant to Section 11.7(c).                              (f)         Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to an Eligible SPC the option to fund all or any part of any Loan that such Granting Lender would otherwise be obligated to fund pursuant to this Agreement; provided that (i) such designation shall not be effective unless the Borrower consents thereto (which consent shall not be unreasonably withheld), (ii) nothing herein shall constitute a commitment by any Eligible SPC to fund any Loan, and (iii) if an Eligible SPC elects not to exercise such option or otherwise fails to fund all or any part of such Loan, the Granting Lender shall be obligated to fund such Loan pursuant to the terms hereof.  The funding of a Loan by an Eligible SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were funded by such Granting Lender.  As to any Loans or portion thereof made by it, each Eligible SPC shall have all the rights that a Lender making such Loans or portion thereof would have had under this Agreement and otherwise; provided that (x) its voting rights under this Agreement shall be exercised solely by its Granting Lender and (y) its Granting Lender shall remain solely responsible to the other parties hereto for the performance of such Granting Lender’s obligations under this Agreement, including its obligations in respect of the Loans or portion thereof made by it.  Each Granting Lender shall act as administrative agent for its Eligible SPC and give and receive notices and other communications on its behalf.  Any payments for the account of any Eligible SPC shall be paid to its Granting Lender as administrative agent for such Eligible SPC and neither the Borrower nor the Administrative Agent shall be responsible for any Granting Lender’s application of such payments.  Each party hereto hereby agrees that no Eligible SPC shall be liable for any indemnity or payment under this Agreement for which a Lender would otherwise be liable for so long as, and to the extent, the Granting Lender provides such indemnity or makes such payment.  Notwithstanding anything to the contrary contained in this Agreement, any Eligible SPC may (i) at any time, subject to payment of the Assignment Fee, assign all or a portion of its interests in any Loans to its Granting Lender (but nothing contained herein shall be construed in derogation of the obligation of the Granting Lender to make Loans hereunder) or to any financial institutions providing liquidity and/or credit support to or for the account of such Eligible SPC to support the funding or maintenance of Loans, and (ii) disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee or credit or liquidity enhancements  to such Eligible SPC.  This Section may not be amended without the prior written consent of each Granting Lender, all or any part of whose Loan is being funded by an Eligible SPC at the time of such amendment.              11.8      Counterparts                            Each of the Loan Documents (other than the Notes) may be executed on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement.  It shall not be necessary in making proof of any Loan Document to produce or account for more than one counterpart signed by the party to be charged.  A set of the copies of this Agreement signed by all of the parties hereto shall be lodged with each of the Borrower and the Administrative Agent.  Any party to a Loan Document may rely upon the signatures of any other party thereto  which are transmitted by fax or other electronic means to the same extent as if originally signed.              11.9      Set–off and Sharing of Payments                            (a)         In addition to any rights and remedies of the Lenders provided by law, upon the occurrence of an Event of Default under Section 9.1(a) or (b) or upon  the acceleration of the payment of the Notes, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower, to set-off and apply against any indebtedness or other liability, whether matured or unmatured, of the Borrower to such Lender arising under the Loan Documents, any amount owing from such Lender to the Borrower.  To the extent permitted by applicable law, the aforesaid right of set-off may be exercised by such Lender against the Borrower or against any trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against the Borrower or such trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance of, service upon such Lender of, or notice to such Lender of, any petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant.  Each Lender agrees promptly to notify the Borrower and the Administrative Agent after each such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application.                            (b)        If any Lender (each a “Benefited Lender”) shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set–off, or otherwise) on account of its Loans or its Notes in excess of its pro rata share (in accordance with the outstanding principal balance of all Loans) of payments then due and payable on account of the Loans and Notes received by all the Lenders, such Lender shall forthwith purchase, without recourse, for cash, from the other Lenders such participations in their Loans and Notes as shall be necessary to cause such purchasing Lender to share the excess payment with each of them according to their pro rata share (in accordance with the outstanding principal balance of all Loans), provided that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender’s pro rata share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  The Borrower agrees, to the fullest extent permitted by law, that any Lender so purchasing a participation from another Lender pursuant to this Section may exercise such rights to payment (including the right of set–off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.              11.10    Indemnity                            The Borrower agrees to indemnify and hold harmless each of the Administrative Agent, each Lender and their respective Affiliates, officers, directors, employees, agents and representatives (each an “Indemnified Person”) from and against any loss, cost, liability, damage or expense, including the reasonable fees and disbursements of counsel (including the allocated costs of internal counsel) and such local counsel as may be required to represent such Indemnified Person actually incurred by such Indemnified Person in preparing for, defending against, or providing evidence, producing documents or taking any other action in respect of, any litigation, administrative proceeding or investigation under any federal securities law or any other statute of any jurisdiction, or any regulation, or at common law or otherwise, which is alleged to arise out of or is based upon (1) any untrue statement or alleged untrue statement of any material fact by or on behalf of the Borrower or any Subsidiary, in any document or schedule executed or filed with any Governmental Authority by or on behalf of the Borrower or any Subsidiary which relates to the transactions contemplated by the Loan Documents, (2) any omission or alleged omission by or on behalf of the Borrower or any Subsidiary to state any material fact required to be stated in such document or schedule, or necessary to make the statements made therein, in light of the circumstances under which made, not misleading, (3) any acts, practices or omissions or alleged acts, practices or omissions of the Borrower or its agents relating to the use of the proceeds of any Loan which is alleged to be in violation of Section 2.5, or in violation of any federal securities law or of any other statute, regulation or other law of any jurisdiction applicable thereto, or (4) any Loan Document or any other document contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by such Indemnified Person under or in connection with any of the foregoing.  Notwithstanding the above, the Borrower shall have no liability under clause (4) of this Section to indemnify or hold harmless any Indemnified Person for any loss, cost, liability, damage or expense relating to income or withholding taxes or any tax in lieu of such taxes.  The indemnity set forth herein shall be in addition to any other obligations or liabilities of the Borrower to each Indemnified Person hereunder or at common law or otherwise, shall include the reasonable fees and disbursements of counsel (including the allocated costs of internal counsel) and such local counsel as may be required in connection with establishing liability under this Section or collecting amounts payable under this Section and shall survive any termination of this Agreement, the expiration of the Commitments and the payment of all indebtedness of the Borrower under the Loan Documents, provided that the Borrower shall not have any liability under this Section to any Indemnified Person with respect to indemnified liabilities which are determined by a final and nonappealable judgment of a court of competent jurisdiction to have arisen primarily from the gross negligence or willful misconduct of such Indemnified Person.              11.11    Governing Law                            The Loan Documents and the rights and obligations of the parties thereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.              11.12    Severability                            Every provision of the Loan Documents is intended to be severable, and if any term or provision thereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions thereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction.              11.13    Integration                            All exhibits to the Loan Documents shall be deemed to be a part thereof.  Each Loan Document embodies the entire agreement and understanding between or among the parties thereto with respect to the subject matter thereof and supersedes all prior agreements and understandings between or among the parties thereto with respect to the subject matter thereof.              11.14    Treatment of Certain Information                            Each Lender and the Administrative Agent agrees to maintain as confidential and not to disclose, publish or disseminate to any third parties any financial or other information relating to the business, operations and condition, financial or otherwise, of the Borrower provided to it, except if and to the extent that:                            (a)         such information is in the public domain at the time of disclosure;                            (b)        such information is required to be disclosed by subpoena or similar process or applicable law or regulations;                            (c)         such information is required or requested to be disclosed to any regulatory or administrative body or commission to whose jurisdiction it may be subject;                            (d)        such information is disclosed to its counsel, auditors or other professional advisors;                            (e)         such information is disclosed to (and, unless and until it receives written objection from the Borrower, the Borrower shall be deemed to have consented to disclosure of such information to)     its affiliates; provided that such information shall be used in connection with this Agreement and the transactions contemplated hereby;                            (f)         such information is disclosed to its officers, directors and employees;                            (g)        such information is disclosed with the prior written consent of the party furnishing the information;                            (h)        such information is disclosed in connection with any litigation or dispute involving the Borrower and/or it;                            (i)          such information is disclosed in connection with the sale of a participation or other disposition by it of any of its interest in this Agreement, provided that such information shall not be disclosed unless and until the party to whom it shall be disclosed shall have agreed to keep such information confidential as set forth herein;                            (j)          such information was in its possession or in its affiliate’s possession as shown by clear and convincing evidence prior to any of the Borrower and/or any or the Borrower’s representatives or agents furnishing such information to it; or                            (k)         such information is received by it, without restriction as to its disclosure or use, from a Person who, to its knowledge or reasonable belief, was not prohibited from disclosing such information by any duty of confidentiality.                            Except to the extent prohibited or restricted by law or Governmental Authority, each Lender shall notify the Borrower promptly of any disclosures of information made by it as permitted pursuant to (h) above.              11.15    Acknowledgments                            The Borrower acknowledges that (a) it has been advised by counsel in the negotiation, execution and delivery of the Loan Documents, (b) by virtue of the Loan Documents, none of the Administrative Agent or any Lender has any fiduciary relationship to the Borrower, and the relationship between the Administrative Agent and the Lenders, on the one hand, and the Borrower, on the other hand, is solely that of debtor and creditor, and (c) by virtue of the Loan Documents, no joint venture exists among the Lenders or among the Borrower and the Lenders.              11.16    Consent to Jurisdiction                            The Borrower irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal Court sitting in the City of New York over any suit, action or proceeding arising out of or relating to the Loan Documents.  The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum.  The Borrower agrees that a final judgment in any such suit, action or proceeding brought in such a court, after all appropriate appeals, shall be conclusive and binding upon it.              11.17    Service of Process                            The Borrower agrees that process may be served against it in any suit, action or proceeding referred to in Section 11.16 by sending the same by first class mail, return receipt requested or by overnight courier service, with receipt acknowledged, to the address of the Borrower set forth in Section 11.2.  The Borrower agrees that any such service (i) shall be deemed in every respect effective service of process upon it in any such suit, action, or proceeding, and (ii) shall to the fullest extent enforceable by law, be taken and held to be valid personal service upon and personal delivery to it.              11.18    No Limitation on Service or Suit                            Nothing in the Loan Documents or any modification, waiver, or amendment thereto shall affect the right of the Administrative Agent or any Lender to serve process in any manner permitted by law or limit the right of the Administrative Agent or any Lender to bring proceedings against the Borrower in the courts of any jurisdiction or jurisdictions.              11.19    WAIVER OF TRIAL BY JURY                            THE ADMINISTRATIVE AGENT, THE LENDERS AND THE BORROWER KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.  FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE ADMINISTRATIVE AGENT OR THE LENDERS, OR COUNSEL TO THE ADMINISTRATIVE AGENT OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE ADMINISTRATIVE AGENT OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.  THE BORROWER ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.              11.20    Effective Date                            This Agreement shall be effective at such time (the “Effective Date”) as the Administrative Agent shall have received executed counterparts hereof by the Borrower, the Administrative Agent and each Lender and the conditions set forth in Sections 5.1 through 5.4 have been or simultaneously will be satisfied, provided that this Agreement shall not become effective or be binding on any party hereto unless all of such conditions are satisfied not later than June 30, 2001.              11.21    Notice of Commitment Termination                            The Borrower hereby gives notice that the Borrower wishes to terminate the commitments under the Existing Credit Agreement, effective as of the Effective Date.  Each Lender that is a party to the Existing Credit Agreement, by its execution hereof, waives any requirement of prior notice set forth therein as a condition to the right of the Borrower to terminate the commitments thereunder.              AS EVIDENCE of the agreement by the parties hereto to the terms and conditions herein contained, each such party has caused this 364 Day Credit Agreement to be executed on its behalf.   CVS CORPORATION       By:         --------------------------------------------------------------------------------     Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------   EXHIBIT A LIST OF COMMITMENTS, APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES LIST OF COMMITMENTS   Lender   Commitment Amount     --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     The Bank of New York   $ 75,000,000     Fleet National Bank   $ 75,000,000     Credit Suisse First Boston   $ 60,000,000     First Union National Bank   $ 60,000,000     ABN AMRO Bank N.V.   $ 37,500,000     Morgan Guaranty Trust Company of New York   $ 37,500,000     KeyBank National Association   $ 37,500,000     SunTrust Bank   $ 37,500,000     Firstar Bank, N.A.   $ 37,500,000     Mellon Bank, N.A.   $ 25,000,000     PNC Bank, National Association   $ 25,000,000     Comerica Bank   $ 17,500,000     Allfirst Bank   $ 12,500,000     Bank One, NA   $ 12,500,000     Citibank, N.A.   $ 12,500,000     Citizens Bank of Rhode Island   $ 12,500,000     Fifth Third Bank   $ 12,500,000     National City Bank   $ 12,500,000     Sovereign Bank   $ 12,500,000     Wachovia Bank, N.A.   $ 12,500,000     Wells Fargo Bank   $ 10,000,000     First Hawaiian Bank   $ 7,500,000     Regions Bank   $ 7,500,000         --------------------------------------------------------------------------------     TOTAL   $ 650,000,000   LIST OF APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES THE BANK OF NEW YORK   Applicable Lending Office for each Eurodollar Advance: The Bank of New York One Wall Street New York, NY 10286 Applicable Lending Office for all other Advances: The Bank of New York One Wall Street New York, NY 10286 Address for Notices: The Bank of New York One Wall Street 22nd Floor New York, NY  10286 Attention: Howard F. Bascom, Vice President Telephone:  (212) 635–7894 Facsimile:  (212) 635–1481   FLEET NATIONAL BANK Applicable Lending Office for each Eurodollar Advance: Fleet National Bank One Hundred Federal Street Boston, Massachusetts  02110 Applicable Lending Office for all other Advances: Fleet National Bank One Hundred Federal Street Boston, Massachusetts  02110 Attn:                 Thomas Bullard Telephone:       (617) 434-3824 Facsimile:         (617) 434-6685 Address for Notices: Fleet National Bank One Hundred Federal Street Boston, Massachusetts  02110 Attention:        Vani Rattan Telephone:       (617) 434-4137 Facsimile:         (617) 434-9933 CREDIT SUISSE FIRST BOSTON Applicable Lending Office for each Eurodollar Advance: Credit Suisse First Boston 11 Madison Avenue, 10th Floor New York, New York  10010 Applicable Lending Office for all other Advances: Credit Suisse First Boston 11 Madison Avenue, 10th Floor New York, New York  10010 Address for Notices: Credit Suisse First Boston 11 Madison Avenue, 10th Floor New York, New York  10010 Attention:  Joel Glodowski Telephone:  (212) 325–9171 Facsimile: (212) 325–8309 Address for Notices for Borrowings: Credit Suisse First Boston 5 World Trade Center New York, New York 10048 Attention: Nilsa Ware Telephone: (212) 322-5094 Facsimile: (212) 335-0593   FIRST UNION NATIONAL BANK Applicable Lending Office for each Eurodollar Advance: First Union National Bank 201 South College Street, CP17 Charlotte, North Carolina  28288-1183 Applicable Lending Office for all other Advances: First Union National Bank 201 South College Street, CP17 Charlotte, North Carolina  28288-1183 Address for Notices: First Union National Bank PA4843 Widener Building - 12th Floor One South Penn Square Philadelphia, PA 19107 Attention:  Bill Fox Telephone:  (215) 786-8633 Facsimile:  (215) 786-2877 ABN AMRO BANK N.V. Applicable Lending Office for each Eurodollar Advance: ABN Amro Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60804-1003 With a copy to: ABN Amro Bank N.V. 55 East 52nd Street New York, NY 10055 Attention: Carol Hom Telephone: (212)  409-1469 Facsimile:  (212)  409-1662 Applicable Lending Office for all other Advances: ABN Amro Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60804-1003 Attention:  Sherry Manning Telephone: (312)  992-5110 Facsimile:  (312)  992-5111 With a copy to: ABN Amro Bank N.V. 55 East 52nd Street New York, NY 10055 Attention: Carol Hom Telephone: (212)  409-1469 Facsimile:  (212)  409-1662 Address for Notices: ABN Amro Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60804-1003 Attention:  Loan Administration Telephone: (312) 992-5152 Facsimile:  (312)  992-5157 ALLFIRST BANK Applicable Lending Office for each Eurodollar Advance : Allfirst Bank National Division, 18th Floor 25 S. Charles Street Baltimore, Maryland  21201 Applicable Lending Office for all other Advances: Allfirst Bank National Division, 18th Floor 25 S. Charles Street Baltimore, Maryland  21201 Attention:  C. Coney Burgess Telephone: (410) 244-4203 Facsimile: (410) 545-2047 Address for Notices: Allfirst Bank National Division, 18th Floor 25 S. Charles Street Baltimore, Maryland  21201 Attention:  C. Coney Burgess Telephone: (410) 244-4203 Facsimile: (410) 545-2047   BANK ONE, NA (MAIN OFFICE CHICAGO) Applicable Lending Office for each Eurodollar Advance : Bank One, NA One Bank Plaza Suite IL1-0086 Chicago, IL  60670 Applicable Lending Office for all other Advances: Bank One, NA One Bank Plaza Suite IL1-0086 Chicago, IL  60670 Attention:  Vincent Henchek Telephone: (312) 732-9772 Facsimile: (312) 732-7101 Address for Notices: Bank One, NA One Bank Plaza Suite IL1-0086 Chicago, IL  60670 Attention: Vincent Henchek Telephone: (312) 732-9772 Facsimile: (312) 732-7101 CITIBANK, N.A. Applicable Lending Office for each Eurodollar Advance: CitiBank, N.A. 2 Penns Way 2/2 New Castle, DE 19720 Attention:  Terry Jenkins Telephone: (302) 894-6037 Facsimile:  (302) 894-6120 Applicable Lending Office for all other Advances: CitiBank, N.A. 2 Penns Way 2/2 New Castle, DE 19720 Attention:  Terry Jenkins Telephone: (302) 894-6037 Facsimile:  (302) 894-6120 Address for Notices: CitiBank, N.A. 2 Penns Way 2/2 New Castle, DE 19720 Attention:  Terry Jenkins Telephone: (302) 894-6037 Facsimile:  (302) 894-6120   CITIZENS BANK OF RHODE ISLAND Applicable Lending Office for each Eurodollar Advance: Citizens Bank of Rhode Island Citizens Bank, Participation Group One Citizens Drive FDC-160 Riverside, RI 02914 Attention:  Carolyn Hawkins Telephone: (401) 734-5296 Facsimile: (401) 734-4385 Applicable Lending Office for all other Advances: Citizens Bank of Rhode Island Citizens Bank, Participation Group One Citizens Drive FDC-160 Riverside, RI 02914 Attention:  Carolyn Hawkins Telephone: (401) 734-5296 Facsimile: (401) 734-4385 Address for Notices: Citizens Bank of Rhode Island Citizens Bank, Participation Group One Citizens Drive FDC-160 Riverside, RI 02914 Attention:  Carolyn Hawkins Telephone: (401) 734-5296 Facsimile: (401) 734-4385 COMERICA BANK Applicable Lending Office for each Eurodollar Advance : Comerica Bank U.S. Banking East 500 Woodward Avenue, 9th Floor Mail Code 3279 Detroit, Michigan  48275 Applicable Lending Office for all other Advances: Comerica Bank U.S. Banking East 500 Woodward Avenue, 9th Floor Mail Code 3279 Detroit, Michigan  48275 Attention:  Jeffrey M. Lafferty Telephone: (313) 222-6239 Facsimile: (313) 222-3330 Address for Notices: Comerica Bank One Detroit Center 500 Woodward Avenue Mail Code 3280 Detroit, Michigan  48226 Attention:  Jeffrey M. Lafferty Telephone: (313) 222-6239 Facsimile: (313) 222-3330   FIFTH THIRD BANK Applicable Lending Office for each Eurodollar Advance: Fifth Third Bank 38 Fountain Square Plaza Mail Drop 109054 Cincinnati, OH  45263 Applicable Lending Office for all other Advances: Fifth Third Bank 38 Fountain Square Plaza Mail Drop 109054 Cincinnati, OH  45263 Attention:  Ann Pierson Telephone: (513) 579-5295 Facsimile: (513) 579-5947 Address for Notices: Fifth Third Bank 38 Fountain Square Plaza Mail Drop 109054 Cincinnati, OH  45263 Attention:  Ann Pierson Telephone: (513) 579-5295 Facsimile: (513) 579-5947 FIRST HAWAIIAN BANK Applicable Lending Office for each Eurodollar Advance: First Hawaiian Bank 999 Bishop Street, 11th Floor Honolulu, Hawaii  96813 Applicable Lending Office for all other Advances: First Hawaiian Bank 999 Bishop Street, 11th Floor Honolulu, Hawaii  96813 Address for Notices: First Hawaiian Bank 999 Bishop Street, 11th Floor Honolulu, Hawaii  96813 Attention: Charles Jenkins Telephone: (808) 525–6289 Facsimile: (808) 525–6372   FIRSTAR BANK Applicable Lending Office for each Eurodollar Advance : Firstar Bank 1350 Euclid Avenue, 8th Floor Cleveland, OH 44115 Applicable Lending Office for all other Advances: Firstar Bank 1350 Euclid Avenue, 8th Floor Cleveland, OH  44115 Attention David Dannemiller Telephone:  (216)  623-9233 Facsimile:  (216) 623-9208 Address for Notices: Firstar Bank 1350 Euclid Avenue, 8th Floor Cleveland, OH  44115 Attention:  David J. Dannemiller Telephone(216) 623-9233 Facsimile:  (216) 623-9208 KEYBANK NATIONAL ASSOCIATION Applicable Lending Office for each Eurodollar Advance: KeyBank National Association 127 Public Square OH-01-27-0606 Cleveland, Ohio  44114 Applicable Lending Office for all other Advances: KeyBank National Association 127 Public Square OH-01-27-0606 Cleveland, Ohio  44114 Address for Notices: KeyBank National Association 127 Public Square OH-01-27-0606 Cleveland, Ohio  44114 Attention: Marianne Meil Telephone:  (216) 689-3443 Facsimile:   (216) 689-4981   MELLON BANK, N.A. Applicable Lending Office for each Eurodollar Advance : Mellon Bank, N.A. Three Mellon Bank Center, Room 1203 Pittsburgh, PA  15259 Applicable Lending Office for all other Advances: Mellon Bank, N.A. Three Mellon Bank Center, Room 1203 Pittsburgh, PA  15259 Address for Notices: Mellon Bank, N.A. One Mellon Bank Center, Room 370 Pittsburgh, PA  15258 Attention: Louis Flori Telephone: (412) 234-7298 Facsimile: (412) 236-1914 MORGAN GUARANTY TRUST COMPANY OF NEW YORK Applicable Lending Office for each Eurodollar Advance: Morgan Guaranty Trust Company of New York c/o J.P. Morgan Services, Inc. Credit Operations 3/OPS 2 500 Stanton Christiana Road Newark, DE 19713-2107 Attention:  Leslie Quezada Telephone: (302) 634-4516 Facsimile: (302) 634-1852 Applicable Lending Office for all other Advances: Morgan Guaranty Trust Company of New York c/o J.P. Morgan Services, Inc. Credit Operations 3/OPS 2 500 Stanton Christiana Road Newark, DE 19713-2107 Attention:  Leslie Quezada Telephone: (302) 634-4516 Facsimile: (302) 634-1852 Address for Notices: J.P. Morgan Chase & Company 270 Park Avenue New York, New York 10017 Attention:  Barry Bergman Telephone: (212) 270-0203 Facsimile: (212) 270-5646   NATIONAL CITY BANK Applicable Lending Office for each Eurodollar Advance : National City Bank One South Broad 13th Floor Philadelphia, PA 19107 Attention: Thomas McDonnell Telephone: 267-256-4041 Facsimile: 267-256-4001 Applicable Lending Office for all other Advances: National City Bank One South Broad 13th Floor Philadelphia, PA 19107 Attention: Thomas McDonnell Telephone: 267-256-4041 Facsimile: 267-256-4001 Address for Notices: National City Bank One South Broad 13th Floor Philadelphia, PA 19107 Attention: Thomas McDonnell Telephone: 267-256-4041 Facsimile: 267-256-4001 PNC BANK, NATIONAL ASSOCIATION Applicable Lending Office for each Eurodollar Advance: PNC Bank, National Association Two Tower Center Boulevard East Brunswick, New Jersey  08816 Applicable Lending Office for all other Advances: PNC Bank, National Association Two Tower Center Boulevard East Brunswick, New Jersey  08816 Address for Notices: PNC Bank, National Association 2 Tower Center East Brunswick, New Jersey  08816 Attention: Michael Richards Telephone: (908) 220-3228 Facsimile: (908) 220-3231   REGIONS BANK Applicable Lending Office for each Eurodollar Advance : Regions Bank 417 North 20th Street Birmingham, Alabama  35203 Applicable Lending Office for all other Advances: Regions Bank 417 North 20th Street Birmingham, Alabama  35203 Attention:  Kim Hassell Telephone:  (205) 326-7038 Facsimile:  (205)  326-7759 Address for Notices: Regions Bank 417 North 20th Street Birmingham, Alabama  35203 Attention:  James Schmalz Telephone:  (205) 326-7905 Facsimile:  (205)  326-7788 SOVEREIGN BANK Applicable Lending Office for each Eurodollar Advance : Sovereign Bank 15 Westminister Street Providence, RI 02903 Applicable Lending Office for all other Advances: Sovereign Bank 15 Westminister Street Providence, RI 02903 Attention: Robert F. Camara Telephone: (401) 752-1024 Facsimile: (401) 752-1041 Address for Notices: Sovereign Bank 15 Westminister Street Providence, RI 02903 Attention: Robert F. Camara Telephone: (401) 752-1024 Facsimile: (401) 752-1041   SUNTRUST BANK Applicable Lending Office for each Eurodollar Advance : SunTrust Bank 25 Park Place, 21st Floor, Center 1927 Atlanta, Georgia  30303 Applicable Lending Office for all other Advances: SunTrust Bank 25 Park Place, 21st Floor, Center 1927 Atlanta, Georgia  30303 Address for Notices: SunTrust Bank 711 Fifth Avenue - 16th Floor New York, New York  10022 Attention:  Keith Hubbard Telephone: (212) 583–2612 Facsimile: (212) 371–9386 WACHOVIA BANK, N.A. Applicable Lending Office for each Eurodollar Advance : Wachovia Bank, N.A. 191 Peachtree Street NE MC GA 370 Atlanta, Georgia  30303 Applicable Lending Office for all other Advances: Wachovia Bank, N.A. 191 Peachtree Street NE MC GA 370 Atlanta, Georgia  30303 Attention: Paige Mesaros Telephone:  (404) 332-1322 Facsimile:  (404)  332-4136 Address for Notices: Wachovia Bank, N.A. 191 Peachtree Street NE MC GA 370 Atlanta, Georgia  30303 Attention: Paige Mesaros Telephone:  (404) 332-1322 Facsimile:  (404)  332-4136   WELLS FARGO BANK, N.A. Applicable Lending Office for each Eurodollar Advance : Wells Fargo Bank, N.A. 201 Third Street MAC 0187-081 San Francisco, CA 94103 Attention: Ginnie Padgett Telephone:  (415) 477-5374 Facsimile:  (415)  979-0675 Applicable Lending Office for all other Advances: Wells Fargo Bank, N.A. 201 Third Street MAC 0187-081 San Francisco, CA 94103 Attention: Ginnie Padgett Telephone:  (415) 477-5374 Facsimile:  (415)  979-0675 Address for Notices: Wells Fargo Bank, N.A. 201 Third Street MAC 0187-081 San Francisco, CA 94103 Attention: Ginnie Padgett Telephone:  (415) 477-5374 Facsimile:  (415)  979-0675 EXHIBIT B-1 FORM OF REVOLVING CREDIT NOTE $______________. ________, 2001   New York, New York                              FOR VALUE RECEIVED, the undersigned, CVS CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of _________________________ (the "Lender") the lesser of $_________________ or the outstanding principal balance of the Lender's Revolving Credit Loans, together with interest thereon, at the rate or rates, in the amounts and at the time or times set forth in the 364 Day Credit Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), dated as of May 21, 2001, by and among the Borrower, the Lenders party thereto, ­Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as the administrative agent (in such capacity, the "Administrative Agent"), in each case at the office of the Administrative Agent located at One Hundred Federal Street, Boston, Massachusetts, or at such other place as the Administrative Agent may specify from time to time, in lawful money of the United States of America in immediately available funds.                            Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.                            The Revolving Credit Loans evidenced by this Revolving Credit Note are prepayable in the amounts, and on the dates, set forth in the Credit Agreement.  This Revolving Credit Note is one of the Revolving Credit Notes under the Credit Agreement, and is subject to, and shall be construed in accordance with, the provisions thereof, and is entitled to the benefits set forth in the Loan Documents.                            The Lender is hereby authorized to record on the schedule annexed hereto, and any continuation sheets which the Lender may attach thereto (a) the date and amount of each Revolving Credit Loan made by the Lender, (b) the character of each Revolving Credit Loan as one or more ABR Advances, one or more Eurodollar Advances, or a combination thereof, (c) the Interest Period and Eurodollar Rate applicable to each Eurodollar Advance, and (d) the date and amount of each Conversion of, and each payment or prepayment of principal of, each Revolving Credit Loan.  The failure to so record or any error in so recording shall not affect the obligation of the Borrower to repay the Revolving Credit Loans, together with interest thereon, as provided in the Credit Agreement.                            Except as specifically otherwise provided in the Credit Agreement, the Borrower hereby waives presentment, demand, notice of dishonor, protest, notice of protest and all other demands, protests and notices in connection with the execution, delivery, performance, collection and enforcement of this Revolving Credit Note.                            This Revolving Credit Note is being delivered in, is intended to be performed in, shall be construed and interpreted in accordance with, and be governed by the laws of, the State of New York.                            This Revolving Credit Note may only be amended by an instrument in writing executed pursuant to the provisions of Section 11.1 of the Credit Agreement. CVS CORPORATION         By:       --------------------------------------------------------------------------------   Name:       --------------------------------------------------------------------------------   Title:       --------------------------------------------------------------------------------   SCHEDULE TO REVOLVING CREDIT NOTE Date   Amount of Revolving Credit Loan   Type of Advance (Eurodollar or ABR Advance)   Interest Period (If Eurodollar Advance)   Eurodollar Rate (If Eurodollar Advance)   Amount of Conversion or Principal Payment or Prepayment   Notation Made by   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   EXHIBIT B-2 FORM OF COMPETITIVE BID NOTE   _______, 2001   New York, New York              FOR VALUE RECEIVED, the undersigned, CVS CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of _________________________ (the "Lender") the  outstanding principal balance of the Lender's Competitive Bid Loans, together with the interest due thereon, in the amounts, at the rate or rates, and at the time or times set forth in the 364 Day Credit Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), dated as of May 21, 2001, by and among the Borrower, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as administrative agent (in such capacity, the "Administrative Agent"), in each case at the office of the Administrative Agent located at One Hundred Federal Street, Boston, Massachusetts, or at such other place as the Administrative Agent may specify from time to time, in lawful money of the United States of America in immediately available funds.              Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.              This Competitive Bid Note is one of the Competitive Bid Notes under the Credit Agreement, and is subject to, and shall be construed in accordance with, the provisions thereof, and is entitled to the benefits set forth in the Loan Documents.              The Lender is hereby authorized to record on the schedule annexed hereto, and any continuation sheets which the Lender may attach thereto (a) the date and amount of each Competitive Bid Loan made by the Lender, (b) the Competitive Interest Period and the Competitive Bid Rate applicable to each such Competitive Bid Loan, and (c) the date and amount of each payment or prepayment of principal of each Competitive Bid Loan.  The failure to so record or any error in so recording shall not affect the obligation of the Borrower to repay the Competitive Bid Loans, together with interest thereon, as provided in the Credit Agreement.              Except as specifically otherwise provided in the Credit Agreement, the Borrower hereby waives presentment, demand, notice of dishonor, protest, notice of protest and all other demands, protests and notices in connection with the execution, delivery, performance, collection and enforcement of this Competitive Bid Note.              This Competitive Bid Note is being delivered in, is intended to be performed in, shall be construed and interpreted in accordance with, and be governed by the laws of, the State of New York.              This Competitive Bid Note may only be amended by an instrument in writing executed pursuant to the provisions of Section 11.1 of the Credit Agreement.   CVS CORPORATION           By:       --------------------------------------------------------------------------------   Name:       --------------------------------------------------------------------------------   Title:       -------------------------------------------------------------------------------- SCHEDULE TO COMPETITIVE BID NOTE Date   Amount of Competitive Bid Loan   CompetitiveInterest Period   Competitive Bid Rate   Amount ofPrincipalPayment orPrepayment   NotationMade by   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   EXHIBIT C FORM OF BORROWING REQUEST [Date] Fleet National Bank, as Administrative Agent One Hundred Federal Street Boston, Massachusetts 02110 Attention:                                                ,                                                                      Re: 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement")              Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.              Pursuant to Section 2.3 of the Credit Agreement, the Borrower hereby gives noticeof its intention to borrow Revolving Credit Loans in the aggregate sum of $____________ on ____________, which borrowing shall consist of the following type or types of Advances: Type of Advance(s) (ABR or Eurodollar) Amount Interest Period -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------                Please transfer the proceeds of the Revolving Credit Loans to: [specify instructions].              The Borrower hereby certifies that on the Borrowing Date set forth above, and after giving effect to the Loans requested hereby:               (a) There shall exist no Default or Event of Default.               (b) The representations and warranties contained in the Credit Agreement shall be true and correct, except those which are expressly specified to be made as of an earlier date.              IN EVIDENCE of the foregoing, the undersigned has caused this Borrowing Request to be duly executed on its behalf. CVS CORPORATION   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------   EXHIBIT D FORM OF OPINION OF COUNSEL TO THE BORROWER   ________, 2001 The Lenders, the Co-Documentation Agents, and the Administrative Agent Referred to Below c/o Fleet National Bank, as Administrative Agent One Hundred Federal Street Boston, Massachusetts  02110 Ladies and Gentlemen:              I am general counsel of CVS Corporation, a Delaware corporation (the "Borrower"), and have acted as such in connection with the 364 Day Credit Agreement by and among the Borrower, the lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent, dated as of  May 21, 2001 (the "Credit Agreement").  Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.              I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion.  In rendering my opinions set forth below, I have assumed (i) the due authorization, execution and delivery by all parties thereto (other than the Borrower) of the Credit Agreement, (ii) the authenticity of all documents submitted to me as originals and (iii) the conformity to original documents of all documents submitted to me as copies.              Based upon the foregoing, I am of the opinion that: The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.  The Borrower has all requisite corporate power and authority to own its Property and to carry on its business as now conducted. The Borrower is qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases real Property or in which the nature of its business requires it to be so qualified (except those jurisdictions where the failure to be so qualified or to be in good standing could not reasonably be expected to have a Material Adverse effect). The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action on the part of the Borrower. The execution, delivery and performance by the Borrower of the Credit Agreement and Notes do not require any action or approval on the part of the shareholders of the Borrower or any action by or in respect of, or filing with, any governmental body, agency or official under United States federal law or the Delaware General Corporation Law, and do not contravene, or constitute a default under, any provision of (i) United States federal law or the Delaware General Corporation Law, (ii) the Certificate of Incorporation or bylaws of the Borrower or (iii) any existing material mortgage, material indenture, material contract or material agreement, in each case binding on the Borrower or any Subsidiary or affecting the Property of the Borrower or any Subsidiary. The Credit Agreement and the Notes delivered by the Borrower on or prior to the date hereof have been duly executed and delivered by the Borrower and each constitutes the valid and binding agreement of the Borrower, in each case enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting the enforcement of creditors' rights generally and to general principles of equity. The Borrower is not an "investment company" (as such term is defined in the United States Investment Company Act of 1940, as amended). To the best of my knowledge, there are no actions, suits, arbitration proceedings or claims (whether purportedly on behalf of the Borrower, any Subsidiary or otherwise) pending or threatened against the Borrower or any Subsidiary or any of their respective Properties, or maintained by the Borrower or any Subsidiary, at law or in equity, before any Governmental Authority which could reasonably be expected to have a Material Adverse effect.  To the best of my knowledge, there are no proceedings pending or threatened against the Borrower or any Subsidiary (a) which call into question the validity or enforceability of, or otherwise seek to invalidate, any Loan Document or (b) which could reasonably be expected to, individually or in the aggregate, materially and adversely affect any of the transactions contemplated by any Loan Document. To the best of my knowledge, the Borrower is not in default under any agreement to which it is a party or by which it or any of its Property is bound the effect of which could reasonably be expected to have a Material Adverse effect. To the best of my knowledge, no provision of any judgment, decree or order, in each case binding on the Borrower or any Subsidiary or affecting the Property of the Borrower or any Subsidiary conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance by the Borrower of the terms of, any Loan Document.              The foregoing opinion is subject to the following qualifications:              I express no opinion as to the effect (if any) of any law of any jurisdiction (except the Commonwealth of Massachusetts) in which any Lender is located which may limit the rate of interest that such Lender may charge or collect.              I express no opinion as to provisions in the Credit Agreement which purport to create rights of set-off in favor of participants or which provide for set-off to be made otherwise than in accordance with applicable laws.              I note that public policy considerations or court decisions may limit the rights of any party to obtain indemnification under the Credit Agreement.              I am a member of the bar of the Commonwealth of Massachusetts and the foregoing opinion is limited to the laws of the Commonwealth of Massachusetts, the federal law of the United States of America and the Delaware General Corporation Law.  For purposes of paragraph 5 of this opinion, I have assumed that, with your permission and without any research or investigation, the laws of the State of New York are identical to the law of the Commonwealth of Massachusetts.              This opinion is rendered solely to you in connection with the above matter.  This opinion may not be relied upon by you for any other purpose or relied upon by any other person without my prior written consent, except that any person that becomes a Lender in accordance with the provisions of the Credit Agreement may rely upon this opinion as if it were specifically addressed and delivered to such person on the date hereof. Very truly yours, EXHIBIT E FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT              Assignment and Acceptance Agreement (as the same may be amended, supplemented or otherwise modified from time to time, this "Agreement"), dated as of ____________, by and between ____________ (the "Assignor") and ____________ (the "Assignee"). RECITALS              I.           Reference is made to the 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement").              II.          The Assignor wishes to assign and delegate to the Assignee, and the Assignee wishes to purchase and assume from the Assignor, some or all of the Assignor's rights and obligations under the Loan Documents upon the terms, and subject to the conditions, contained herein.              Therefore, in consideration of the Recitals, the terms and conditions herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Assignor and the Assignee hereby agree as follows:              1.          Defined Terms                            (a)         Each capitalized term used herein that is not defined herein shall have the meaning ascribed thereto in the Credit Agreement.                            (b)        When used in this Agreement, each of the following capitalized terms shall have the meaning ascribed thereto unless the context hereof otherwise specifically requires:                            "Assigned Percentage": _____%.                            "Assignment Effective Date": as defined in Section 5.                            "Assignor Rights and Obligations": as of the Assignment Effective Date, the Assigned Percentage of all of the Assignor's rights and obligations under the Loan Documents, including, without limitation, such percentage of its Loans, its Commitment and its Notes.                            "Purchase Price": an amount equal to the Assigned Percentage of the aggregate unpaid principal amount of the Assignor's Loans as of the Assignment Effective Date.              2.          Assignment; Payment by Assignee                            The Assignor hereby assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse or, except as otherwise specifically provided herein, representation or warranty, the Assignor Rights and Obligations.  The Assignee agrees to pay to the Assignor the Purchase Price on the Assignment Effective Date.              3.          Representations and Warranties                            (a)         Assignor.         The Assignor hereby represents and warrants to the Assignee as follows:                                         (i)  the aggregate unpaid principal amount of its Revolving Credit Loans is $___________, and such Revolving Credit Loans are composed of the following ABR Advances and Eurodollar Advances: (1) ABR Advances: $__________, and (2) Eurodollar Advances: (A) $__________ for [length of Interest Period], the last day of which is _______________, (B) $__________ for [length of Interest Period], the last day of which is _______________,                                         (ii) the aggregate unpaid principal amount of its Competitive Bid Loans is $_________, and such Competitive Bid Loans are composed of the following: (A) $__________ for [length of Competitive Interest Period], the last day of which is _______________, (B) $__________ for [length of Competitive Interest Period], the last day of which is _______________, and                                         (iii) its Commitment Amount is $_______.                            The Assignor makes no representation or warranty with respect to the validity or enforceability of the Credit Agreement or any other Loan Document or the financial condition or creditworthiness of the Borrower.                            (b)        Assignee.         The Assignee hereby represents and warrants to the Assignor that (i) it is legally authorized to enter into this Agreement, (ii) it is an "accredited investor" within the meaning of Regulation D, as amended, promulgated under the Securities Act of 1933, as amended, [and] (iii) it has, independently and without reliance upon the Assignor or the Administrative Agent, and based on such documents and information as it has deemed appropriate, made its own evaluation of, and investigation into, the business, operations, Property, financial and other condition and creditworthiness of the Borrower and made its own decision to enter into this Agreement [, and (iv) it is a Lender or a subsidiary or Affiliate of a Lender].              4.          Covenants of the Assignee                            The Assignee hereby covenants and agrees that it will, independently and without reliance upon the Assignor or Administrative Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, evaluations and decisions in taking or not taking action under the Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, Property, financial and other condition and creditworthiness of the Borrower.  The Assignee further agrees to provide to the  Administrative Agent any forms required by Section 3.10 of the Credit Agreement and any administrative questionnaire reasonably required by the Administrative Agent.              5.          Effectiveness of this Agreement                            (a)         Section 2 of this Agreement shall not become effective until such date (the "Assignment Effective Date") as all of the following conditions shall have been fulfilled:                                         (i) The Administrative Agent shall have executed a copy of this Agreement and shall have received duly executed counterparts hereof by each of the Assignor, the Assignee and, if required by the Credit Agreement, the Borrower;                                         (ii) The Assignor shall have delivered to the Assignee (with a copy to the Administrative Agent) a duly completed letter in the form of Annex A hereto;                                         (iii) The Assignee shall have confirmed in writing to the Assignor (with a copy to the Administrative Agent) that, on or before the Assignment Effective Date, it shall have transferred (in accordance with Section 6 hereof) the Purchase Price to the Assignor.  At the time of such confirmation, the Assignee shall be deemed to have remade the representations and warranties contained in Section 3(b)(i), (ii) [and] (iii) [, and (iv)] hereof on and as of the date of such confirmation;                                         (iv)       The Administrative Agent shall have received, for its own account, the assignment fee required to be paid pursuant to Section 11.7 of the Credit Agreement; and                                         (v)        The Administrative Agent shall have received any forms required by Section 3.10 of the Credit Agreement and any administrative questionnaire reasonably required by the Administrative Agent.                            (b)        Upon the Assignment Effective Date, (i) the Administrative Agent shall record the assignment contemplated hereby, (ii) the Assignee shall be a Lender, and (iii) the Assignor, to the extent of the assignment provided for herein, shall be released from its obligations under the Loan Documents.                            (c)         The Assignee hereby appoints and authorizes the Administrative Agent to take such action, on and after the Assignment Effective Date, as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto.                            (d)        From and after the Assignment Effective Date, the Administrative Agent shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee.  The Assignor and the Assignee shall make all appropriate adjustments with respect to amounts under the Loan Documents which accrued prior to the Assignment Effective Date, and which were paid thereafter, directly between themselves.              6.          Payment Instructions                            All payments to be made to the Assignor by the Assignee hereunder shall be made by wire transfer of immediately available funds to the Assignor at: [Wire Instructions].              7.          Notices                            All notices, requests and demands to or upon the Assignee in connection with this Agreement and the Loan Documents are to be sent or delivered to the place set forth adjacent to its name on the signature page(s) hereof.              8.          Miscellaneous                            (a)         For purposes of this Agreement, all calculations and determinations with respect to the outstanding principal amount of the Assignor's Loans, the Assignor's Commitment Amount and all other similar calculations and determinations, shall be made and shall be deemed to be made as of the commencement of business on the date of such calculation or determination, as the case may be.                            (b)        Section headings have been inserted herein for convenience only and shall not be construed to be a part hereof.                            (c)         This Agreement embodies the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all other prior arrangements and understandings among the parties hereto with respect to the subject matter hereof.                            (d)        This Agreement may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement.  It shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart signed by the party to be charged.                            (e)         Every provision of this Agreement is intended to be severable, and if any term or provision hereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction.                            (f)         This Agreement shall be binding upon and inure to the benefit of the Assignor and the Assignee and their respective successors and permitted assigns, except that neither party may assign or transfer any of its rights or obligations hereunder (i) without the prior written consent of the other party, and (ii) in contravention of the Credit Agreement.                            (g)        This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.              AS EVIDENCE of the agreement by the parties hereto to the terms and conditions herein contained, each such party has caused this Agreement to be duly executed on its behalf.       [NAME OF ASSIGNOR]             By         --------------------------------------------------------------------------------     Name:         --------------------------------------------------------------------------------     Title:         --------------------------------------------------------------------------------         Address for notices:     [NAME OF ASSIGNEE]                     By:   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     --------------------------------------------------------------------------------         Attention: _________ Telephone:_____________ Facsimile:_____________ Consented to and Accepted this __ day of __________, ____ FLEET NATIONAL BANK, as Administrative Agent   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------   [Consented to this __ day of __________, ____   CVS CORPORATION         By:       --------------------------------------------------------------------------------   Name:       --------------------------------------------------------------------------------   Title:       -------------------------------------------------------------------------------- ] CVS CORPORATION 364 DAY CREDIT AGREEMENT ANNEX A TO ASSIGNMENT AND ACCEPTANCE AGREEMENT FORM OF LETTER [Assignment Effective Date]   [Name and Address of Assignee] Attention:                                                ,                                                                      Re: Assignment and Acceptance Agreement, dated as of _______________, by and between _______________ and _______________ (as the same may be amended, supplemented or otherwise modified from time to time, the "Agreement")          Ladies and Gentlemen:              This letter is being delivered pursuant to Section 5(a)(ii) of the Agreement.  Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Agreement.              The Assignor hereby represents and warrants to the Assignee as follows:              (i) the aggregate unpaid principal amount of its Revolving Credit Loans is $___________, and such Revolving Credit Loans are composed of the following ABR Advances and Eurodollar Advances: (1) ABR Advances: $__________, and (2) Eurodollar Advances: (A) $__________ for [length of Interest Period], the last day of which is _______________, (B) $__________ for [length of Interest Period], the last day of which is _______________,              (ii) the aggregate unpaid principal amount of its Competitive Bid Loans is $_________, and such Competitive Bid Loans are composed of the following: (A) $__________ for [length of Competitive Interest Period], the last day of which is _______________, (B) $__________ for [length of Competitive Interest Period], the last day of which is _______________,              (iii) its Commitment Amount is $_______, and              (iv) it is the legal and beneficial owner of the Assignor Rights and Obligations free and clear of any adverse claim created by it.         Very truly yours,                   [NAME OF ASSIGNOR]                   By:             --------------------------------------------------------------------------------         Name:             --------------------------------------------------------------------------------         Title:             -------------------------------------------------------------------------------- cc: [Name and title      of Administrative Agent contact] CVS CORPORATION 364 DAY CREDIT AGREEMENT EXHIBIT F FORM OF COMPETITIVE BID REQUEST   [Date] Fleet National Bank, as Administrative Agent One Hundred Federal Street Boston, Massachusetts 02110 Attention:                                                ,                                                                      Re: 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement")              Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.              Pursuant to Section 2.4 of the Credit Agreement, the Borrower hereby gives notice of its request to borrow Competitive Bid Loans in the aggregate sum of $____________ on ____________, which borrowing shall consist of the following: Amount Competitive Interest Period -------------------------------------------------------------------------------- --------------------------------------------------------------------------------              Please transfer the proceeds of the Competitive Bid Loans to: [specify instructions].              The Borrower hereby certifies that on the Borrowing Date set forth above, and after giving effect to the Competitive Bid Loans requested hereby:              (a) There shall exist no Default or Event of Default.              (b) The representations and warranties contained in the Credit Agreement shall be true and correct, except those which are expressly specified to be made as of an earlier date.                 CVS CORPORATION 364 DAY CREDIT AGREEMENT              IN EVIDENCE of the foregoing, the undersigned has caused this Competitive Bid Request to be duly executed on its behalf. CVS CORPORATION   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     -------------------------------------------------------------------------------- CVS CORPORATION 364 DAY CREDIT AGREEMENT EXHIBIT G FORM OF INVITATION TO BID   [Date] To the Lenders party from time to time to the captioned Credit Agreement Re: 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, "Credit Agreement")                            Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.                            Pursuant to a Competitive Bid Request, the Borrower gave notice of its request to borrow Competitive Bid Loans in the aggregate sum of $____________ on ____________, which borrowing would consist of the following type or types of Competitive Advances: Amount CompetitiveInterest Period -------------------------------------------------------------------------------- --------------------------------------------------------------------------------              The Lenders are hereby invited to bid, pursuant to the terms and conditions of the Credit Agreement, on such requested Competitive Bid Loans. FLEET NATIONAL BANK, as Administrative Agent     By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------     CVS CORPORATION 364 DAY CREDIT AGREEMENT EXHIBIT H FORM OF COMPETITIVE BID [Date] Fleet National Bank, as Administrative Agent One Hundred Federal Street Boston, Massachusetts 02110 Attention:                                                ,                                                                    Re: 364 Day Credit Agreement, dated as ofMay 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement")                            Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.                            In response to a Competitive Bid Request, the undersigned Lender hereby offers to make Competitive Loan(s) in the aggregate sum of $____________ on ____________: Amount Competitive Interest Period Competitive Bid Rate -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------           [fixed rate]   [LENDER]   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------   CVS CORPORATION 364 DAY CREDIT AGREEMENT EXHIBIT I FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER   [Date] Fleet National Bank, as Administrative Agent One Hundred Federal Street Boston, Massachusetts 02110 Attention:                                                ,                                                                    Re: 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and First Union National Bank, as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement")              Capitalized terms used herein that are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.              Pursuant to Section 2.4(d) of the Credit Agreement, the Borrower hereby gives notice of its acceptance of the following Competitive Bids:                                                                                                                                                                                                                                                                                                                                                                                     , and its rejection of all other Competitive Bids, in each case made pursuant to the Competitive Bid Request, dated _______________.              IN EVIDENCE of the foregoing, the undersigned has caused this Competitive Bid Accept/Reject Letter to be duly executed on its behalf. CVS CORPORATION   By:     -------------------------------------------------------------------------------- Name:     -------------------------------------------------------------------------------- Title:     --------------------------------------------------------------------------------    

WILD OATS MARKETS, INC. BRUCE BOWMAN EQUITY INCENTIVE PLAN   1.      PURPOSES (a)     The purpose of the Plan is to induce Bruce Bowman ("Executive" or "Optionee") to enter into an employment arrangement with Wild Oats Markets, Inc. as Senior Vice President of Technology and Logistics, and pursuant to which the Executive may be given an opportunity to benefit from increases in value of the common stock of the Company ("Common Stock") through the granting of Incentive and Nonstatutory Stock Options. (b)     All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2.     DEFINITIONS (a)     "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b)     "BOARD" means the Board of Directors of the Company. (c)     "CODE" means the Internal Revenue Code of 1986, as amended. (d)     "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e)     "COMPANY" means Wild Oats Markets, Inc. a Delaware corporation. (f)     "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (g)     "DIRECTOR" means a member of the Board. (h)     "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (i)     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j)     "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock of the Company determined as follows: (1)     If the Common Stock is listed on any established stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2)     In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (k)      "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (l)     "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (m)     "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (n)     "OPTION" means a stock option granted pursuant to the Plan. (o)     "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (p)     "OPTIONEE" means a person to whom an Option is granted pursuant to the Plan. (q)     "PLAN" means this Wild Oats Markets, Inc. 1996 Equity Incentive Plan. (r)     "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (s)     "STOCK AWARD" means any right granted under the Plan, including any Option. (t)     "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 3.     ADMINISTRATION (a)     The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b)     The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1)     To determine when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option or a Nonstatutory Stock Option. (2)     To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3)     To amend the Plan or a Stock Award as provided in Section 13. (4)     Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c)     The Board may delegate administration of the Plan to a committee or committees ("Committee") of one or more members of the Board. In the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Code Section 162(m), or solely of two or more Non-Employee Directors, in accordance with Rule 16(b)-3. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 4.     SHARES SUBJECT TO THE PLAN (a)     Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 180,000 shares of the Common Stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full (or vested in the case of Restricted Stock), the stock not acquired under such Stock Award shall cease to be subject to the Plan. (b)     The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5.     ELIGIBILITY (a)     Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted only to Employees, Directors or Consultants. (b)     No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (c)     Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than one hundred thousand (100,000) shares of the Common Stock in any calendar year. This subsection 5(c) shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 4); (B) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. 6.     OPTION PROVISIONS Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a)     TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b)     PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted and the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c)     CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other Common Stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d)     TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option may be transferred to the extent provided in the Option Agreement; provided that if the Option Agreement does not expressly permit the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a domestic relations order satisfying the requirements of Rule 16b-3 and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a domestic relations order. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e)     VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f)     TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of thirty (30) days after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. (g)     DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date six (6) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h)     DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i)     EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. (j)     RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option.Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock Option and which is granted to a 10% stockholder (as described in subsection 5(c)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollars ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 11(d) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 7.     RESERVED 8.     CANCELLATION AND RE-GRANT OF OPTIONS (a)     The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of any adversely affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock Option, one hundred percent (100%) of the Fair Market Value for an Incentive Stock Option or, in the case of an Incentive Stock Option held by a 10% stockholder (as described in subsection 5(c)), not less than one hundred ten percent (110%) of the Fair Market Value per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction to which section 424(a) of the Code applies. (b)     Shares subject to an Option canceled under this Section 8 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this Section 7, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b) shall be applicable only to the extent required by Section 162(m) of the Code. 9.     COVENANTS OF THE COMPANY (a)     During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b)     The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares under Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 10.     USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 11.     MISCELLANEOUS (a)     The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b)     Neither an Employee, Director nor a Consultant nor any person to whom a Stock Award is transferred in accordance with the Plan shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c)     Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate or to continue serving as a Consultant and Director, or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without notice and with or without cause, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate or service as a Director pursuant to the Company's By-laws. (d)     To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e)     The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred in accordance with the Plan, as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f)     To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the Common Stock of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK (a)     If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a) and the maximum number of shares subject to award to any person during any calendar year pursuant to subsection 5(d), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) (b)     In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation or an Affiliate of such surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation and its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. 13.     AMENDMENT OF THE PLAN AND STOCK AWARDS (a)     The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b)     The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c)     It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide the Executive with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d)     Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e)     The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 14.     TERMINATION OR SUSPENSION OF THE PLAN (a)     The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b)     Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 15. EFFECTIVE DATE OF PLAN. This Plan shall become effective on the date of hire of the Executive.     WILD OATS MARKETS, INC. INCENTIVE STOCK OPTION BRUCE BOWMAN, Optionee:   Wild Oats Markets, Inc. (the "Company"), pursuant to the Bruce Bowman (the "Plan"), has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The details of your option are as follows: 1.     (a)     THE TOTAL NUMBER OF SHARES OF COMMON STOCK SUBJECT TO THIS OPTION IS ________________. (a)     Subject to the conditions stated herein, this option shall be exercisable with respect to each installment shown below on or after the date of vesting applicable to such installment; provided, however, that should Optionee's employment terminate for "cause" this option shall be terminated and canceled immediately and shall not be exercisable for any number of shares. For purposes of this option, "cause" shall mean misconduct including, but not limited to, criminal acts involving moral turpitude or dishonesty. NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING) 2.     (a)     The exercise price of this option is $_____________ per share, being not less than one hundred percent (100%) of the fair market value of the Common Stock on the date of grant of this option. (a)     Payment of the exercise price per share is due in full in cash (including check) upon exercise of all or any part of each installment which has become exercisable by you. (b)     Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of Common Stock. 3.     This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 4.     Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 5.     The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any reason or for no reason unless; (a)     such termination of employment is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code), in which event the option shall terminate on the earlier of the termination date set forth above or six (6) months following such termination of employment; or (b)     such termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or twelve (12) months after your death; or (c)     during any part of such thirty (30) days period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of thirty (30) days after the termination of employment. However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date. 6.     (a)     This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan. (b)     By exercising this option you agree that: (i)     the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise; and (ii)     you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option. 7.     This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 8.     Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 9.     This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the _________ day of ____________, 2001. Very truly yours, WILD OATS MARKETS, INC.   By______________________________________ Duly authorized on behalf of the Board of Directors The undersigned: (a)     Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b)     Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only: NONE     __________________________ (Initial) OTHER     ______________________________________________________________ ______________________________________________________________ ______________________________________________________________   Bruce Bowman Optionee Address: ___________________________________________   ___________________________________________       WILD OATS MARKETS, INC. NON-QUALIFIED STOCK OPTION BRUCE BOWMAN, Optionee:   Wild Oats Markets, Inc. (the "Company"), pursuant to the Bruce Bowman Equity Incentive Plan (the "Plan"), has this day granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify and will not be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The details of your option are as follows: 1.     (a)     The total number of shares of Common Stock subject to this option is __________________. (a)     Subject to the conditions stated herein, this option shall be exercisable with respect to each installment shown below on or after the date of vesting applicable to such installment; provided, however, that should Optionee's employment terminate for "cause" this option shall be terminated and canceled immediately and shall not be exercisable for any number of shares. For purposes of this option, "cause" shall mean misconduct including, but not limited to, criminal acts involving moral turpitude or dishonesty. NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING) 2.     (a)     The exercise price of this option is ___________________ ($_______) per share, being not less than eighty five percent (85%) of the fair market value of the Common Stock on the date of grant of this option. (a)     Payment of the exercise price per share is due in full in cash (including check) upon exercise of all or any part of each installment which has become exercisable by you. (b)     Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of Common Stock. 3.     This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 4.     Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 5.     The term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates ten (10) years from the date of grant. In no event may this option be exercised on or after the date on which it terminates. This option shall terminate prior to the expiration of its term as follows: Thirty (30) days after the termination of your employment with the Company for any reason or for no reason unless; (a)     such termination of employment is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code), in which event the option shall terminate on the earlier of the termination date set forth above or six (6) months following such termination of employment; or (b)     such termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or twelve (12) months after your death; or (c)     during any part of such thirty (30) days period the option is not exercisable solely because of the condition set forth in paragraph 4 above, in which event the option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of thirty (30) days after the termination of employment. However, this option may be exercised on or after the termination of employment only as to that number of vested shares as to which it was exercisable on the date of termination of employment under the provisions of paragraphs 1 and 3 of this option; provided however, that if your employment is terminated prior to the First Exercise Date (as defined in subparagraph 3(a) hereof), subject to paragraph 1 hereof, the date of your termination of employment shall be deemed the First Exercise Date. 6.     (a)     This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to the Plan. (i)     By exercising this option you agree that the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise. 7.     This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 8.     Any notices provided for in this option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 9.     If the partners hereto shall have any conflict regarding the terms of this option, the interpretation of the Company's Compensation Committee shall prevail. Dated the ______ day of _________________, 199___. Very truly yours, WILD OATS MARKETS, INC.   By ___________________________________ Duly authorized on behalf of the Board of Directors The undersigned: (a)     Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b)     Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of the following agreements only: NONE     _____________________ (Initial) OTHER     __________________________________________________________ __________________________________________________________ __________________________________________________________   Bruce Bowman Optionee   Address:     ___________________________________________ ___________________________________________     NOTICE OF EXERCISE     Date of Exercise Wild Oats Markets, Inc. 3375 Mitchell Lane Boulder, CO 80301 Ladies and Gentlemen: This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.   Type of option (check one) Incentive Nonstatutory Stock option dated: Number of shares as to which option is exercised: Certificates to be issued in name of: _____________________ Total exercise price:          $ Cash payment delivered herewith:     $   By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Bruce Bowman Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise related to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option. I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above: I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144. I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws. I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of my shares of Common Stock or other securities of the Company during such period (not to exceed two hundred seventy (270) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. For purposes of this restriction I will be deemed to own securities that (i) are owned directly or indirectly by me, including securities held for my benefit by nominees, custodians, brokers or pledges; (ii) may be acquired by me within sixty (60) days of the Effective Date; (iii) are owned directly or indirectly, by or for my brothers or sisters (whether by whole or half blood), spouse, ancestors and lineal descendants; or (iv) are owned, directly or indirectly, by or for a corporation, partnership, estate or trust of which I am a shareholder, partner or beneficiary, but only to the extent of my proportionate interest therein as a shareholder, partner or beneficiary thereof. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. Very truly yours, _________________________________

EXHIBIT 10(a) CONFIDENTIALITY AND EMPLOYMENT AGREEMENT BETWEEN PEOPLES ENERGY CORPORATION AND JAMES M. LUEBBERS   THIS AGREEMENT, effective as of September 30, 2001, by and between Peoples Energy Corporation, an Illinois corporation and James M. Luebbers (the "Executive"). WITNESSETH WHEREAS, the Company and Executive desire to set forth the terms and conditions of Executive's employment with the Company. NOW THEREFORE, it is hereby agreed by and between the parties as follows: 1. Definitions. "Affiliate" shall mean any entity controlled by or under common control of PEC and other entities controlled by such subsidiaries. "Agreement" shall mean this Confidentiality and Employment Agreement. "Confidentiality and Severance Agreement" shall mean that certain Confidentiality and Severance Agreement between Peoples Energy Corporation and Executive, dated September 30, 2001. "Company" shall mean Peoples Energy Corporation and include any Affiliate and successor or successors to Peoples Energy Corporation. "Confidential Information" shall have the meaning set forth in Paragraph 7 of this Agreement. "Effective Date" shall mean September 30, 2001. "PEC" shall mean Peoples Energy Corporation, an Illinois corporation. "PEC LTIC" shall mean the Peoples Energy Corporation Long Term Incentive Compensation Plan as in effect on the Effective Date, as amended from time to time. "PEC Retirement Plan" shall mean the Peoples Energy Corporation Retirement Plan as in effect on the Effective Date, as amended from time to time. "PEC SRB" shall mean the Peoples Energy Corporation Supplemental Retirement Benefit Plan as in effect on the Effective Date, as amended from time to time. "PEC STIC" shall mean the Peoples Energy Corporation Short Term Incentive Compensation Plan as in effect on the Effective Date, as amended from time to time. "Plan Year" shall mean the Plan Year as defined under the PEC STIC. "QSERP" shall mean provisions that amend the PEC Retirement Plan whereby some or all of the executive pension benefits that would otherwise be paid out of the PEC SRB due to the payment limitations of the Code are paid out of the PEC Retirement Plan. "Resignation Date" shall mean March 31, 2002. 1. Employment. a. Executive shall resign his position as Vice President, Chief Financial Officer and Controller, and as a director of each Affiliate, effective as of the close of business on September 30, 2001. b. Executive shall continue employment with the Company subsequent to the Effective Date as an appointed officer until the Resignation Date. c. Executive shall be paid a monthly salary of $19,441.67 during the period October 1, 2001 until the Resignation Date. d. Executive shall continue to receive, during his employment after the Effective Date, the same perquisites that were available to Executive as an elected officer during the 12-month period ended fiscal 9/30/01, e.g., without limitation, annual physical, car allowance, financial planning, luncheon club membership, parking, paid time off days, etc.; provided, however, Executive shall not receive any award under the PEC STIC for the 2002 Plan Year or any awards under the PEC LTIC subsequent to the Effective Date. e. If the Company amends the Retirement Plan to include the provisions of a QSERP for its executives who retire on or before the Resignation Date, Executive shall be included in such QSERP. 3. Tax Withholding. The Company may withhold from any payments made under this Agreement all federal, state or other taxes, including excise taxes as shall be required pursuant to any law or governmental regulation or ruling. 4. Waiver and Releases. a. In consideration of the covenants under this Agreement, including, but not limited to, paragraph 2 and the covenants under the Confidentiality and Severance Agreement, except with respect to Executive's rights under the Illinois Workers' Compensation Act, the Executive hereby waives, releases and forever discharges PEC (including its current and former Affiliated companies, and their current and former officers, directors, employees and agents) from all claims which he may have against PEC (including its current and former Affiliated companies, and their current and former officers, directors, employees and agents of the Company and the Company's benefit plans and fiduciaries thereof) arising out of or related to his employment with the Company or termination of such employment, including, but not limited to claims under the Americans With Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Illinois Human Rights Act, the Employee Retirement Income Security Act, or any other federal, state or local statute, regulation, ordinance, or doctrine of common law. b. In consideration of the covenants under this Agreement, including, but not limited to, paragraph 2 and the covenants under the Confidentiality and Severance Agreement, as a condition precedent to receiving any payments under this Employment Agreement, the Executive agrees to execute on the Effective Date, a release in the form of Exhibit A attached to the Confidentiality and Severance Agreement and by this reference made a part hereof. 5. Entire Understanding. This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any prior confidentiality and employment agreement between the Company and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of any kind elsewhere provided and not expressly provided for in this Agreement. 6. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. 7. Confidential Information. a. Executive understands and acknowledges that, by virtue of his position with the Company and his employment under this Agreement, he has had and will have access to confidential information belonging to the Company and/or its Affiliates, the disclosure or use of which may damage the Company or the Affiliates. "Confidential Information" includes, but is not limited to, information regarding the Company and its Affiliates' hydrocarbon interests and prospects, computer programs; unpatented inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development, or business plans; sales forecasts; personnel information, including with respect to the employees of the Company and its Affiliates, their competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning any planned or pending acquisition or divestiture, regardless of whether such planned or pending acquisition or divesture is effectuated or was planned on or prior to the date of this Agreement; and information concerning purchases of major equipment or property. "Confidential Information" does not include information which is in or hereafter enters the public domain through no fault of Executive, or is obtained by Executive from a third party having the legal right to use and disclose the same. Executive agrees that all Confidential Information is and shall remain the sole property of the Company and its Affiliates, and he agrees to maintain the Confidential Information in strict confidence for a period of two (2) years after his employment. b. This Paragraph 7 shall not prevent Executive from using general skills and experience developed in positions with the Company, or from accepting a position of employment with another company, firm, or other organization, provided that such position does not require the divulgence or use of the Confidential Information. c. Executive acknowledges that his failure to comply with the terms of this Paragraph 7 will cause irreparable damage to the Company and/or its Affiliates. Therefore, he agrees that, in addition to any other remedies at law or in equity available to the Company or the Affiliates for his breach or threatened breach of this Paragraph 7, the Company or any of its Affiliates are entitled to injunctive relief against him to prevent such damage or breach. If any restriction in this Paragraph 7 is found to be too broad to permit enforcement to its full extent, such restriction shall be enforced to the maximum extent permitted by law, and Executive agrees that such restriction may be judicially modified to permit such maximum enforcement. 8. Binding Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors and assigns. 9. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 10. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 11. Governing Law. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the State of Illinois without giving effect to the choice of law provisions in effect in such State. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, and the Executive has signed this Agreement, all effective as of the Effective Date.   By: /s/ James M. Luebbers___________     PEOPLES ENERGY CORPORATION By: /s/ Thomas M. Patrick____________ Thomas M. Patrick

NATIONAL PHOTO LABS II, INC. 4444 LAKE CENTER DRIVE DAYTON, OH 45426 937-854-6686 - OFFICE 937-854-0140 - FAX   December 14, 1998   Mr. Frank Montano President Moto Photo, Inc. 4444 Lake Center Drive Dayton, Ohio 45426 Dear Frank: The purpose of this letter is to document the agreement that Moto Photo, Inc. and National Photo Labs II, Inc. mutually wish to extend the expiration date of the amended management agreement between the two companies dated October 1, 1986. It is agreed that the subject agreement between the two companies be extended until December 31, 2003 under the same terms and conditions as contained in said agreement. Please acknowledge your acceptance of this change by signing below. Best regards,   /s/ D. A. Mason David A. Mason President   DM/ps Agreed and Accepted: Moto Photo, Inc.   /s/ Frank M. Montano 12/15/98 Frank Montano, President Date

EXHIBIT 10(b) Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents AIRCRAFT CHATTEL MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS, dated as of June 29, 2001 (as amended, modified, or supplemented from time to time, including, without limitation, by the execution and delivery of Supplements (as defined herein), this "Agreement"), by ABX AIR, INC., a Delaware corporation (together with its successors and assigns, the "Debtor"), and WACHOVIA BANK, N.A., a national banking association, as collateral agent (herein, together with its successors and assigns in such capacity, the "Collateral Agent"), on behalf of the Secured Creditors (as defined below): PRELIMINARY STATEMENTS: (1) Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. Certain terms used herein are defined in Section 1 hereof.  (2) This Agreement is one of the "Collateral Documents" described in, and is made pursuant to, that certain Amended and Restated Credit Agreement dated as of June 29, 2001, by and among Airborne Express, Inc., a Delaware corporation ("Express") and formerly known as Airborne Freight Corporation, a Delaware corporation ("AFC"), ABX Air, Inc., a Delaware corporation ("ABX" and Express, each, a "Borrower" and together, jointly and severally, the "Borrowers"), the financial institutions named as lenders therein (together with their respective successors and assigns, the "Lenders" and, each individually, a "Lender"), and Wachovia Bank, N.A., a national banking association ("Wachovia"), as the Administrative Agent for the Lenders under the agreement and in its capacity as collateral agent, which agreement amends and restates that certain Credit Agreement dated as of July 27, 2000, by and among AFC, the Lenders, and Wachovia as Administrative Agent, as amended by that certain First Amendment to Credit Agreement dated as of April 20, 2001, by and among Airborne, Inc., a Delaware corporation ("Airborne"), the Lenders, and Wachovia as Administrative Agent, as further amended by that certain Second Amendment to Credit Agreement dated as of May 31, 2001, by and among Airborne, the Lenders, and Wachovia as Administrative Agent (collectively, together with any and all concurrent or subsequent exhibits, schedules, extensions, supplements, amendments or modifications thereto, the "Credit Agreement"). Pursuant to a Joinder Agreement dated as of December 26, 2000, Airborne assumed AFC's obligations as "Borrower" under the Credit Agreement, and AFC was released from its obligations as "Borrower" under the Credit Agreement.  (3) The Credit Agreement provides for, among other things, loans or advances, the issuance of letters of credit, and other extensions of credit to or for the benefit of the Borrowers of up to $275,000,000, with such loans or advances being evidenced by promissory notes (the "Facility Notes").  (4) AFC entered into an Indenture dated as of December 15, 1992, as supplemented by that certain First Supplemental Indenture dated as of September 15, 1995, relating to Express' 7.35% Notes, as further supplemented by that certain Second Supplemental Indenture Relating to AFC's 8-7/8% Notes Due 2002 dated February 12, 1997, and as further supplemented by that certain Third Supplemental Indenture dated as of the Closing Date (herein, as amended or otherwise modified, restated, supplemented or replaced from time to time, the "Indenture"), pursuant to which Express, formerly known as AFC, (i) may issue and sell its debentures, notes, or other evidences of indebtedness and (ii) has, prior to the date hereof, issued and sold to certain purchasers (the "Noteholders," such term to include their successors and assigns) (A) $100,000,000 aggregate original principal amount of its "7.35% Notes due 2005," (the "1995 Notes") and (B) $100,000,000 aggregate original principal amount of its "8-7/8% Notes Due December 15, 2002" (the "1992 Notes," and together with the 1995 Notes, the "Indenture Debt," such term to include all debentures, notes, or other evidences of indebtedness issued pursuant to the Indenture in addition to, issued in exchange for, or issued in replacement of any Indenture Debt existing on the date hereof). Express, in its capacity as issuer of the Indenture Debt, together with its successors and assigns, shall be referred to herein as the "Indenture Debt Issuer."  (5) Subject to certain exceptions which are not applicable hereto, Section 1008 of the Indenture prohibits the Debtor from creating any security interests in certain of the Debtor's property unless the Indenture Debt is equally and ratably secured by such security interest.  (6) This Agreement is made in favor of the Collateral Agent for the benefit of the Lenders and the Noteholders (collectively the "Secured Creditors") to equally and ratably secure the Secured Obligations (as defined herein).  (7) It is a condition precedent to the making of Loans and the issuance of, and participation in, Letters of Credit under the Credit Agreement that the Debtor shall have executed and delivered to the Collateral Agent this Agreement.  (8) The Debtor desires to execute this Agreement to satisfy the conditions described in the preceding paragraphs (5) and (7). 1.                  DEFINITIONS As used in this Agreement, the following terms shall have the following definitions: "Act" shall mean the Federal Aviation Act of 1958, as amended from time to time. "Aggregate Principal Obligations" shall mean the sum of (a) the Indenture Principal Obligations, plus (b) the Facility Principal Obligations. "Agreement" shall mean this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, any concurrent or subsequent exhibits or schedules to this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, and any extensions, supplements, amendments or modifications to this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, and/or to any such exhibits or schedules, including, without limitation, any and all Supplements executed and delivered from time to time as provided herein. "Airframe" shall mean each of those certain airframes identified on Schedule I hereto, and each of those airframes identified on Schedule I to any Supplement, together with any and all Parts from time to time incorporated or installed in or attached to any of such Airframes or required to be subject to the lien of this Agreement, and all improvements, additions, and appurtenances thereto, substitutions thereof and replacements thereto, whether now or hereafter attached thereto or installed thereon. "Avoided Payment" shall have the meaning given such term in Section 4.7(c). "Borrower" and "Borrowers" shall have the meanings provided in the Preliminary Statements of this Agreement. "Collateral" shall have the meaning provided in Section 2.1. "Collateral Agent" shall mean the Administrative Agent under the Credit Agreement, or its designee(s), in its capacity as collateral agent hereunder. "Collateral Agent Expenses" shall mean (a) all costs or expenses which Debtor is required to pay or cause to be paid under this Agreement or any other Collateral Document and which are paid or advanced by the Collateral Agent pursuant to the provisions of the Collateral Documents; (b) all taxes and insurance premiums of every nature and kind which Debtor is required to pay or cause to be paid under this Agreement or any other Collateral Document and which are paid or advanced by the Collateral Agent pursuant to the provisions of any Collateral Document; (c) all filing, recording, publication and search fees paid or incurred by the Collateral Agent in connection with the transactions contemplated by this Agreement or the other Collateral Documents; (d) all costs and expenses paid or incurred by the Collateral Agent (with or without suit), to correct any default or enforce any provisions of any Collateral Document or in gaining possession of, maintaining, handling, preserving, storing, refurbishing, appraising, selling, preparing for sale and/or advertising to sell the Collateral, whether or not a sale is consummated; (e) all costs and expenses of suit paid or incurred by the Collateral Agent in enforcing or defending this Agreement or any other Collateral Document; and (f) attorneys' fees and expenses paid or incurred by the Collateral Agent in advising, structuring, drafting, reviewing, amending, terminating, enforcing, defending or concerning this Agreement or any other Collateral Document, whether or not suit is brought, and including any action brought in any Insolvency Proceeding. "Collateral Documents" shall have the meaning given such term in the Credit Agreement. "Credit Agreement" shall have the meaning provided in the Preliminary Statements of this Agreement. "Debtor" has the meaning given in such term in the first paragraph of this Agreement. "Designated Location" shall mean each of the parcels of real property listed on Schedule II, attached hereto and made a part hereof, and any additional parcels of real property described from time to time on any schedules to any Supplement. "Distributable Amount" shall have the meaning given such term in Section 4.7(b). "Engine" or "Engines" shall mean each aircraft engine described in Schedule I hereto, and each of those engines identified from time to time on Schedule I to any Supplement, (or, if any such engine shall be replaced pursuant to this Agreement, then such replacement aircraft engine) (each of which engines has 750 or more rated takeoff horsepower or the equivalent thereof), together with any and all Parts so long as the same shall be either incorporated or installed in or attached to such aircraft engine or required to be subject to the Lien of this Agreement as provided herein, and all improvements, appurtenances and additions thereto, substitutions thereof and replacements thereto, whether now or hereafter attached thereto or installed thereon. Each such engine shall constitute an "Engine" for all purposes hereof whether or not from time to time installed on an Airframe or on any other airframe or located on the ground. "Event of Default," as used in this Agreement, unless otherwise stated, shall have the same meaning given such term in Section 4.1. "FAA" shall mean the United States Federal Aviation Administration, or any successor or replacement administration or governmental agency having the same or similar authority and responsibilities. "Facility Notes" has the meaning given such term in the Preliminary Statements. "Facility Obligations" shall mean all "Obligations" as such term is defined in the Credit Agreement. "Facility Principal Obligations" shall mean, at any time, the sum of (a) aggregate outstanding principal amount of all Loans under the Credit Agreement, plus (b) the outstanding principal amount of all Reimbursement Obligations under the Credit Agreement, plus (c) the Outstanding Letter of Credit Exposure, plus (d) the principal amount of all other loans or advances which constitute a portion of the Facility Obligations. "Geneva Convention" shall mean the Convention on the International Recognition of Rights in Aircraft made at Geneva, Switzerland on June 19, 1948, (effective 17 September 1953), together with the necessary enacting rules and regulations promulgated by any particular signatory country. "Indenture" shall have the meaning given such term in the Preliminary Statements of this Agreement. "Indenture Debt" shall have the meaning provided in the Preliminary Statements of this Agreement. "Indenture Debt Issuer" shall the meaning given such term in the Preliminary Statements of this Agreement. "Indenture Documents" shall mean the Indenture, all documents or instruments evidencing the Indenture Debt and all other documents now or hereafter executed and delivered by the Indenture Debt Issuer, either of the Borrowers, or Debtor for the benefit of the Trustee or Noteholders. "Indenture Principal Obligations" shall mean, at any time, the outstanding principal amount of all debentures, notes, or other evidences of indebtedness issued under or pursuant to the Indenture Documents. "Information Disclosure Certificate" shall mean that certain Information Disclosure Certificate delivered by or on behalf of the Debtor pursuant to the Credit Agreement. "Insolvency Proceeding" shall mean any proceeding commenced by or against any person or entity, under any provision of the federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including, but not limited to, assignments for the benefit of creditors, formal or informal moratoriums, compositions or extensions with some or all creditors. "Judicial Officer or Assignee" shall mean any trustee, receiver, controller, custodian, assignee for the benefit of creditors or any other person or entity having powers or duties like or similar to the powers and duties of a trustee, receiver, controller, custodian or assignee for the benefit of creditors. "Lender" and "Lenders" shall have the meaning provided in the Preliminary Statements of this Agreement. "Lenders' Percentage" shall mean, with respect to a given amount, the portion of such amount determined by the ratio by which the Facility Principal Obligations bear to the Aggregate Principal Obligations. "Letter of Credit Reserve Account" shall have the meaning given such term in Section 4.7(b). "Noteholder" shall have the meaning provided in the Preliminary Statements of this Agreement. "Noteholders' Percentage" shall mean, with respect to a given amount, the portion of such amount determined by the ratio by which the Indenture Principal Obligations bear to the Aggregate Principal Obligations. "Outstanding Letters of Credit Exposure" shall mean at any time the undrawn face amount of all outstanding Letters of Credit then issued and outstanding under the Credit Agreement (assuming compliance with all requirements for drawing). "Parts" shall mean all appliances, avionics (including, without limitation, radio, radar, navigation systems, or other electronic equipment), parts, components, instruments, appurtenances, attachments, accessories, furnishings and other equipment of whatever nature (including, without limitation, any Engine, engine, airframe, Propeller, or propeller) and any replacements of the foregoing, which may from time to time be incorporated or installed in or attached to an Airframe, airframe, Engine, engine, Propeller, or propeller or located on the ground (and includes, without limitation, the terms "Spare Parts" and "Appliances" as defined in 49 U.S.C. Sec. 40102(a)). "Proceeds" shall have the meaning assigned that term under the UCC or under other relevant law and, in any event, shall include, but not be limited to (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or the Debtor from time to time with respect to any of the Collateral; (ii) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority); (iii) any and all accounts, general intangibles, contract rights, inventory, equipment, money, drafts, instruments, deposit accounts, or other tangible and intangible property of Debtor resulting from the sale (authorized or unauthorized) or other disposition of the Collateral, including, without limitation, the net earnings of any lease or other agreement relative to the use of the Collateral, or any portion thereof, and any proceeds of such proceeds; and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Propeller" shall mean each aircraft propeller described in Schedule I hereto, and each of those propellers identified on Schedule I to any Supplement, (or, if any such propeller shall be replaced pursuant to this Agreement, then such replacement propeller) (each of which propellers is capable of absorbing 750 or more rated takeoff shaft horsepower), together with, in the case of each propeller referred to above, any and all Parts so long as the same shall be either incorporated or installed in or attached to such propeller or required to be subject to the Lien of this Agreement as provided in this Agreement, and all improvements and additions thereto, substitutions thereof and replacements thereto. Each such propeller shall constitute a "Propeller" for all purposes hereof whether or not from time to time installed on an Airframe or on any other airframe or located on the ground. "Secured Creditors" shall have the meaning provided in the Preliminary Statements of this Agreement. "Secured Debt Documents" shall mean and include each of the Loan Documents (including, without limitation, the Credit Agreement) and each of the Indenture Documents. "Secured Obligations" shall mean each of the following: (a)                the Debtor's and the other Borrower's full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise), and the due performance, of all Facility Obligations; and  (b)               the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all principal of, and interest on, the Indenture Debt, and the due performance of all other obligations of the Parent, either of the Borrowers, or any other Subsidiary arising under or in connection with the Indenture Documents; and  (c)                all obligations and liabilities of Debtor under this Agreement, the Credit Agreement, or any other Loan Document to which it is a party; and  (d)               all obligations and liabilities of Debtor under the Indenture Documents to which it is a party; and  (e)                all other obligations and liabilities owing by the Debtor, the other Borrower, the Parent, or any other Subsidiary to any of the Administrative Agent, the Collateral Agent, the Trustee, any Lender, or any Noteholder under this Agreement, the Credit Agreement or any other Loan Document, or the Indenture Documents (including, without limitation, indemnities, fees and other amounts payable thereunder); and  (f)                 the full and prompt payment when due of any and all Collateral Agent Expenses; in all cases whether now existing, or hereafter incurred under, arising out of, or in connection with, this Agreement, the Credit Agreement, or any other Loan Document or the Indenture Documents, including any such interest or other amounts which, but for any automatic stay under Section 362(a) of the Bankruptcy Code, would become due. It is acknowledged and agreed that the term "Secured Obligations" shall include, without limitation, extensions of credit and issuances of securities of the types described above, whether outstanding on the date of this Agreement or extended or purchased from time to time after the date of this Agreement. "Security Interest Termination Date" shall mean the date on which each of the following shall have occurred: (i) each and every Lender's Commitment under the Credit Agreement shall have been terminated; (ii) no Facility Note shall be outstanding; (iii) no Letter of Credit issued under or pursuant to the Credit Agreement shall be outstanding; (iv) no other amounts shall then be payable by the Debtor or the other Borrower to the Administrative Agent or any Lender under the Credit Agreement or any other Loan Document; and (v) all Facility Obligations shall have been fully, finally, and indefeasibly paid or performed to the Administrative Agent's satisfaction, unless at such time (x) an Event of Default relating to a default in the payment when due of principal of or interest on the Indenture Debt, shall have occurred and be continuing; (y) the maturity of any portion of the Indenture Debt shall have been accelerated; and (z) the Collateral Agent shall have received written notice from any Noteholder or the Trustee to such effect. "Supplement" shall mean each Supplemental Aircraft Chattel Mortgage substantially in the form of Exhibit B, attached hereto and made a part hereof, executed and delivered to the Administrative Agent from time to time by the Debtor and pursuant to which additional Collateral becomes subject to the Lien granted herein. "Trustee" shall mean the trustee under the Indenture and includes its successors and assigns. "UCC" shall mean the Uniform Commercial Code as enacted by the State of Georgia, as amended from time to time, and any and all terms used in this Agreement which are defined in the UCC shall be construed and defined in accordance with the meaning and definition ascribed to such terms under the UCC. "Wachovia" has the meaning given such term in the Preliminary Statements of this Agreement. 2.                  CREATION OF SECURITY INTEREST  2.1              Security Interest in Collateral. To secure prompt payment and performance of any and all Secured Obligations, Debtor hereby grants to the Collateral Agent, for the equal and ratable benefit of the Secured Creditors, a continuing, first priority security interest in and lien upon all of the following (collectively, the "Collateral"):  (a)                the Airframes;  (b)               the Engines;  (c)                the Propellers;  (d)               all Parts which are located on a Designated Location, including, without limitation, all Parts of the type described in Schedule II;  (e)                all Parts located at any location other than a Designated Location;  (f)                 all right, title and interest of Debtor in and to any lease, rental agreement, charter agreement, chattel paper, or other agreement(s) respecting any of the foregoing, including, but not limited to, Debtor's right to receive, either directly or indirectly, from any Person, any accounts, rents, or other payments due under such agreement(s) and Debtor's rights under any warranties relating to any Airframe, Engines, Propellers, or Parts;  (g)                any and all manuals, logbooks, flight records, maintenance records, and other books and records or information of Debtor relating to any Airframe, Engine, Propeller, or Part;  (h)                all other of the Debtor's general intangibles relating to or arising in connection with any Airframe, Engine, Propellers, or Parts; and  (i)                  all Proceeds and products of any and all of the foregoing. The Collateral Agent's security interest in and lien upon the Collateral shall attach to all of the Collateral upon the execution and delivery of this Agreement, without further act being required on the part of either the Collateral Agent or Debtor. The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kinds, items, types and descriptions which are the subject of this Agreement and to which Debtor now has, or hereafter acquires, rights. 2.2              Security Instruments: Further Assurances. Debtor will perform, or will cause to be performed, upon the request of the Collateral Agent, each and all of the following:  (a)                Record, register and file this Agreement, as well as such notices, financing statements, Supplements, and/or other documents or instruments as may, from time to time, be requested by the Collateral Agent to fully carry out the intent of this Agreement, with the FAA in Oklahoma City, Oklahoma, United States of America (or at such other office as the FAA may designate), promptly after the execution and delivery of this Agreement or any Supplement, and such other administrations or governmental agencies, whether domestic or foreign, as may be determined by the Collateral Agent to be necessary or advisable in order to establish, confirm, maintain and/or perfect the security interest and Lien created hereunder, as a legal, valid, and binding, first priority security interest and Lien upon the Collateral;  (b)               Furnish to the Collateral Agent evidence of every such recording, registering and filing; and  (c)                Execute and deliver or perform, or cause to be executed and delivered or performed, such further and other instruments and/or acts as the Collateral Agent determines are necessary or required to fully carry out the intent and purpose of this Agreement or to subject the Collateral to the security interest and Lien created hereunder, including, without limitation: (i) any and all acts and things which may be reasonably requested by the Collateral Agent with respect to complying with or remaining subject to the Geneva Convention, the laws and regulations of the FAA, or the laws and regulations of any of the various states or countries in which the Collateral is or may fly over, operate in, or become located at; and (ii) defending the title of Debtor to the Collateral by means of negotiation and, if necessary, appropriate legal proceedings, against each and every party claiming an interest therein contrary or adverse to Debtor's title to same.  (d)               Upon (i) Debtor's acquiring rights in or to any airframe, engine, propeller, or "spare part" or "appliance" (as such terms are defined in 49 U.S.C. Sec. 40102(a)) which, at the time Debtor acquires such rights, is not Collateral hereunder, (ii) the replacement or substitution of any item of Collateral as described in Section 3.2, or (iii) the movement of any Collateral constituting Parts to a location which is not a Designated Location (except as may otherwise be allowed under this Agreement), the Debtor shall promptly notify the Administrative Agent of such event and execute and deliver to the Administrative Agent a Supplement in such form so as to provide, upon the filing thereof in the manner provided in this Section 2.2, for the Administrative Agent's having a first priority, perfected Lien in and to such additional asset or replacement item, or in and to any Parts kept at such new location. 2.3              Power of Attorney. Debtor hereby irrevocably appoints the Collateral Agent as its attorney‑in‑fact and agent with full power of substitution and re-substitution for Debtor and in its name to do, at the Collateral Agent's option, any one or more of the following acts, upon the occurrence of an Event of Default: (a) to receive, open and examine all mail addressed to Debtor and to retain any such mail relating to the Collateral and to return to Debtor only that mail which is not so related; (b) to endorse the name of the Debtor on any checks or other instruments or evidences of payment or other documents, drafts, or instruments arising in connection with or pertaining to the Collateral, to the extent that any such items come into the possession of the Collateral Agent; (c) to compromise, prosecute or defend any action, claim, or proceeding concerning the Collateral; (d) to do any and all acts which Debtor is obligated to do under this Agreement, the Credit Agreement or any other Loan Document, or the Indenture Documents; (e) to exercise such rights as Debtor might exercise relative to the Collateral, including, without limitation, the leasing, chartering, or other utilization thereof; (f) to give notice of the Collateral Agent's security interest in and Lien upon the Collateral, including, without limitation, notification to lessees and/or other account debtors of the Collateral Agent's security interest in the accounts, general intangibles, rents, and other payments due to Debtor relative to the Collateral, and the collection of any such rents or other payments; and (g) to execute in Debtor's name and file any notices, financing statements, and other documents or instruments the Collateral Agent determines are necessary or required to fully carry out the intent and purpose of this Agreement or to perfect the Collateral Agent's security interest and Lien in and upon the Collateral. Debtor hereby ratifies and approves all that the Collateral Agent shall do or cause to be done by virtue of the power of attorney granted in this Section 2.3 and agrees that neither the Collateral Agent, nor any of its employees, agents, officers, or its attorneys, will be liable for any acts or omissions or for any error of judgment or mistake of fact or law made while acting pursuant to the provisions of this Section 2.3 and in good faith. The appointment of the Collateral Agent as Debtor's attorney-in-fact, and each and every one of the Collateral Agent's rights and powers in connection therewith, being coupled with an interest, are and shall remain irrevocable until the Security Interest Termination Date.  3.                  REPRESENTATIONS, WARRANTIES, AND COVENANTS OF DEBTOR Debtor represents and warrants and covenants as follows (without limiting any representation, warranty, or covenant relating to any of the following contained in any Loan Document or Indenture Document): 3.1              Compliance with Laws. Debtor will neither use the Collateral, nor permit the Collateral to be used, for any unlawful purpose or contrary to any statute, law, ordinance or regulation relating to the registration, use, operation or control of the Collateral. Debtor will comply with, or cause to be complied with, at all times and in all respects, all statutes, laws, ordinances and regulations of the United States (including, without limitation, the FAA) and of all other governmental, regulatory, or judicial bodies applicable to the use, operation, maintenance, overhauling, or condition of the Collateral, or any part thereof, and with all requirements under any licenses, permits, or certificates relating to the use or operation of the Collateral which are issued to Debtor or to any other Person having operational control of the Collateral; provided, however, that Debtor may, in good faith and by appropriate legal or other proceedings, contest the validity of any such statutes, laws, ordinances or regulations, or the requirements of any such licenses, permits, or certificates, and pending the determination of such contest may postpone compliance therewith, unless the rights of the Collateral Agent hereunder are or may be materially adversely affected thereby. Without limiting the generality of the foregoing, Debtor agrees that at no time during the effectiveness of this Agreement shall the Collateral be operated in, located in, or relocated to, by Debtor or any other person or entity, any jurisdiction unless the Geneva Convention, together with the necessary enacting rules and regulations therefor (or some like treaty and regulations satisfactory to the Collateral Agent) shall be in effect in such jurisdiction and any notices, financing statements, documents, or instruments necessary or required, in the opinion of counsel for the Collateral Agent, to be filed in such jurisdiction shall have been filed and file stamped copies thereof shall have been furnished to the Collateral Agent. The foregoing authority to use the Collateral to the contrary notwithstanding, at no time shall the Collateral be operated in or over any area which may expose the Collateral Agent to any penalty, fine, sanction or other liability, whether civil or criminal, under any applicable law, rule, treaty or convention, nor may the Collateral be used in any manner which is or is declared to be illegal and which may thereby render the Collateral liable to confiscation, seizure, detention or destruction. 3.2              Maintenance and Repair.  (a)                During the effectiveness of this Agreement, Debtor shall, at its expense, do or cause to be done each and all of the following:          (i)                  Maintain and keep the Collateral in as good condition and repair as it is on the date of this Agreement, ordinary wear and tear excepted;          (ii)                Maintain and keep the Collateral in good order and repair and airworthy condition in accordance with the requirements of each of the manufacturers' manuals and mandatory service bulletins and each of the manufacturers' non-mandatory service bulletins which relate to airworthiness;          (iii)               Replace in or on each Airframe, any and all Engines, Propellers, and Parts which may be worn out, lost, destroyed or otherwise rendered unfit for use;          (iv)              Without limiting the foregoing, cause to be performed, on all Airframes, Engines, Propellers, and Parts all applicable mandatory Airworthiness Directives, Federal Aviation Regulations, Special Federal Aviation Regulations, and manufacturers' service bulletins relating to airworthiness, the compliance date of which shall occur during the term of this Agreement;  (b)               Debtor shall be responsible for all required inspections of the Airframes, Engines, Propellers, and Parts and licensing or re‑licensing of the same in accordance with all applicable FAA and other governmental requirements. Debtor shall at all times cause each Airframe to have, on board and in a conspicuous location, a current Certificate of Airworthiness issued by the FAA.  (c)                All inspections, maintenance, modifications, repairs, and overhauls of any Airframe, Engine, Propeller, or Parts shall be performed by personnel authorized by the FAA to perform such services.  (d)               If any item of Collateral shall reach such a condition as to require overhaul, repair or replacement, for any cause whatever, in order to comply with the standards for maintenance and other provisions set forth in this Agreement, Debtor may:          (i)                  Replace such unsatisfactory item with an item of substantially the same type in temporary replacement of such unsatisfactory item, pending overhaul or repair of the unsatisfactory item; provided, however, that such replacement items must be in such a condition as to be permissible for use in accordance with the standards for maintenance and other provisions set forth in this Agreement; provided further, however, that Debtor must, at all times, retain unencumbered title to any and all items temporarily replaced; or          (ii)                Install an item of substantially the same type in permanent replacement of such unsatisfactory item; provided, however, that such replacement items must be in such condition as to be permissible for use in accordance with the standards for maintenance and other provisions set forth in this Agreement; provided further, however, that Debtor must first comply with each of the requirements of subsection (e) set out below.  (e)                In the event that during the effectiveness of this Agreement, Debtor shall be required or permitted to permanently replace an unsatisfactory item of Collateral, Debtor may do so provided that, in addition to any other requirements provided for in this Agreement and subject to the terms of the Loan Documents and Indenture Documents regarding the disposition, maintenance, or sale of the Debtor's assets:          (i)                  The Collateral Agent is not divested of its security interest in and Lien upon any unsatisfactory item and that no such unsatisfactory item shall be or become subject to the Lien of any Person, unless and until such item is replaced by an item of the type and condition required by this Agreement, title to which is validly vested in Debtor, free and clear of any Liens, of any kind or nature, of any Person other than the Collateral Agent, and if requested by the Collateral Agent, the Debtor executes and delivers a Supplement covering such replacement item;          (ii)                Debtor's title to every replacement item shall immediately be and become subject to the first priority security interest and Lien of the Collateral Agent, either by virtue of this Agreement or any Supplement delivered pursuant hereto, and each of the provisions of this Agreement, and each such replacement item shall remain so encumbered and so subject unless it is, in turn, replaced by a substitute item in the manner permitted herein;          (iii)               The Collateral Agent's Lien on an unsatisfactory item shall be subject to release by the Collateral Agent only if (A) such unsatisfactory item is replaced in accordance with the requirements of this Agreement and (B) the replacement item satisfies the requirements of this Agreement, including the terms and conditions of subsections (i) and (ii) hereinabove.  (f)                 In the event that any Engine, Propeller, or Part is installed upon an Airframe, and is not in substitution for or in replacement of an existing item, such additional item shall be considered as an accession to the Airframe, and, if requested by the Collateral Agent, the Debtor shall execute and deliver a Supplement covering such additional item.  (g)                Until the Security Interest Termination Date, cause to be affixed at all times to each Engine and Propeller in a conspicuous, safe location and cause to be displayed at all times in the cockpit of each Airframe adjacent to the certificate of airworthiness displayed therein, a metal nameplate in form satisfactory to the Collateral Agent bearing substantially the following inscription (or such other subscription which the Collateral Agent shall approve): "MORTGAGED TO WACHOVIA BANK, N.A., AS COLLATERAL AGENT."  3.3              Insurance.  (a)                Debtor will at all times, at its own cost and expense, maintain, or cause to be maintained, a policy or policies of insurance with respect to the Collateral, in accordance with the provisions of Section 6.08 of the Credit Agreement.  (b)               Debtor shall not use or permit the Collateral to be used in any manner or for any purpose excepted from or contrary to the requirements of any insurance policy or policies required to be carried and maintained under the Credit Agreement or for any purpose excepted or exempted from or contrary to said insurance policies, and do any other act or permit anything to be done which could reasonably be expected to invalidate or limit any such insurance policy or policies.  3.4              Chief Executive Office. Debtor represents that its chief executive office is located at the address indicated on its Information Disclosure Certificate and agrees that such chief executive office will not be changed until (a) it shall have given to the Collateral Agent not less than 30 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may request, and (ii) with respect to such new location, it shall have taken all action, satisfactory to the Collateral Agent, to maintain the first priority security interest of the Collateral Agent in the Collateral intended to be granted hereby, at all times fully perfected and in full force and effect.  3.5              Further Representations, Warranties, and Covenants. Debtor further represents, warrants, and covenants with the Collateral Agent as follows (without limiting any representation, warranty, or covenant relating to any of the following contained in any Loan Document or Indenture Document):  (a)                Debtor shall pay, or cause to be paid, when due all taxes, assessments, charges (including license and registration fees and all taxes, levies, imposts, duties, charges or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon) imposed upon Debtor by any federal, state or local government or taxing authority upon or with respect to the Collateral or any portion thereof, or upon the purchase, ownership, delivery, leasing, possession, use, operation, return or other disposition thereof, or upon the rentals, receipts or earnings arising therefrom, or upon or with respect to this Agreement, or any of the other agreements relating hereto, excepting from such requirements any taxes or charges which are based on, or measured by, the net income of the Collateral Agent;  (b)               Debtor shall, on demand by the Collateral Agent, and at Debtor's sole cost and expense, cause the Collateral (including the logs, books, manuals, and records comprising the Collateral) to be exhibited to the Collateral Agent (or persons designated by the Collateral Agent) for purposes of inspection and copying;  (c)                Except as may otherwise be permitted under the Loan Document and the Indenture Documents, Debtor is the registered owner of the Airframes and owner of the Engines, the Propellers, and the Parts, and will be the registered owner of any Airframes and owner of the Engines, Propellers, and Parts listed on any Supplement from time to time delivered hereunder, pursuant to proper registration under the Act, as amended, as required for each such item of Collateral, and Debtor qualifies in all respects as a "citizen" of the United States as defined in the Act.  (d)               Debtor shall keep accurate and complete logs, manuals, books, and records relating to the Collateral, and provide, at Debtor's sole cost and expense, the Collateral Agent with copies of reports and information relating to the Collateral as the Collateral Agent may require from time to time;  (e)                Debtor shall not sell or otherwise dispose of or transfer the Collateral, or any right or interest of Debtor therein, except as permitted, and on the terms set forth, herein and in the Credit Agreement. Debtor shall not locate any of the Collateral constituting Parts at any location other than at a Designated Location, unless (i) such Part shall have been installed on or incorporated into an Airframe, Engine, or Propeller and (ii) the Collateral Agent shall continue to have a first priority, perfected Lien in such Part as so installed or incorporated.  (f)                 Debtor shall not suffer or permit any Lien other than Permitted Encumbrances to attach to or exist relative to the Collateral, whether voluntarily or involuntarily, and whether by issuance of judicial process, levy or otherwise, until the Security Interest Termination Date.  (g)                Debtor shall promptly give the Collateral Agent notice of any Default or Event of Default or event which, after notice or lapse of time or both, would constitute an Event of Default hereunder;  (h)                Debtor shall indemnify each of the Secured Parties and their respective agents, representatives, officers, directors, and employees and hold each of them harmless from and against all liabilities, claims and/or demands arising from any cause whatsoever, including the doctrine of strict liability, in connection with this Agreement or such Person's rights herein or in the Collateral and/or the use, sale, operation or possession of the Collateral.  (i)                  Debtor certifies that it is an air carrier certified under 49 U.S.C. Sec. 44705 and that the Parts are maintained by or on behalf of the Debtor at the Designated Locations. 4.                  EVENTS OF DEFAULT AND REMEDIES  4.1              Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Agreement:  (a)                The occurrence of any "Event of Default" under the Credit Agreement, the pertinent provisions of which are attached hereto as Exhibit A;  (b)               Debtor shall fail to perform, keep, or observe any of the Secured Obligations;  (c)                If any representation, statement, report, or certificate made or delivered by Debtor, or any of its officers, employees or agents, to the Collateral Agent is not true and correct when made;  (d)               If there is a material impairment of the value of, or the loss of the priority of the Collateral Agent's security interests in, the Collateral;  (e)                If all or any of the Collateral is attached, seized, subjected to a writ or distress warrant, or are levied upon, or comes into the possession of any Judicial Officer or Assignee; or  (f)                 If a judgment or other claim becomes a Lien upon all or any of the Collateral. 4.2              Remedies Upon Default. If an Event of Default shall occur and be continuing, the Collateral Agent may (or, if directed to do so in writing by the Required Lenders, shall) without notice of any kind to Debtor to the extent permitted by law, carry out or enforce the actions or remedies provided in this Section 4 or elsewhere in this Agreement or otherwise available to a secured party under the UCC or other applicable Uniform Commercial Code as in effect at the time in any applicable jurisdiction. 4.3              Possession of Aircraft. The Collateral Agent may, without notice, take possession of all or any part of the Collateral and may exclude Debtor, and all persons claiming under the Debtor, wholly or partly therefrom. At the request of the Collateral Agent, Debtor shall promptly deliver or cause to be delivered to the Collateral Agent or whosoever the Collateral Agent shall designate, at such time or times and place or places as the Collateral Agent may specify, and fly or cause to be flown to such airport or airports in the United States as the Collateral Agent may specify, without risk or expense to the Collateral Agent or any Secured Creditor, all or any part of the Collateral. In addition, Debtor will provide, without cost or expense to the Collateral Agent, storage facilities for such Collateral. If Debtor shall for any reason fail to deliver such Collateral or any part thereof after demand by the Collateral Agent, the Collateral Agent may, without being responsible for loss or damage, (i) obtain a judgment conferring on the Collateral Agent the right to immediate possession or requiring Debtor to deliver immediate possession of all or part of such Collateral to the Collateral Agent, to the entry of which judgment Debtor hereby specifically consents, or (ii) with or, to the fullest extent provided by law, without such judgment, pursue all or part of such Collateral wherever it may be found and may enter any of the premises of Debtor where such Collateral may be and search for such Collateral and take possession of and remove the same. Debtor agrees to pay to the Collateral Agent, upon demand, all expenses incurred in taking any such action; and all such expenses shall, until paid, be secured by the Lien of this Agreement. Upon every such taking of possession, the Collateral Agent may, from time to time, make all such reasonable expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Collateral, as it may deem proper. 4.4              Receiver. The Collateral Agent shall be entitled, as a matter of right as against Debtor, without notice or demand and without regard to the adequacy of the security for the Secured Obligations by virtue of this Agreement or any other collateral or to the solvency of Debtor, upon the commencement of judicial proceedings by it to enforce any right under this Agreement, to the appointment of a receiver of all or any part of the Collateral and of the Proceeds. 4.5              Sale and Suits for Enforcement.   (a)                The Collateral Agent, with or without taking possession of the Collateral may, without notice,         (i)                  to the extent permitted by law, sell at one or more sales, as an entirety or in separate lots or parcels, all or any part of the Collateral, at public or private sale, at such place or places and at such time or times and upon such terms, including terms of credit (which may include the retention of title by the Collateral Agent to the property so sold), as the Collateral Agent may determine, whether or not such Collateral shall be at the place of sale; and         (ii)                proceed to protect and enforce its rights and the rights of the Secured Creditors under this Agreement by suit, whether for specific performance of any covenant herein contained or in aid of the exercise of any power herein granted or for the foreclosure of this Agreement and the sale of the Collateral under the judgment or decree of a court of competent jurisdiction or for the enforcement of any other right.  (b)               At any public sale of the Collateral or any part thereof the Collateral Agent pursuant to paragraph (a)(i) above, the Collateral Agent may consider and accept bids requiring the extension of credit to the bidder and may determine in its sole discretion the highest bidder at such sale, whether or not the bid of such bidder shall be solely for cash or shall require the extension of credit.  (c)                Subject to the requirements of any law or order of court applicable thereto, notice of any sale under paragraph (a)(i) above shall contain a brief description of the property to be sold, shall state, in the case of a public sale, the time when and the place where the same is to be made and shall briefly describe any terms or conditions of sale, or shall state, if the sale is not to be public, the price to be received for the property to be sold and if such price is not to be paid entirely in cash shall briefly describe the terms and conditions of sale. Any such notice of public sale shall be sufficiently given if published once in each of any two successive weeks in a daily newspaper published in the Borough of Manhattan in The City of New York.  (d)               The Collateral Agent, to the extent permitted by law, may from time to time adjourn any sale under paragraph (a)(i) above by announcement at the time and place appointed for such sale or for any adjournment thereof; and without further notice or publication, except as may be required by law, such sale may be made at the time and place to which the same shall have been so adjourned.  (e)                Upon the completion of any sale under paragraph (a)(i) above, full title and right of possession to the Collateral so sold shall (subject to any retention of title by the Collateral Agent as part of the terms of such sale) pass to the accepted purchaser forthwith upon the completion of such sale, and Debtor shall deliver, in accordance with the instructions of the Collateral Agent (including flying any Collateral or causing the same to be flown to such airports in the United States as the Collateral Agent may specify), such Collateral so sold. If Debtor shall for any reason fail to deliver such Collateral, the Collateral Agent shall have all of the rights granted by Section 4.03 hereof. The Collateral Agent is hereby irrevocably appointed the true and lawful attorney of Debtor, in its name and stead, to make all necessary conveyances of the Collateral so sold. Nevertheless, if so requested by the Collateral Agent or by any purchaser, Debtor shall confirm any such sale or conveyance by executing and delivering all proper instruments of conveyance or releases as may be designated in any such request. 4.6              Waiver. Except as otherwise provided in this Agreement, DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE ASSIGNOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and Debtor hereby further waives, to the extent permitted by law: (i)                  all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; (ii)                all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii)               all rights of redemption, appraisement, valuation, stay, extension, moratorium, or redemption law now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and Debtor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of Debtor therein and thereto, and shall be a perpetual bar both at law and in equity against the Debtor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under Debtor. 4.7              Application of Proceeds.   (a)                The Proceeds actually collected by the Collateral Agent as a result of the exercise of any of the rights, powers and remedies of the Collateral Agent herein granted, shall be applied as follows:         (i)                  First, to the payment or reimbursement of all Collateral Agent Expenses, to the extent such costs and expenses have not been indefeasibly paid or reimbursed by Debtor or some other Person on behalf of Debtor;         (ii)                Second, subject to Section 4.7(b) and until all Secured Obligations owed to the Secured Creditors have been fully, finally, and indefeasibly paid or performed, each Lender's Commitment has been terminated, and the Letter of Facility Obligations have been reduced to zero, on a pari passu basis without any preference or priority to the Noteholders or the Lenders, to the Trustee, in an amount equal to the Noteholders' Percentage of such Proceeds, and to the Administrative Agent, in an amount equal to the Lenders' Percentage of such Proceeds, for distribution by the Trustee under the Indenture Documents and by the Administrative Agent under the Loan Documents;         (iii)               Finally, to the Debtor or such other Person or Persons as shall be lawfully entitled thereto.  (b)               The amount of any Proceeds distributed to the Administrative Agent on account of any Outstanding Letter of Credit Exposure shall be held by the Administrative Agent and deposited by the Administrative Agent in a special interest bearing account (the "Letter of Credit Reserve Account") under the sole dominion and control of the Administrative Agent, and shall be applied and distributed to the appropriate Issuer of the applicable Letter of Credit if and to the extent that such Letter of Credit is honored. If such Letter of Credit is not drawn upon, or is not fully drawn upon, the balance of the funds in the Letter of Credit Reserve Account attributable to such Letter of Credit shall be distributed to the Secured Creditors pursuant to clause (ii) of Section 4.7(a) hereof.  (c)                Notwithstanding Section 4.7(a),         (i)                  if any payment by the Collateral Agent to a Secured Creditor pursuant to Section 4.7(a) would cause any amount recovered by the Collateral Agent from or in respect of the Collateral to be invalidated, declared fraudulent or preferential, set aside or required to be repaid, returned or restored to a trustee, receiver, or any other Person under any bankruptcy, reorganization, insolvency, or liquidation statute, state or federal law, common law or equitable cause (an "Avoided Payment"), such Secured Creditor shall not participate in the distribution of any portion of the Avoided Payment; instead the Avoided Payment shall be distributable to the Trustee and Administrative Agent pro rata in accordance with Section 4.7(a)(ii), for the benefit of the remaining Secured Creditors as to whom no such repayment, return or restoration would be applicable;         (ii)                the Collateral Agent may condition a payment to the Trustee or the Administrative Agent on behalf of a Secured Creditor pursuant to Section 4.7(a) on the specific condition that, in the event such amount is subsequently determined to be an Avoided Payment, such Secured Creditor will be required, upon written demand, to return promptly to the Collateral Agent all or its ratable part, as the case may be, of the Avoided Payment (and any interest thereon to the extent the same is required to be paid in respect of the return or restoration of the Avoided Payment), for distribution pro rata in accordance with Section 4.7(a)(ii) to the remaining Secured Creditors as to whom no such repayment, return or restoration would be applicable, or to the applicable obligor, as the case may be; and         (iii)               the Collateral Agent, in making any payments to the Trustee and the Administrative Agent on behalf of the Secured Creditors under Section 4.7(a), may require the Secured Creditors to agree that if any amounts are not distributed to a particular Secured Creditor pursuant to clause (i) above or are returned by a Secured Creditor under clause (ii) above, the Secured Creditors will make such adjustments or arrangements among themselves, whether by purchasing undivided interests in the Secured Obligations or otherwise, in order to equitably adjust for any non-pro rata distribution under clause (i) above and/or the return of all or part of any payment or amount under clause (ii) above, and to give effect to the intended equal and ratable benefits of this Agreement as security for the Secured Obligations.  (d)               All payments required to be made to (i) the Lenders hereunder shall be made to the Administrative Agent on behalf of and for the account of the respective Lenders, and (ii) the Noteholders hereunder shall be made to the Trustee on behalf of and for the account of the Noteholders.  (e)                For purposes of applying payments received in accordance with this Section 4.7, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent for a determination (which the Administrative Agent agrees to provide upon request by the Collateral Agent) of the outstanding Facility Principal Obligations, and (ii) the Trustee for determinations of the outstanding Indenture Principal Obligations owed to the Noteholders.  (f)                 It is understood and agreed that Debtor shall remain liable to the extent of any deficiency between (i) the amount of the proceeds of the Collateral applied pursuant to Section 4.7(a) and (ii) the aggregate outstanding amount of the Secured Obligations. 4.8              Right of Set-off. Debtor agrees that the Collateral Agent may exercise a right of set‑off with respect to any amounts owed to the Collateral Agent in the same manner as if the amounts owed were unsecured hereby. 4.9              Exercise of Remedies. Each right, power and remedy herein granted the Collateral Agent is cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing under or by virtue of the provisions of any other agreement between Debtor and the Collateral Agent or in equity, at law or by virtue of statute or otherwise. No failure to exercise, and no delay in exercising, any right, power or remedy held by the Collateral Agent hereunder or otherwise, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy held hereunder or otherwise, preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 4.10          Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case Debtor, the Collateral Agent and each holder of any of the Secured Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. 4.11          Collateral Agent to Act on Behalf of Secured Creditors. No Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised only by the Collateral Agent, for the benefit of the Secured Creditors, by itself or upon instructions from the Required Lenders, and the Secured Creditors agree by their acceptance of any of the benefits or Proceeds hereof that this Agreement may be enforced on their behalf only by the action of the Collateral Agent, acting in accordance with the terms of this Agreement. 4.12          Separate Actions. A separate action or actions may be brought and prosecuted against the Debtor whether or not action is brought against either of the Borrowers or any guarantor of any of the Secured Obligations, and whether or not any other guarantor or either of the Borrowers be joined in any such action or actions. 4.13          Termination. Upon the Security Interest Termination Date, the security interest and Lien of the Collateral Agent in the Collateral shall thereupon terminate. In any such case, the Collateral Agent shall, upon the request of Debtor, execute and deliver to Debtor proper instruments acknowledging the termination of the security interest and Liens.  5.                  MISCELLANEOUS PROVISIONS 5.1              Successors and Assigns. All the covenants, promises, stipulations and agreements contained herein shall bind each party and its successors and assigns, and shall inure to the benefit of the other party and its respective successors and assigns. 5.2              Entire Agreement. This Agreement, together with the exhibits, Supplements, schedules, and other agreements referred to herein, constitutes the entire understanding between the parties with respect to the subject matter hereof. All prior agreements, understandings, representations, warranties and negotiations, if any, are merged into this Agreement, and this Agreement is the entire agreement between Debtor and the Collateral Agent relating to the subject matter hereof. This Agreement may be amended only by a writing signed by all parties hereto. 5.3              Captions. Captions to the Articles and Sections of this Agreement are for the convenience of the parties, are not a part of this Agreement, and shall not be used for the interpretation of any provision hereof. 5.4              Notices. Any notice given with respect to this Agreement may be personally served or given in writing by depositing such notice in the United States mail, first class postage prepaid, or by telex or telegram, charges prepaid, addressed to the parties (a) for Debtor, at the address set forth next to its signature below and (b) for the Collateral Agent, at the address set forth next to its signature below, or at such other address as a party may from time to time designate by written notice to the other. 5.5              Severability. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision hereof. 5.6              Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 5.7              Waiver of Jury Trial and Jurisdiction. THE COLLATERAL AGENT, THE DEBTOR, AND EACH OF THE NOTEHOLDERS AND LENDERS WHICH ACCEPTS ANY PROCEEDS DISTRIBUTED PURSUANT TO THIS AGREEMENT, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER COLLATERAL DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT AND THE OTHER COLLATERAL DOCUMENTS, (C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, AND (D) AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN THE MANNER PRESCRIBED IN SECTION 5.4 FOR THE GIVING OF NOTICE TO THE DEBTOR. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE COLLATERAL AGENT FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST THE COLLATERAL, AGAINST DEBTOR PERSONALLY, OR AGAINST ANY ASSETS OF DEBTOR, WITHIN ANY OTHER STATE OR JURISDICTION. [SIGNATURES CONTAINED ON NEXT PAGE] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered under seal, by their duly authorized officers, as of the day and year first written above.   DEBTOR:(SEAL) ABX AIR, INC., a Delaware corporation   By: /s/Joe Hete   Title: _President and COO____   Address for Notices   3101 Western Avenue Seattle, Washington 98121 Attention: Chief Financial Officer and General Counsel CFO Telecopier number: 206-281-1444 Confirmation number: 206-281-1003 GC Telecopier number: 206-281-1444 Confirmation number: 206-281-1005           COLLATERAL AGENT:   WACHOVIA BANK, N.A.(SEAL)   By:/s/ Howard Kim   Title:__Senior Vice President______   Address for Notices:   191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Syndications Group Telecopier number: 404-332-1394 Confirmation number: 404-332-6971   SCHEDULE I TO AIRCRAFT CHATTEL MORTGAGE LISTING OF AIRFRAMES, ENGINES, AND PROPELLERS [Add the following language as applicable:]   [ENGINES: "Each of which Engines has 750 or more rated takeoff horsepower or the equivalent therof."] [PROPELLERS: "Each of which Propellers is capable of absorbing 750 or more rated takeoff shaft horsepower."]   SCHEDULE II TO AIRCRAFT CHATTEL MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS PARTS TYPE DESCRIPTION All Parts used on or in, or maintained for use on or in, any of the following types of aircraft and engines: [INSERT LIST OF EACH TYPE OF AIRCRAFT ABX HAS] [INSERT LIST OF EACH TYPE OF ENGINE ABX HAS] DESIGNATED LOCATIONS [INSERT DESCRIPTION FOR EACH LOCATION WHERE ABX HOLDS PARTS] 145 Hunter Drive, Wilmington, Ohio 45177, or on any parcel of real property owned by Airborne, Inc., or any of its subsidiaries, which parcel forms a part of the airport facility commonly referred to as "Wilmington Air Park" in or near Wilmington, Ohio, in the County of Clinton, Ohio. EXHIBIT A TO AIRCRAFT CHATTEL MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS PERTINENT PROVISIONS OF THE CREDIT AGREEMENT EXHIBIT B to Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents SUPPLEMENTAL AIRCRAFT CHATTEL MORTGAGE NO. [____] SUPPLEMENTAL AIRCRAFT CHATTEL MORTGAGE dated as of [_______________ __], 20[__], by [_________________], a [____________] (together with its successors and assigns, the "Debtor"), and WACHOVIA BANK, N.A., a national banking association, as collateral agent (herein, together with its successors and assigns in such capacity, the "Collateral Agent"), for the benefit of the Secured Creditors as defined and referred to in the Aircraft Chattel Mortgage referred to below. WHEREAS, the Debtor has heretofore executed and delivered to the Collateral Agent an Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents dated [_______ __], 2001, (as amended, modified, or supplemented from time to time, the "Aircraft Chattel Mortgage"), covering certain Airframes, Engines, Propellers, and Parts of the Debtor (terms used in this instrument having the meanings assigned thereto in the Aircraft Chattel Mortgage): WHEREAS, the Aircraft Chattel Mortgage has been duly recorded with the FAA at Oklahoma City, Oklahoma on [___________ __], 2001, as Conveyance No.[___] pursuant to the Act; WHEREAS, this Supplemental Aircraft Chattel Mortgage relates to the Airframes, Engines, Propellers, and Parts described in Schedule I hereto; WHEREAS, each of the Engines described on Schedule I hereto has 750 or more rated takeoff horsepower or the equivalent thereof, and each of the Propellers described on Schedule I hereto is capable of absorbing 750 or more rated takeoff shaft horsepower; and WHEREAS, the Aircraft Chattel Mortgage provides for the execution and delivery from time to time of Supplemental Aircraft Chattel Mortgages, each substantially in the form hereof, for the purpose of subjecting additional Airframes, Engines, Propellers, and Parts to the Lien of the Aircraft Chattel Mortgage; NOW, THEREFORE, as contemplated by the Aircraft Chattel Mortgage, the Debtor hereby grants to the Collateral Agent, for the equal and ratable benefit of the Secured Creditors, a security interest in the property described in Schedule I hereto as security for the due and prompt payment of the Secured Obligations. This Supplemental Aircraft Chattel Mortgage shall be construed as supplemental to the Aircraft Chattel Mortgage and shall form a part thereof; and the Aircraft Chattel Mortgage is hereby incorporated by reference herein to the same extent as if fully set forth herein and is hereby ratified, approved and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Aircraft Chattel Mortgage to be duly executed under seal, as of the day and year first above written.   DEBTOR:(SEAL) []   By:   Title: _______________________________       COLLATERAL AGENT:   WACHOVIA BANK, N.A.   By:   Title:_______________________________   SCHEDULE I TO SUPPLEMENTAL AIRCRAFT CHATTEL MORTGAGE   [The same type of information should be inserted herein as is described in brackets in Schedule I to the Aircraft Chattel Mortgage, including each of the following clauses, to the extent applicable:   [ENGINES: "Each of which Engines has 750 or more rated takeoff horsepower or the equivalent therof."] [PROPELLERS: "Each of which Propellers is capable of absorbing 750 or more rated takeoff shaft horsepower."]  

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.1 PURCHASE AND ASSUMPTION AGREEMENT dated as of October 10, 2001 between ROC TECHNOLOGIES, INC. COMERICA HOLDINGS INCORPORATED and EPIQ SYSTEMS, INC. -------------------------------------------------------------------------------- TABLE OF CONTENTS         Page -------------------------------------------------------------------------------- ARTICLE 1    DEFINITIONS   1 ARTICLE 2    PURCHASE AND SALE   2   2.1   Purchase and Sale   2   2.2   Amendment Agreement   2   2.3   Employees of Seller   2   2.4   Unpaid Salaries and Bonuses   3   2.5   Employment of Seller's Employees   3   2.6   Effect of Hire by Buyer   3   2.7   Severance Pay   4   2.8   Compliance with Laws Related to Employees   4   2.9   Costs and Expenses   4   2.10   Subcontract Agreement   4 ARTICLE 3    PRICE   4 ARTICLE 4    ADDITIONAL COVENANTS   4   4.1   Covenants of Seller   4   4.2   Noncompetition   5   4.3   Nonsolicitation   5   4.4   Entitlement to Injunction   5   4.5   Enforceability and Severability   5   4.6   Buyer's Covenants   6 ARTICLE 5    REPRESENTATIONS AND WARRANTIES   6   5.1   Representations and Warranties of the Seller   6   5.2   Buyer's Representations and Warranties   9 ARTICLE 6    SURVIVAL   9 ARTICLE 7    CLOSING   10   7.1   Time and Place   10   7.2   Seller's Deliveries upon the Effective Date   10   7.3   Buyer's Deliveries upon the Effective Date   10 ARTICLE 8    MISCELLANEOUS   10   8.1   Access to Information   10   8.2   Allocation of Consideration   10   8.3   Seller's and Holdings' Indemnification   10   8.4   Buyer's Indemnification   11   8.5   Procedure for Indemnification For Third Party Claims   11   8.6   Public Disclosures   12   8.7   Assignment   12   8.8   Mitigation of Losses   12   8.9   Notices   12   8.10   Time   13   8.11   Expenses   13   8.12   Communications   13   8.13   Entire Agreement   13   8.14   Amendment   14   8.15   Dispute Resolution   14 i --------------------------------------------------------------------------------   8.16   Governing Law, Severability   15   8.17   Waiver   15   8.18   Third Party Rights   15   8.19   Headings   15   8.20   Counterparts   15   8.21   Construction of Ambiguities   15   8.22   Other Actions   15 ii -------------------------------------------------------------------------------- SCHEDULES Schedule 1.1(a)—Customer List Schedule 1.1(b)—Certain Liabilities Schedule 1.1(c)—Related Assets Schedule 1.1(d)—Software Schedule 2.3—Employees Schedule 5.1(c)—Consents Schedule 5.1(h)—Tax Issues Schedule 5.1(nn)—Comerica Trustees Schedule 5.1(nnn)—Third Party Trustees Schedule 5.1(nnnn)—License and Marketing Agreement EXHIBITS Exhibit 2.2—Form of Amendment Agreement Exhibit 2.3(b)—Employment terms for Mark Thomas Exhibit 2.10—Subcontract Agreement iii -------------------------------------------------------------------------------- PURCHASE AND ASSUMPTION AGREEMENT     THIS PURCHASE AND ASSUMPTION AGREEMENT is made and executed as of this 10th day of October, 2001 (the "Effective Date"), between ROC TECHNOLOGIES, INC., a Texas corporation (the "Seller"), COMERICA HOLDINGS INCORPORATED, a Delaware corporation ("Holdings") for purposes of Sections 2 (only to the extent specifically provided in Section 2), 4.2, 4.3, 4.4, 4.5, 5.1 and 8.3 only, and EPIQ SYSTEMS, INC., a Missouri corporation (the "Buyer").     WHEREAS, the Seller provides certain bankruptcy deposit-related trustee accounting software products and services to financial institutions and to Chapter 7 and Chapter 13 bankruptcy trustees (the "Business"); and     WHEREAS, the Buyer wishes to purchase certain of the assets and assume certain of the liabilities of the Business, and the Seller is willing to sell and transfer the same upon the terms and subject to the conditions set forth in this Agreement;     NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions contained in this Agreement, the Seller and the Buyer agree as follows: ARTICLE 1    DEFINITIONS     For purposes of this Agreement:     "Affiliate" of a person or entity means any person or entity directly or indirectly controlling or controlled by or under direct or indirect common control with such person or entity.     "Agreement" means this Purchase and Assumption Agreement, including all schedules, exhibits and addenda, as modified, amended or extended from time to time.     "Amendment Agreement" means the agreement attached as Exhibit 2.2.     "Assets" means (1) the Customer List, (2) the Software, and (3) the Related Assets.     "Business" shall have the meaning set forth in the preamble.     "Buyer Plans" shall have the meaning set forth in Section 2.3(c).     "California Agreement" means the Agreement with Respect to Employee and Office Arrangements, between Comerica Bank-California and Buyer, dated the same date as this Agreement.     "Comerica Bank-California" means Comerica Bank-California, a California banking corporation.     "Customer List" means the customers set forth on Schedule 1.1(a).     "Effective Time" means October 11, 2001, at 12:01 A.M.     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.     "Hired Employees" means (i) the employees of the Seller listed on Schedule 2.3, all of which will be offered employment by, and shall become employees of, the Buyer as of the Effective Time, and (ii) the employees of Comerica Bank-California who, after the Effective Time, are offered employment by, and become employees of, Buyer under the California Agreement.     "Liabilities" means the liabilities set forth on Schedule 1.1(b).     "Referral Agreement" means the Referral Agreement between Comerica Bank-California and Bank of America dated as of the Effective Date.     "Related Assets" means certain equipment owned by the Seller related to the Business, certain contracts to which the Seller is a party, and certain other assets, all as described in Schedule 1.1(c). --------------------------------------------------------------------------------     "Seller's Knowledge" means the actual knowledge of the corporate officers of Seller without independent investigation.     "Software" means the bankruptcy-related software applications owned and used by the Seller, together with the related documentation, as described in Schedule 1.1(d).     "Subcontract Agreement" means the agreement attached as Exhibit 2.10. ARTICLE 2    PURCHASE AND SALE     2.1  Purchase and Sale.  Upon the terms and subject to the conditions of this Agreement, the Seller agrees to sell and transfer and the Buyer agrees to purchase the Assets as described on Schedules 1.1(a), 1.1(c) and 1.1(d), free and clear of all pledges, liens, security interests, charges, or other encumbrances, and assume the Liabilities at the Effective Date as described on Schedule 1.1(b).     2.2  Amendment Agreement.  On the Effective Date, Buyer shall execute the Amendment Agreement.     2.3  Employees of Seller.       (a) As of the Effective Time, Buyer shall offer employment to all of the Hired Employees listed on Schedule 2.3. After the Effective Time, pursuant to the California Agreement, Buyer shall offer employment to certain employees of Comerica Bank-California. Each of the Hired Employees shall receive from Buyer substantially the same salaries and wages as provided to them as of the Effective Date by Seller or Comerica Bank-California, as applicable. Buyer shall provide each Hired Employee with the severance package described in Schedule 2.3(aa) (the "Severance Package"). Until at least March 10, 2002, Buyer shall keep the work location of each Hired Employee listed on Schedule 2.3 within 25 miles of the location where such employees were located as of the Effective Date. Nothing contained in this Section 2.3 shall be construed as (i) preventing the Buyer from changing any salaries, wages or other terms and conditions of employment, except under the Severance Package, after six months following the Effective Date; (ii) creating any obligations of continuing employment, and nothing in this Agreement shall limit the Buyer's right to terminate any employee at any time for any reason, subject to applicable law and the Buyer's personnel policies; or (iii) restricting the Buyer's ability to change or terminate the benefit plans provided to its employees generally (including former employees of the Seller) other than as to the Severance Package for periods prior to March 10, 2002.     (b) Buyer shall offer employment to, and shall hire, Mark Thomas under the terms and conditions set forth the Employment Agreement attached to this Agreement as Exhibit 2.3(b). None of Seller or any Affiliate of Seller shall be liable for any of the salary, benefits or severance obligations to Mark Thomas that accrue as of or after the Effective Time, including, without limitation, all obligations which would otherwise arise under this Article 2. Buyer shall reimburse Seller and any Affiliates of Seller for any amounts paid by them for salary, benefits or severance obligations to Mark Thomas that accrue on or after the Effective Date.     (c) For purposes of the Buyer's employee benefit plans, arrangements, policies and programs, including any "employee benefit plans" within the meaning of Section 3(3) of ERISA (the "Buyer Plans"), the Buyer agrees that if an employee's benefit under any Buyer Plan depends, in whole or in part, on length of service, that it shall credit Hired Employees with their service with the Seller prior to the Effective Date (provided, that such crediting of service does not result in duplication of benefits and all such employees shall nonetheless be required to satisfy the participation eligibility requirements under the Buyer Plans). In addition, Seller or Holdings shall reimburse any deductible required to be paid by a Hired Employee under a Buyer Plan to the extent such employee has paid a similar deductible in 2001 under a similar Seller plan. The Seller and 2 -------------------------------------------------------------------------------- Holdings shall retain responsibility for payment of all medical, dental, vision, health and disability claims incurred by any Hired Employee prior to the Effective Date, and the Buyer shall not assume any liability with respect to such claims. For this purpose, a disability claim shall be considered incurred on the date that the individual becomes disabled and not by reference to the date that the administrative determination is made that a disability exists. The Buyer agrees that to the extent health or disability coverage is offered to Hired Employees, any preexisting condition clause in any of the Buyer's health or disability insurance coverage shall not be applicable to such employee, provided that such employee is enrolled in the Seller's plans as of the Effective Date. At or after the Effective Date, all medical, dental, vision, health and disability claims (whether or not the disability occurred prior to or after the Effective Date) incurred by Hired Employees in the Buyer's employ shall be determined under the Buyer's Plans.     (d) In the event that on or prior to July 28, 2002, the Buyer terminates any of the Hired Employees, Buyer will pay any such employee the severance that he or she is entitled under the Severance Package. For Hired Employees that are terminated by Buyer on or before March 10, 2002 (the "Early Termination Employees"), Buyer and Seller shall agree on the amount of any severance payment made to such Early Termination Employees in advance of each payment. Prior to the payment by Buyer of any severance to any Early Termination Employee, Seller or Holdings shall pay to the Buyer an amount equal to the severance which is due to such Early Termination Employee up to the amount that would have been paid to such employee under the severance plan in effect as to such Early Termination Employee prior to the Effective Date; provided, however, that the Seller or Holdings shall make such payment to Buyer only in the event that Buyer obtains a release (in the form of the Release which is a part of Schedule 2.3(aa)) from the Terminated Employee.     (e) Seller shall be responsible for all vacation, sick time and personal time accrued but not taken as of the Effective Time (the "Accrued Benefits") by each of the employees listed on Schedule 2.3. As of the Effective Time, Seller will pay each Hired Employee the amount required to be paid by law for the Accrued Benefits. Buyer is not liable for any Accrued Benefits.     (f)  Although this Agreement may require the Buyer to take or refrain from taking certain actions under Seller's employee benefit plans and may require the Seller to take or refrain from taking certain actions under the Buyer Plans, the Buyer is not adopting or assuming any responsibility for any employee benefit plan of the Seller (other than under the Severance Package), and the Seller is not adopting or assuming any responsibility for the Buyer Plans.     2.4  Unpaid Salaries and Bonuses.  The Seller and Holdings shall be responsible for payments, if any, of accrued but unpaid wages, salaries and bonuses, if any, with respect to service completed by Seller's Employees (as defined in Section 2.5) on or prior to the Effective Date.     2.5  Employment of Seller's Employees.  Except as specifically provided in Section 2.3(a) herein, Buyer may not offer employment to Seller's Employees. "Seller's Employees" shall mean those employees of Seller or Holdings who are employed in the conduct of the Business as of the day of the Effective Date. Buyer shall have no liability for any severance or other obligations of Seller related to any termination of Seller's Employees. For those persons who are Seller's Employees who are not offered employment by Buyer, Seller and Holdings agree to indemnify Buyer for any and all claims that any such person may assert in relation to their termination of employment by Seller and failure by Buyer to offer employment to such individual.     2.6  Effect of Hire by Buyer.  Except as specifically provided in this Agreement, and consistent with the provisions that apply to Hired Employees under Section 2.3(a), if one or more of Seller's Employees accepts an employment offer from Buyer, nothing in this Agreement shall: (a) confer upon such employee the right to remain an employee of Buyer or the right to restrain Buyer from changing the terms and conditions of employment (except under the Severance Package), including, without 3 -------------------------------------------------------------------------------- limitation, the responsibilities or compensation of such employee, or (b) obligate Buyer to assume any liability Seller may have to such employee under Seller's or Holding's employee benefit plans (except under the Severance Package).     2.7  Severance Pay.  Pursuant to the terms of an existing separation pay plan (or any successor plan thereto) applicable to certain of Seller's Employees, Seller may have severance pay or similar obligations arising from the termination by Seller of Seller's Employees if not hired by Buyer; and, except as otherwise expressly provided in this Agreement, Seller and Holdings agree to indemnify Buyer from and against any claim, including but not limited to, any claim for severance, whether or not there is an existing severance pay plan, arising from the termination by Seller of the employment of Seller's Employees.     2.8  Compliance with Laws Related to Employees.  As it relates to those persons (i) who are Seller's Employees, (ii) who are terminated by Seller and Holdings on the Effective Date and (iii) who are not offered employment by Buyer, Seller shall be responsible for complying with all of its obligations arising under COBRA (including providing adequate notice and maintaining insurance for Seller's Employees electing to maintain insurance coverage), the WARN Act and any comparable state law (including any law requiring advance notice of termination) if applicable.     2.9  Costs and Expenses.  Seller and Buyer will each be liable for one half of all sales taxes, if any, arising out of the transactions contemplated by this Agreement. Except as otherwise provided in this Agreement, Buyer shall not assume or be liable for any costs, expenses or liability of Seller, which may arise as a result of the sale of the Assets. Seller and Buyer will each pay its own respective expenses incident to the preparation of this Agreement and the consummation of the transaction contemplated herein, and each will pay its own respective expenses and fees incurred in the preparation and delivery of all documents, reports and legal and accounting opinions required to be delivered for or on behalf of them hereunder, whether or not the transaction contemplated by this Agreement is consummated.     2.10  Subcontract Agreement.  On the Effective Date, Buyer and Seller shall enter into a Subcontract Agreement, a copy of which is attached hereto as Exhibit 2.10. ARTICLE 3    PRICE     On the Effective Date, Buyer shall pay Seller, in immediately available funds wired to an account designated by Seller, the amount of Twelve Million Dollars ($12,000,000). ARTICLE 4    ADDITIONAL COVENANTS     4.1  Covenants of Seller.  The Seller agrees:     (a) To use diligent efforts to sign and deliver to the Buyer such additional agreements and other documents, and to do such other acts and things, as may be required to complete the transactions contemplated by this Agreement or any required state or federal securities law filings of Buyer provided that nothing in this Section 4.1(a) will require Seller to make any payments of more than a nominal amount in conjunction with this Section 4.1(a);     (b) To deliver to the Buyer those books, records, accounts and other documents relating solely to the Assets and the Liabilities as soon as practicable after the Effective Date and to store the other books, records and accounts relating to the Seller's operation of the Business for the applicable period required by law;     (c) To use reasonable best efforts to facilitate and promote the transfer of bankruptcy trustee deposit accounts from Comerica Bank-California to Bank of America under the Referral Agreement; and 4 --------------------------------------------------------------------------------     (d) To maintain its status as a Texas corporation in good standing with the Secretary of State of Texas until expiration or termination of the Subcontract Agreement attached hereto as Exhibit 2.10.     4.2  Noncompetition.  Each of Seller and Holdings covenants and agrees that for a period of five (5) years following the Effective Date, it will not, directly or indirectly, through any person, corporation, firm or other entity, (i) engage in any business that competes with the Chapter 7 or Chapter 13 bankruptcy/insolvency trustee business (the "Restricted Business"), including offering direct or indirect software/hardware products and services to the Restricted Business; or (ii) advise, consult with, or provide services to any person, corporation, firm or entity with respect to any business that competes with the Restricted Business, irrespective of whether or not Seller receives any compensation for such advice or consultation; provided, however, that nothing in this Agreement is intended to prohibit Seller or any Affiliate of Seller from providing banking or financial services, administration or consulting to such companies unrelated to the Restricted Business. During this noncompete period, Seller agrees to outsource any and all necessary hardware/software special services related to the Restricted Business exclusively to Buyer.     4.3  Nonsolicitation.  Each of Seller and Holdings covenants and agrees that for a period of five (5) years following the Effective Date, it will not, directly or indirectly, itself, or through any other person, corporation, firm or entity, do any of the following acts:     (a) Solicit, serve or cater to any of Buyer's customers, clients or employees in connection with the Restricted Business;     (b) Divert, or attempt to divert, any of the Restricted Business;     (c) Call upon, influence or attempt to influence any of the entities referred to in Schedule 1.1(a) to transfer their Restricted Business from Buyer to any other person, firm, corporation or entity engaged in a similar business; or     (d) Hire or attempt to hire any employee of the Chapter 7 or Chapter 13 bankruptcy/insolvency trustee business of Seller who is hired by Buyer as of the Effective Date.     Notwithstanding anything contained in Sections 4.2 and 4.3 of this Agreement, nothing in this Agreement shall in any manner restrict or prevent Seller, Holdings or any Affiliate from (i) marketing, soliciting, selling or otherwise doing business with any prior or present customers of Seller, Holdings, any Affiliate of Seller or Holdings, or with any third party, provided that such business is not the Restricted Business; (ii) owning, purchasing, operating or selling a business which provides Chapter 11 bankruptcy products or services; or (iii) acquiring (and thereafter owning, operating or selling) any entity that operates a Restricted Business which is not the principal business of such entity; provided, that if a determination is made to sell such entity or Affiliate which engages in the Restricted Business within five (5) years of the Effective Date, Buyer shall have the right to make a written offer to Holdings to purchase such business. Nothing in this paragraph shall obligate Holdings or any Affiliate of Holdings to accept such offer, to negotiate with Buyer concerning such offer, or to take any other action whatsoever related to such offer.     4.4  Entitlement to Injunction.  In the event of the breach or threatened breach of the provisions of Sections 4.1, 4.2, or 4.3, Buyer shall be entitled to an injunction restraining Seller from such breach or threatened breach. Nothing contained herein shall be construed to prohibit Buyer from pursuing any other remedies available to it for such breach or threatened breach, including recovery of damages from Seller.     4.5  Enforceability and Severability.  It is mutually understood and agreed by and between the parties that the covenants contained in Sections 4.1, 4.2, or 4.3 are fair and reasonable, and are reasonably required for the protection of Buyer. If the scope of any restriction contained in this 5 -------------------------------------------------------------------------------- Agreement is too broad to permit enforcement of such restriction to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and the parties consent and agree that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. The parties further agree that the covenants in Sections 4.1 to 4.4 are separable, severable and divisible in all respects, and the unenforceability of any specific covenant or undertaking shall not affect the validity of any other such covenants or undertakings.     4.6  Buyer's Covenants.  The Buyer agrees:     (a) To use diligent efforts to sign and deliver to the Seller such additional agreements and other documents, and to do such other acts and things, as may be required to complete the transactions contemplated by this Agreement or any required state or federal securities law filings of Seller provided that nothing in this Section 4.6(a) will require Buyer to make any payments of more than a nominal amount in conjunction with this Section 4.6(1);     (b) To pay, honor, discharge and perform all liabilities and obligations in respect of the Assets and the Liabilities arising, accruing or subsisting after the Effective Date that the Buyer is obligated to assume pursuant to this Agreement;     (c) Until expiration or termination of the Subcontract Agreement, to provide full technical support to bankruptcy trustees and banks who continue to use the Software, to enhance within a reasonable period of time the Software to be compatible with Buyer's and Bank of America's electronic banking service for Chapter 7 trustees, and to ensure that the Software remains compliant with future changes in federal United States bankruptcy trustee semiannual reporting requirements;     (d) To use reasonable best efforts to facilitate and promote the transfer of bankruptcy trustee deposit accounts from Comerica Bank-California to Bank of America under the Referral Agreement, including, as applicable, developing or assisting in the development of software that will automate the process of transferring accounts;     (e) Except for those Assets described on Schedule 1.1(a), 1.1(c) and 1.1(d), not to use, keep or claim any registered or unregistered trademark, service mark or other identification commonly associated with Holdings, or any sign, display or similar material of the Seller or any banking or other forms, stationery, passbooks, checks, traveler's checks, cashier's checks, manager's checks or similar material of the Seller or bearing its name or other similar marks (except to the extent necessary to conduct business operations, and then only if such name, marks or identification are obliterated from such material, and such material is clearly identified as that of the Buyer), or any proprietary material of the Seller, except as expressly provided by this Agreement. ARTICLE 5    REPRESENTATIONS AND WARRANTIES     5.1  Representations and Warranties of the Seller.  Each of the Seller and Holdings represents and warrants to the Buyer that, as of the Effective Date:     (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. The Seller has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted.     (b) The Seller has the requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; all corporate action necessary to be taken by or on the part of Seller to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby has been duly and validly taken; and this Agreement has been duly executed and delivered by, and constitutes the valid and binding agreement of the Seller, enforceable in accordance with its terms except as limited by bankruptcy, 6 -------------------------------------------------------------------------------- insolvency, reorganization, fraudulent transfer, moratorium and similar laws affecting creditors generally and by the availability of equitable remedies.     (c) Except as set forth in Schedule 5.1(c), the execution, delivery and performance by the Seller of this Agreement do not, and its consummation of the transactions contemplated hereby will not, violate or conflict with the articles of incorporation or bylaws of the Seller, or in any material respect violate any law or regulation currently applicable to the Seller, or any material agreement or instrument, or currently applicable award, order, judgment or decree to which the Seller is a party or by which it is bound, or require any filing by the Seller with, or authorization, approval, consent or other action with respect to the Seller by, any governmental agency or authority.     (d) There is no suit, claim, action or proceeding now pending or, to Seller's Knowledge, threatened before any court, administrative or regulatory body or any governmental agency, or any grounds therefor, which may result in any judgment, order, decree, liability or other determination which will, or could, have a material adverse effect upon the Assets, including, without limitation, the Software. No judgment, order or decree has been entered which has, or will have, such effect. There is no claim, action or proceeding now pending or, to Seller's Knowledge, threatened before any court, administrative or regulatory body, or any governmental agency, which will, or could, prevent or hamper the consummation of the transactions contemplated by this Agreement.     (e) The Seller has not paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions contemplated hereby. All negotiations relating to this Agreement have been conducted by the Seller directly and without the intervention of any person in such manner as to give rise to any valid claim against the Seller or the Buyer for any brokerage commission or like payment.     (f)  Other than as described in Schedule 1.1(d), Seller has exclusive rights in the Software and any improvements, enhancements and additional inventions relating thereto, and the other intangible assets described herein to be transferred to Buyer. Any and all applicable federal and state registrations of patents, copyrights or trademarks possessed by Seller, if any, have been disclosed to Buyer on Schedule 1.1(d) and shall be assigned by Seller to Buyer on the Effective Date.     (g) Seller has good and marketable title to the Related Assets, subject to no mortgage, pledge, lien or other encumbrance.     (h) Except as provided on Schedule 5.1(h), Seller has filed with the appropriate agencies all tax returns and tax reports required by law to be filed by it and (a) no audit of any federal, state or city income tax return or other tax return is in progress or pending or threatened against Seller, (b) there exists no unpaid federal, state or city income or other tax or any tax deficiency assessed against Seller by any governmental authority having jurisdiction, (c) all income, profits, franchise, sales, use, occupation, property, excise, ad valorem and other taxes due have been fully paid by Seller, and (d) no waiver of any statute of limitations has been given or is in effect with respect to the assessment of any taxes against Seller. Seller has satisfied its entire obligations with respect to employment taxes, wages paid and taxes withheld, and has filed all returns, reports and statements with respect thereto, except for those that are not yet due. 7 --------------------------------------------------------------------------------     (i)  Other than as described in Schedule 1.1(d), Seller is the owner of current, accurate copies of all source code and object code comprising the Software and of all users' manuals and other documentation listed on Schedule 1.1(d). Seller had all necessary rights to, and complied with all applicable laws and contractual restrictions concerning, the distribution by Seller any third party software (including, without limitation, all Microsoft software) to any of its customers. As of the Effective Date, the Software substantially complies with the relevant provisions of the Bankruptcy Code.     (j)  None of the Hired Employees has made any claim against Seller that remains pending at the Effective Date (whether by law, employment agreement, or otherwise) on account of or for: (a) overtime pay, other than overtime pay for the current payroll period; (b) vacation, time off or pay in lieu of vacation or time off, or sick pay, except in each case, to the extent earned in the normal course of employment; (c) any violation of any statute, ordinance or regulation relating to minimum wage or maximum hours of work; or (d) any complaint filed with any administrative agency; and, to Seller's Knowledge, none of the Hired Employees have threatened any such claim against Seller or any Affiliate of Seller.     (k) No person or party (including, but not limited to, governmental agencies of any kind) has made any written claim that remains pending at the Effective Date, or, to Seller's Knowledge, has any basis for any action or proceeding against Seller arising out of any statute, ordinance or regulation relating to discrimination in employment or employment practices or occupational safety or health standards.     (l)  There is not pending, nor, to Seller's knowledge, threatened, any labor dispute, strike or work stoppage which affects or which may materially affect the Business or which may interfere with the continued operation of the Business.     (m) The Seller has received no written notice from any federal or state governmental or regulatory agency or authority indicating that it would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated by this Agreement.     (n) All of the Assets which are not located at any customer of Seller and which are listed on the Schedules 1.1(a), 1.1(c) and 1.1(d) (collectively, the "Inside Assets"), can be located by and will be delivered to Seller on the Effective Date. All Assets listed on Schedule 5.1(n) (collectively, the "Outside Assets") can be located by Seller on the Effective Date. The Outside Assets constitute all of the assets that the trustee customers of Comerica Bank—California are entitled to under each applicable sublicense agreement. In the event the Buyer is unable to locate or take physical possession of any Inside Asset within 30 days of the Effective Date, or locate any Outside Asset within 90 days after the Effective Date (in either case, a "Missing Asset"), Seller shall, on receipt of written notice delivered no later than 15 days after the applicable date identified above, either locate the Missing Asset and deliver it to Buyer or reimburse to Buyer the fair market value of the Missing Asset and all commercially reasonable costs incurred by Buyer in replacing such Missing Assets. With respect to an Outside Asset that is a software product of Microsoft or another third party software vendor, the phrase "locate an Outside Asset" as used above shall mean receipt by Buyer of the valid license certificate with respect to such software, in addition to verification that the installed software program is in the possession of a trustee customer. The account balances of Trustee deposits which are attached hereto as Schedule 5.1(nn) and Schedule 5.1(nnn) are true, accurate and complete in all material respects as of the dates reflected on each such Schedule, and none of the trustees represented on Schedule 5.1(nn) and Schedule 5.1(nnn) have terminated its relationship as a customer of Comerica Bank-California or the Third Party Bank respectively, since the date reflected on each such Schedule. The License and Marketing Agreements which are summarized on Schedule 5.1(nnnn) attached hereto are the current, accurate and complete agreements between Seller, on the one hand and Comerica Bank-California 8 -------------------------------------------------------------------------------- and the Third Party Banks, on the other as of the date hereof; and there are no other agreements (written or, to Seller's Knowledge, otherwise) between Seller and Comerica Bank-California or any Third Party Bank pertaining to the subject matter of this Agreement, the Amendment Agreement or the Subcontract Agreement; and the summarization of each such License and Marketing Agreement set forth on Schedule 5.1(nnnn) is true and correct as of the date hereof.     5.2  Buyer's Representations and Warranties.  The Buyer represents and warrants to the Seller and Holdings that, as of the Effective Date:     (a) The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri. The Buyer has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted.     (b) The Buyer has the requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; all acts and other proceedings required to be taken by or on the part of the Buyer to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby have been duly and validly taken; and this Agreement has been duly executed and delivered by, and constitutes the valid and binding agreement of, the Buyer, enforceable in accordance with its terms except as limited by bankruptcy, insolvency, reorganization and similar laws affecting creditors generally and by the availability of equitable remedies.     (c) The execution, delivery and performance by the Buyer of this Agreement do not, and the consummation by the Buyer of the transactions contemplated hereby will not, violate or conflict with the articles of association or bylaws of the Buyer, or, in any material respect, violate any law or regulation currently applicable to the Buyer, or any material agreement or instrument, or currently applicable award, order, judgment or decree to which the Buyer is a party or by which it is bound or require any prior filing by the Buyer with, or authorization, approval, consent or other action with respect to the Buyer by, any governmental or regulatory agency.     (d) There are no actions, suits or proceedings pending or, to the knowledge of the Buyer, threatened in writing against or affecting, the Buyer, which may adversely affect the Buyer's ability to consummate the transactions contemplated hereunder.     (e) The Buyer has not paid or agreed to pay any fee or commission to any agent, broker, finder or other person for or on account of services rendered as a broker or finder in connection with this Agreement or the transactions contemplated hereby. All negotiations relating to this Agreement have been conducted by the Buyer directly and without the intervention of any person in such manner as to give rise to any valid claim against the Seller or the Buyer for any brokerage commission or like payment.     (f)  The Buyer has not received written notice from any federal or state governmental or regulatory agency or authority indicating that it would oppose or not grant or issue its consent or approval, if required, with respect to the transactions contemplated by this Agreement. ARTICLE 6    SURVIVAL     The covenants and agreements of the parties made in the following sections of this Agreement shall survive the Effective Date: Sections 2.3; 2.10, 4.1(a)-4.1(d); 4.2; 4.3; 4.6(b)-4.6(e); and Articles 6, 7 and 8. All other covenants and agreements, and the representations and warranties of the parties made, contained in or to be performed pursuant to this Agreement, any Schedules, exhibits or addenda hereto or the officers certificates delivered pursuant hereto or in connection herewith shall not survive the Effective Date. 9 -------------------------------------------------------------------------------- ARTICLE 7    CLOSING     7.1  Time and Place.  Closing under this Agreement for the sale and purchase of the assets shall take place on or before October 10, 2001.     7.2  Seller's Deliveries upon the Effective Date.  Upon the Effective Date, Seller shall deliver to Buyer:     (a) Bills of sale, assignments, and other good and sufficient instruments of transfer and conveyance as, in the opinion of Buyer's counsel, shall be effective to vest in Buyer good and marketable title to the Assets, free and clear of all encumbrances;     (b) Certified resolution of Seller's board of directors approving the execution of this Agreement and the consummation of the transactions described herein;     (c) A computer tape containing the source code for the Software, and a CD containing the object code and documentation for the Software; and     (d) Any such other documentation as Buyer's counsel may reasonably request to effect the transaction described herein.     7.3  Buyer's Deliveries upon the Effective Date.  Upon the Effective Date, Buyer shall deliver to Seller:     (a) The payment of the purchase price called for by Article 3 hereof, by wire transfer;     (b) Certified resolution of Buyer's board of directors approving the execution of this Agreement and the consummation of the transactions described herein; and     (c) Any such other documentation as Seller's counsel may reasonably request to effect the transaction described herein. ARTICLE 8    MISCELLANEOUS     8.1  Access to Information.  For the applicable period required by law, the Seller and the Buyer shall have a right to have access to and to copy all of the records of the other party relevant to the Assets, the Liabilities, and the Business and necessary for the preparation of income tax returns. Additionally, each of the Buyer and the Seller agrees to make available to the other party, at reasonable times and upon reasonable advance notice, relevant records and personnel in connection with an investigation or the preparation of or participation in a defense, negotiation or settlement relating to any pending, future, or threatened litigation or government agency proceeding (including a tax audit) involving the conduct or interest of such other party.     8.2  Allocation of Consideration.  The parties shall use reasonable efforts to agree upon an allocation of the consideration payable hereunder among the Assets, tangible and intangible.     8.3  Seller's and Holdings' Indemnification.  Each of Seller and Holdings agrees to indemnify and hold harmless Buyer from and against any losses, damages, costs and expenses (including reasonable attorneys' fees) which may be suffered or incurred by Buyer, arising from or by reason of (a) the inaccuracy of or omission of a material fact in any statement, representation or warranty of Seller made herein, including untrue statements of material facts or omissions to state material facts necessary to make the statements not misleading; (b) any liabilities of Seller (other than the assumed liabilities set forth on Schedule 1.1(b)) arising from the conduct of any business of Seller prior to the Effective Date being asserted against Buyer (including, without limitation, any sales and/or personal property taxes which may be determined to be due after the Effective Date for operations of the Business prior to the Effective Date); (c) any claims of Seller's creditors under the Bulk Sales Act of the Uniform Commercial Code of the State of Texas; and (d) any claim under the Severance Package arising as a 10 -------------------------------------------------------------------------------- result of the termination of any Hired Employee by Buyer on or before March 10, 2001, or any claim arising solely under the Comerica Severance Plan as a result of the termination of any Hired Employee after July 28, 2001. The parties agree that the foregoing indemnification shall only apply to those losses, damages, costs and expenses (including reasonable attorneys' fees) incurred by Buyer that arise from claims made within one (1) year after the Effective Date. Notwithstanding the provisions of this Section 8.3, (i) neither Seller nor Holdings shall have any liability under this Section 8.3 (other than as to the obligation of Seller to reimburse Buyer for the fair market value of any Missing Asset under Section 5.1(n) of this Agreement, and other than as to any indemnification obligation under Subsection 8.3(d) above) unless and until the amount of all Buyer Losses exceeds $200,000 (the "Threshold"), whereupon Seller and Holdings shall indemnify, defend, protect, and hold harmless Buyer for the amount of all Buyer Losses solely to the extent that such Buyer Losses exceed the Threshold, and (ii) the aggregate amount of Seller's and Holdings' liability under this Section 8.3 shall not exceed $12,000,000.     8.4  Buyer's Indemnification.  Buyer hereby agrees to indemnify and hold harmless Seller, Holdings and all Affiliates of Seller and Holdings, from and against any losses, damages, costs and expenses (including reasonable attorneys' fees) which may be suffered or incurred by any of them arising from or by reason of (a) the inaccuracy or misleading nature of any statement, representation or warranty of Buyer made herein, including untrue statements of material facts or omissions to state material facts necessary to make the statements not misleading, (b) any material liabilities of Buyer arising from the conduct of any business of Buyer on or after the Effective Date being asserted against Seller or Holdings, (c) the Liabilities, or (d) any action taken by any indemnified party at the request of Buyer.     8.5  Procedure for Indemnification For Third Party Claims.  If there is asserted any third party claim, liability or obligation that in the judgment of a party indemnified above (the "Indemnified Party") may give rise to any indemnified losses (or would, but for the limitations set forth in Section 8.3 have the potential for giving rise to an indemnified loss), or if the indemnified Party determines the existence of the foregoing, whether or not the same shall have been asserted, such Indemnified Party shall give the party from whom indemnity is sought (the "Indemnitor") notice within thirty (30) business days of the assertion of the claim, liability or obligation, and, within ten (10) business days of receipt of notice of the filing of any lawsuit based upon such assertion, or, with respect to a claim not yet asserted against the Indemnified Party, promptly upon the determination by an executive officer of the Indemnified Party of the existence of the same, and shall give the Indemnitor a reasonable opportunity of assuming the defense of such claims liability or obligation, using counsel reasonably acceptable to the Indemnified Party; provided, however, that the Indemnified Party shall have the right to participate in such defense, except that if the Indemnified Party retains separate counsel, other than in the event of a conflict of interest requiring the retention of separate counsel, the Indemnified Party shall assume the expense of the separate counsel. Failure by the Indemnified Party to give timely notice pursuant to this Section 8.5 shall not relieve the Indemnitor of its obligations, except to the extent that the Indemnitor is actually prejudiced by such failure to give timely notice. No settlement or adjustment shall be made without the Indemnified Party's prior written consent, which consent shall not be unreasonably withheld or delayed if the settlement or adjustment involves only the payment of money, and which consent may be withheld for any reason if the settlement or adjustment involves more than the payment of money, including any admission by the Indemnified Party. If the Indemnitor fails to contest in good faith any such claim, liability or obligation, the Indemnified Party shall have the right to defend, settle or pay the same and pursue the remedies against the Indemnitor hereunder. The Indemnified Party shall cooperate with the Indemnitor in any such defense which the Indemnitor elects to assume in the event the Indemnitor makes such request to the Indemnified Party and such request is reasonable, provided the Indemnitor shall hold the Indemnified Party harmless from all of its out-of-pocket expenses, including attorneys' fees (including the allocated costs and expenses of in-house counsel and legal staff), incurred in connection with the Indemnified Party's cooperation. In the event 11 -------------------------------------------------------------------------------- of a disagreement among the parties as to whether any claim, liability or obligation may give rise to an indemnified loss, then the Indemnified Party shall have the right to defend, settle, or pay the same, or to pursue its remedies against Indemnitor hereunder; provided, however, the Indemnitor shall have the right to participate in such defense and no settlement or adjustment shall be made without Indemnitor's prior written consent, which consent shall not be unreasonably withheld or delayed if the settlement or adjustment involves only the payment of money, and which consent may be withheld for any reason if the settlement or adjustment involves more than the payment of money, including any admission by the Indemnitor. Notwithstanding any provision in this Section 8.5 to the contrary, to the extent the Indemnified Party has received any income tax benefits on a net basis with respect to a claim, liability or obligation which has given rise to an indemnified loss, then the Indemnitor shall reduce the amount otherwise payable to the Indemnified Party with respect to the indemnified loss by the amount of such tax benefit.     Notwithstanding anything contained elsewhere in this Section 8.5, if an offer of compromise is received by the Indemnitor with respect to a claim related to any of the indemnified losses, such Indemnitor may notify the related Indemnified Party in writing of the Indemnitor's willingness to compromise or settle such claim on the basis set forth in such notice. If the Indemnified Party declines to accept such compromise or settlement, the Indemnified Party may continue to contest such claim, free of any participation by the Indemnitor, at the Indemnified Party's sole expense. In such event, the obligation of the Indemnitor to the Indemnified Party with respect to such claim shall be equal to the lesser of: (i) the amount of the offer of compromise or settlement which the Indemnified Party declined to accept, and (ii) the actual out-of-pocket amount the Indemnified Party is obligated to pay as a result of the Indemnified Party's continuing to contest such claim. An Indemnitor shall be entitled to recover (by setoff or otherwise) from an Indemnified Party any additional expenses incurred by the Indemnitor as a result of the Indemnified Party's decision to continue to contest such claim.     8.6  Public Disclosures.  Neither party will use the other party's name, trademarks or service marks or refer to the other party directly or indirectly in any media release, public announcement or public disclosure relating to this Agreement or its subject matter to the extent the materials in such media release, announcement or disclosure have not previously been made publicly available without obtaining consent from the other party for each such use or release. This restriction includes, but is not limited to, any promotional or marketing materials, customer lists or business presentations (but not including any announcement intended solely for internal distribution by a party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of a party).     8.7  Assignment.  This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither party shall assign this Agreement or any of its respective rights, duties, or obligations hereunder, without the prior written consent of the other party (which consent shall not be unreasonably withheld).     8.8  Mitigation of Losses.  Each party shall use reasonable efforts to minimize losses for which the other party may be liable pursuant to this Agreement.     8.9  Notices.  Notices and legal process to be delivered to or served upon a party hereto shall be deemed to have been duly delivered or served when delivered in written form by hand or by telegraph, telex or facsimile transmission, or the day after being sent from within the continental United States by 12 -------------------------------------------------------------------------------- overnight delivery or courier service, or three days after posting by registered mail or certified mail with return receipt requested, to the other party hereto at the following addresses:     If to the Seller: Comerica Incorporated Corporate Secretary—Corporate Legal Department 500 Woodward Avenue, 33rd Floor Detroit, Michigan 48226 Attention: Mark W. Yonkman Telephone: (313) 222-3432 Fax: (313) 222-9480     With a copy to: Comerica Incorporated 9920 S. LaCienega Blvd., 14th Floor Inglewood, CA 90301 Attention: James Daley Telephone: (310) 417-5687     If to the Buyer: EPIQ Systems, Inc. 501 Kansas Avenue P.O. Box 5307 Kansas City, KS 66105 Telephone: (913) 321-6392 Fax: (913) 621-7281 Attn: Christopher E. Olofson, President and Chief Operating Officer     With a copy to: Robert C. Levy, Esq. Seigfreid, Bingham, Levy, Selzer & Gee, P.C. 2800 Commerce Tower, 911 Main St. Kansas City, MO 64105 Telephone: (816) 421-4460 Fax: (816) 474-3447 or to such other authorized agent or address as a party may hereafter select by written notice to the other party.     8.10  Time.  Time shall be of the essence for all purposes connected with this Agreement.     8.11  Expenses.  Except as otherwise expressly provided in this Agreement, each party shall bear its own out-of-pocket expenses incurred in connection with the transactions contemplated by this Agreement.     8.12  Communications.  If for any reason any payment or communication to which one party is entitled is received by another party hereto, the receiving party shall promptly forward such payment or communication to the other party.     8.13  Entire Agreement.  This Agreement, the Referral Agreement, and all of the Schedules and Exhibits attached to each such Agreement embody the entire agreement and understanding among the parties and supersedes all prior agreements and understandings relating to the subject matter of this Agreement. 13 --------------------------------------------------------------------------------     8.14  Amendment.  Neither this Agreement nor any of its provision may be changed, waived, discharged or terminated orally. Any such change, waiver, discharge or termination may be effected only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.     8.15  Dispute Resolution.       (a) In the event of any dispute under or relating to this Agreement, including any claim based on or arising from an alleged tort, the parties agree that such dispute shall first be submitted to mediation and then, should mediation fail, to binding and final arbitration, pursuant to the provisions of the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. ("FAA"). The parties agree that any such mediation or arbitration shall be conducted in Chicago, Illinois. All arbitration proceedings shall be conducted by J.A.M.S./Endispute. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party to submit the controversy or claim to mediation and/or arbitration if the other party contests such action for judicial relief. This provision does not foreclose any action in aid of arbitration or for injunctive relief in any federal court sitting in Chicago, Illinois having jurisdiction thereof (which court also will have exclusive jurisdiction over any litigation instituted under this section). Any controversy concerning whether an issue can be arbitrated shall be determined by the arbitrator(s). The mediator(s) and/or arbitrator(s) shall give effect to statutes of limitation in determining any claim or controversy. The parties agree that the arbitrator(s) shall have the broadest powers permitted under law to award such damages and/or injunctive relief. The parties agree that each shall share equally in the estimated reasonable fees and costs of the mediation and/or arbitration procedure, subject to the power of the arbitrator(s) to apportion such fees and costs as she or they deem appropriate. The parties agree that the arbitrator(s) may, in his, her, or their discretion, award attorney fees to the prevailing party. The parties agree that submission of any such dispute to arbitration is a condition precedent for invoking the jurisdiction of any court over the subject matter of their dispute, except for suits for injunctive relief and suits in aid of arbitration. Judgment on the award rendered by the arbitrator(s) may be entered in any federal court sitting in Illinois having jurisdiction thereof. The parties waive any claim that such court does not have personal jurisdiction over them or is an inconvenient forum. The prevailing party in connection with any dispute involving a court proceeding shall be entitled to collect its costs, expenses, and reasonable attorney fees from the other party.     (b) The mediation and arbitration and all proceedings, discovery and any mediation or arbitration award are confidential. Neither the parties nor the mediator(s) nor the arbitrator(s) shall disclose any information obtained during the course of the mediation or arbitration to any person or entity who is not a party to the mediation or arbitration unless permitted by law. Attendance at the mediation or arbitration shall be limited to the parties and those called as witnesses, if any. Witnesses will be sequestered, unless the parties agree otherwise.     (c) The parties acknowledge that each has had the opportunity to consult with counsel of choice before signing this Agreement, and each hereby knowingly and voluntarily, without coercion, WAIVES ALL RIGHTS TO TRIAL BY JURY of all disputes between them and instead agrees to resolve any such disputes by means of this alternate dispute resolution.     (d) This section 8.15 will not be construed to prevent a party from instituting, and a party is authorized to institute, litigation solely and exclusively (i) to toll the expiration of any applicable limitations period; (ii) to preserve a superior position with respect to other creditors; (iii) to seek immediate injunctive relief with respect to an infringement or alleged infringement of such party's intellectual property rights or confidentiality rights under this Agreement; or (iv) to enforce an arbitration award under this section. Subject to the foregoing, this section will provide the exclusive procedure for resolving disputes under this Agreement. 14 --------------------------------------------------------------------------------     (e) Each party will continue performing its obligations under this Agreement while any dispute submitted to arbitration or litigation under this section is being resolved until such obligations are terminated by the expiration or termination of this Agreement or by a final and binding arbitration award, order, or judgment to the contrary under this section.     8.16  Governing Law, Severability.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision were not contained in this Agreement.     8.17  Waiver.  No delay or omission to exercise any right, power or remedy accruing to a party upon any breach or default under this Agreement shall impair any such right, power or remedy of such party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach of default theretofore or thereafter occurring. Any waiver, permit, consent or approval or any kind or character of any breach or default under this Agreement, or any waiver of any provision or condition of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All rights and remedies, either under this Agreement or by law or otherwise afforded to a party, shall be cumulative and not alternative.     8.18  Third Party Rights.  Nothing contained in this Agreement, whether express or implied, is intended to confer any rights or remedies upon any persons other than the parties to this Agreement and their respective successors and assigns; nor is anything in this Agreement intended to relieve or discharge the obligations or liabilities of any third person to a party to this Agreement nor shall any provision hereof give any third person any right of subrogation or action over a party to this Agreement.     8.19  Headings.  The headings and captions used herein and in any Schedules, exhibits or addenda are included for purposes of convenience of reference only and shall not limit or define the meaning of any provisions of this Agreement.     8.20  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, but all of which together shall constitute one and the same instrument.     8.21  Construction of Ambiguities.  The parties hereto acknowledge and agree that each party has reviewed and negotiated the terms and provisions of this Agreement and has had the opportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both parties hereto and not in favor or against either party.     8.22  Other Actions.  Each of Seller and Buyer (and to the extent stated in the opening paragraph of this Agreement, Holdings) will use its reasonable best efforts to, and shall with reasonable diligence, take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement, including without limitation, executing and delivering or otherwise providing such further documents, instruments or information required by any party as reasonably necessary or desirable to effect the purpose and intent of this Agreement and to carry out its provisions. 15 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers or representatives as of the date first above written. ROC TECHNOLOGIES, INC.   EPIQ SYSTEMS, INC. By:   /s/ Mark W. Yonkman   By:   /s/ Christopher E. Olofson     --------------------------------------------------------------------------------       -------------------------------------------------------------------------------- Name:   Mark W. Yonkman   Name:   Christopher E. Olofson Its:   Vice President and Secretary   Its:   President and Chief Operating Officer COMERICA HOLDINGS INCORPORATED         By:   /s/ Mark W. Yonkman             --------------------------------------------------------------------------------         Name:   Mark W. Yonkman         Its:   Sr. Vice President and Assistant Secretary         [Signature Page to Purchase and Assumption Agreement] 16 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.1 PURCHASE AND ASSUMPTION AGREEMENT dated as of October 10, 2001 between ROC TECHNOLOGIES, INC. COMERICA HOLDINGS INCORPORATED and EPIQ SYSTEMS, INC. TABLE OF CONTENTS PURCHASE AND ASSUMPTION AGREEMENT ARTICLE 1 DEFINITIONS ARTICLE 2 PURCHASE AND SALE ARTICLE 3 PRICE ARTICLE 4 ADDITIONAL COVENANTS ARTICLE 5 REPRESENTATIONS AND WARRANTIES ARTICLE 6 SURVIVAL ARTICLE 7 CLOSING ARTICLE 8 MISCELLANEOUS

QuickLinks -- Click here to rapidly navigate through this document FIRST AMENDMENT to SECOND AMENDED AND RESTATED UNDERWRITING AND CONTINUING INDEMNITY AGREEMENT     THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED UNDERWRITING AND CONTINUING INDEMNITY AGREEMENT dated as of June 13, 2000 (the "Amendment") is entered into by and among (i) GREAT LAKES DREDGE & DOCK CORPORATION, a Delaware corporation ("HOLDINGS"), and the SUBSIDIARIES of HOLDINGS from time to time signatories hereto (collectively with HOLDINGS, the "INDEMNITORS"), and (ii) RELIANCE INSURANCE COMPANY, a Pennsylvania corporation, UNITED PACIFIC INSURANCE COMPANY, a Pennsylvania corporation, RELIANCE NATIONAL INSURANCE COMPANY, a Delaware corporation, and RELIANCE SURETY COMPANY, a Delaware corporation (collectively, the foregoing parties are referred to herein as "RELIANCE"). W I T N E S S E T H:     WHEREAS, the INDEMNITORS and RELIANCE are parties to a certain Second Amended and Restated Underwriting and Continuing Indemnity Agreement dated as of August 19, 1998 (the "Agreement");     WHEREAS, the INDEMNITORS have requested RELIANCE to amend a financial covenant set forth in the Agreement; and     WHEREAS, subject to the terms and conditions set forth herein RELIANCE is willing to so amend the Agreement.     NOW, THEREFORE, in consideration of the premises, and intending to be legally bound hereby, the INDEMNITORS and RELIANCE hereby agree as follows:     SECTION 1.  AMENDMENTS TO AGREEMENT.     Subject to satisfaction of the conditions set forth in Section 2 of this Amendment and in reliance on the INDEMNITORS' warranties set forth in Section 3 below, Section 6.20 of the Agreement shall be hereby amended by deleting the reference therein to "1.4 to 1" and in its place substituting "1.2 to 1".     SECTION 2.  CONDITIONS PRECEDENT.     This Amendment shall be effective upon receipt by RELIANCE of the documents listed below, each, unless otherwise noted, dated the date hereof, duly executed, in form and substitute satisfactory to RELIANCE and in quantities designed by RELIANCE: (a)This Amendment executed by all parties hereto. (b)The INDEMNITORS shall have delivered such other documents as RELIANCE may reasonably request.     SECTION 3.  WARRANTIES.     To induce RELIANCE to enter into this Amendment, the INDEMNITORS warrant to RELIANCE as of the date hereof and after giving effect to this Amendment that: (a)The representations and warranties contained in Article V of the Agreement, in Section 4 of each SECURITY AGREEMENT (A/R), in Section 4 of each SECURITY AGREEMENT (EQUIPMENT), in Section 4 of the PLEDGE AGREEMENT and in Article 1 of each of the VESSEL MORTGAGES are correct in all material respects on and as of the date hereof as though made on and as of such date except to the extent stated to relate to an earlier date, in which case such representation and warranty shall be correct as of such earlier date; and (b)No EVENT OF DEFAULT has occurred and is continuing. --------------------------------------------------------------------------------     SECTION 4.  GENERAL. (a)Terms used but not otherwise defined herein are used herein as defined in the Agreement. (b)As hereby modified, the Agreement shall remain in full force and effect and is hereby ratified, approved and confirmed in all respects. (c)This Amendment shall be binding upon and shall inure to the benefit of the INDEMNITORS and RELIANCE and respective successors and assigns of the RELIANCE. (d)This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. IN WITNESS WHEREOF, this Agreement is executed by the parties on the day and date first set forth above. GREAT LAKES DREDGE & DOCK CORPORATION   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   GREAT LAKES DREDGE & DOCK COMPANY   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   LYDON DREDGING & CONSTRUCTION COMPANY, LTD.   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   NATCO DREDGING LIMITED PARTNERSHIP   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   2 -------------------------------------------------------------------------------- NORTH AMERICAN TRAILING COMPANY   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   FIFTY-THREE DREDGING COMPANY   By: /s/ LESLIE A. BRAUN    -------------------------------------------------------------------------------- Leslie A. Braun -------------------------------------------------------------------------------- Its: President --------------------------------------------------------------------------------   DAWSON DREDGING COMPANY   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   GREAT LAKES CARIBBEAN DREDGING, INC.   By: /s/ DEBORAH A. WENSEL    -------------------------------------------------------------------------------- Deborah A. Wensel -------------------------------------------------------------------------------- Its: Vice President and CFO --------------------------------------------------------------------------------   RELIANCE INSURANCE COMPANY UNITED PACIFIC INSURANCE COMPANY RELIANCE NATIONAL INSURANCE COMPANY RELIANCE SURETY COMPANY   By: /s/ NICOLAS SEMINARA    -------------------------------------------------------------------------------- Nicholas Seminara -------------------------------------------------------------------------------- Its: Vice President --------------------------------------------------------------------------------   3 -------------------------------------------------------------------------------- QuickLinks FIRST AMENDMENT to SECOND AMENDED AND RESTATED UNDERWRITING AND CONTINUING INDEMNITY AGREEMENT W I T N E S S E T H:

QuickLinks -- Click here to rapidly navigate through this document   Recording Requested By     Andrew F. and Sally M. Pollet     AND WHEN RECORDED MAIL TO: STAAR Surgical Company c/o Mary Ann Sapone Pollet & Richardson 10900 Wilshire Blvd., Suite 500 Los Angeles, California 90024   Ventura, County Recorder RICHARD D. DEAN DOC- 2000-0166279-00 Check Number 222750 REQD BY JANNEY & JANNEY Monday, OCT 23, 2000 10:47:36 Ttl Pd $20.00   Nbr-0000262592                 DJS/C3/2-3 --------------------------------------------------------------------------------   SPACE ABOVE THIS LINE FOR RECORDER'S USE   -------------------------------------------------------------------------------- SHORT FORM DEED OF TRUST AND ASSIGNMENT OF RENTS (INDIVIDUAL)                 ALL   Title No.   --------------------------------------------------------------------------------                 PTN   Escrow No.   -------------------------------------------------------------------------------- This Deed of Trust, made this 5th day of September 2000, between Andrew F. Pollet and Sally M. Pollet, as individuals and as Co-Trustees of the Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990, herein called Trustor, whose address is 10934 Alto Court, Oak View, California 93022 (Number and Street)   (city)   (state)   (zip) Provident Title Company, a California corporation, herein called Trustee, and STAAR Surgical Company, a Delaware corporation, herein called Beneficiary Witnesseth: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS to TRUSTEE IN TRUST, WITH POWER OF SALE, that property in Ventura County, California, described as: See attached Exhibit A TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the right, power and authority given to and conferred upon Beneficiary by paragraph (10) of the provisions incorporated herein by reference to collect and apply such rents, issues and profits. For the Purpose of Securing: 1. Performance of each agreement of Trustor incorporated by reference or contained herein. 2. Payment of the indebtedness evidenced by promissory note, and any extension or renewal thereof, in the principal sum of $878,625 executed by Trustor in favor of Beneficiary or order. 3. Payment of such further sums as the then record owner of said property may borrow from Beneficiary, when evidenced by another note (or notes) reciting it is so secured. To Protect the Security of This Deed of Trust, Trustor Agrees: By the execution and delivery of this Deed of Trust and the rate secured hereby, that provisions (1) to (14), inclusive, of the fictitious deed of trust recorded October 23, 1961, in the book and at the page of Official Records in the office of the county recorder of the county where said property is located, noted below opposite the name of such county, viz: COUNTY   BOOK   PAGE   COUNTY   BOOK   PAGE   COUNTY   BOOK   PAGE Los Angeles   T2055   899   Riverside   3005   523   San Diego   Series 2 Book 1961 Page 183887 Orange   5889   611   San Bernardino   5567   61   Ventura   2062   386 (which provisions, identical in all counties, are printed on the reverse hereof) hereby are adopted and incorporated herein and made a part hereof as fully as though set forth herein at length; that he will observe and perform said provisions; and that the references to property, obligations, and parties in said provisions shall be construed to refer to the property, obligations, and parties set forth in this Deed of Trust. The Undersigned Trustor requests that a copy of any Notice of Default and of any Notice of Sale hereunder be mailed to him at his address hereinbefore set forth. STATE OF CALIFORNIA COUNTY OF LOS ANGELES   }SS.   /s/ Andrew F. Pollet -------------------------------------------------------------------------------- Andrew F. Pollet, individually & as Co-Trustee of the Andrew F. & Sally M. Pollet Rev. Trust On Sept 5, 2000 before me, Mary Ann Parlapiano, Notary Public personally appeared Andrew F. Pollet & Sally M. Pollet personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal   /s/ Sally M. Pollet -------------------------------------------------------------------------------- Sally M. Pollet, individually and as Co-Trustee of the Andrew F. & Sally M. Pollet Rev. Trust Signature   /s/ Mary Ann Parlapiano --------------------------------------------------------------------------------   MARY ANN PARLAPIANO Commission # 1199651 Notary Public - California Los Angeles County My Comm. Expires Oct 25, 2002         (This area for official notarial seal) -------------------------------------------------------------------------------- DO NOT RECORD    The following is a copy of provisions (1) to (14) inclusive of the fictitious deed of trust, recorded in each county in California, as stated in the foregoing Deed of Trust and incorporated by reference in said Deed of Trust as being a part thereof as if set forth at length therein. To Protect the Security of This Deed of Trust, Trustor Agrees:    (1) To keep said property in good condition and repair, not to remove or demolish any building thereon, to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor, to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon, not to commit or permit waste thereof, not to commit, suffer or permit any act upon said property in violations of law, to cultivate, irrigate, fertilize, fumigate, prune and do all other acts which from the character or use of said property may be reasonably necessary, the specific enumerations herein not excluding the general.    (2) To provide, maintain and deliver to Beneficiary fire insurance satisfactory to and with loss payable to Beneficiary. The amount collected under any fire or other insurance policy may be applied by Beneficiary upon indebtedness secured hereby and in such order as Beneficiary may determine, or at option of Beneficiary the entire amount so collected or any part thereof may be released to Trustor. Such application or release shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice.    (3) To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; and to pay all costs and expenses including cost of evidence of title and attorneys' fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed.    (4) To pay: at least ten days before delinquency all taxes and assessments affecting said property, including assessments on appurtenant water stock; when due, all encumbrances, charges and liens, with interest, on said property or any part thereof, which appear to be prior or superior hereto; all costs, fees and expenses of this Trust.    Should Trustor fail to make any payment or to do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof. Beneficiary or Trustee being authorized to enter upon said property for such purposes, appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either appears to be prior or superior hereto, and, in exercising any such powers, pay necessary expenses, employ counsel and pay his reasonable fees.    (5) To pay immediately and without demand all sums so expended by Beneficiary or Trustee, with interest from date of expenditure of the amount allowed by law in effect at the date hereof, and to pay for any statement provided for by law in effect at the date hereof regarding the obligation secured hereby any amount demanded by the Beneficiary and not to exceed the maximum allowed by law at the time when said statement is demanded.    (6) That any award of damages in connection with any condemnation for public use of or injury to said property or any part thereof is hereby assigned and shall be paid to Beneficiary who may apply or release such moneys received by him in the same manner and with the same effect as above provided for disposition of proceeds of fire or other insurance.    (7) That by accepting payment of any sum secured hereby after its due date, Beneficiary does not waive his right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay.    (8) That at any time or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this Deed and said note for endorsement, and without affecting the personal liability of any person for payment of the indebtedness secured hereby, Trustee may: reconvey any part of said property; consent to the making of any map or plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating the lien or charge hereof.    (9) That upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed and said note to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "The person or persons legally entitled thereto." Five years after issuance of such full reconveyance, Trustee may destroy said note and this Deed (unless directed in such request to retain them).    (10) That as additional security, Trustor hereby gives to and confers upon Beneficiary the right, power and authority, during the continuance of these Trusts, to collect the rents, issues and profits of said property, reserving unto Trustor the right, prior to any default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, to collect and retain such rents, issues and profits as they become due and payable. Upon any such default, Beneficiary may at any time without notice, either in person, by agent, or by a receiver to be appointed by a court, and without regard to the adequacy of any security for the indebtedness hereby secured, enter upon and take possession of said property or any part thereof, in his own name sue for or otherwise collect such rents, issues and profits, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys' fees. Upon any indebtedness secured hereby, and in such order as Beneficiary may determine. The entering upon and taking possession of said property, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice.    (11) That upon default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice of default and of election to cause to be sold said property, which notice Trustee shall cause to be filed for record. Beneficiary also shall deposit with Trustee this Deed, said note and all documents evidencing expenditures secured hereby.    After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place -------------------------------------------------------------------------------- fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including the Trustor, Trustee, or Beneficiary as hereinafter defined, may purchase at such sale.    After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby, and the remainder, if any, to the person or persons legally entitled thereto.    (12) Beneficiary, or any successor in ownership of any indebtedness secured hereby, may from time to time, by instrument in writing, substitute a successor or successors to any Trustee named herein or acting hereunder, which instrument, executed by the Beneficiary and duly acknowledged and recorded in the office of the recorder of the county or counties where said property is situated, shall be conclusive proof of proper substitution of such successor. Trustee or Trustees, who shall, without conveyance from the Trustee predecessor, succeed to all its title, estate, rights, powers and duties. Said instrument must contain the name of the original Trustor, Trustee and Beneficiary hereunder, the book and page where this Deed is recorded and the name and address of the new Trustee.    (13) That this Deed applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns. The term Beneficiary shall mean the owner and holder, including pledgees, of the note secured hereby whether or not named as Beneficiary herein. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural.    (14) That Trustee accepts this trust when this Deed, duly executed and acknowledged, is made a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other Deed of Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee shall be a party unless brought by Trustee. -------------------------------------------------------------------------------- DO NOT RECORD -------------------------------------------------------------------------------- REQUEST FOR FULL RECONVEYANCE    To be used only when note has been paid: To Provident Title company, Trustee:            dated                 The undersigned is the legal owner and holder of all indebtedness secured by the within Deed of Trust. All sums secured by said Deed of Trust have been fully paid and satisfied; and you are hereby requested and directed, on payment to you of any sums owing to you under the terms of said Deed of Trust, to cancel all evidences of indebtedness, secured by said Deed of Trust, delivered to you herewith together with said Deed or Trust, and to reconvey, without warranty, to the parties designated by the terms of said Deed of Trust, the estate now held by you under the same. Mail Reconveyance to:             -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   By   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   By   -------------------------------------------------------------------------------- Do not lose or destroy this Deed of Trust OR THE NOTE which it secures. Both must be delivered to the Trustee for cancellation before reconveyance will be made. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Exhibit A     Lot 50 of Tract 3044-3 in the County of Ventura, State of California as shown on the map of said tract recorded in book 92, pages 93 through 96 of Miscellaneous Records (Maps) in the office of the County Recorder of said County. -------------------------------------------------------------------------------- QuickLinks SHORT FORM DEED OF TRUST AND ASSIGNMENT OF RENTS (INDIVIDUAL) REQUEST FOR FULL RECONVEYANCE Exhibit A

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.1 INVITROGEN CORPORATION     On April 26, 2001, the Compensation and Organization committee of the Board of Directors approved the compensation arrangements for nonemployee directors, the terms of which are as follows: 1.Annual Retainer. A $20,000 annual retainer shall be paid following the annual stockholders meeting to all members of the Board at such time. A pro-rata payment shall be made to any director joining the Board between annual stockholders meetings based on the following formula:(x/365) $20,000, where × = the number of days between the date the new board member joins the board and the date of the next annual stockholdersmeeting (or, if such date is unknown, the date one year after the date of the previous stockholders meeting). 2.Retainer for Committee Chairs. An additional $4,000 annual retainer shall be paid following the annual stockholders meeting to each chairperson of a committee of the Board. A pro-rata payment shall be made to any director becoming a chairperson of a committee of the Board between annual stockholders meetings based on the following formula:(x/365) $4,000, where × = the number of days between the date the Board member becomes a committee chair and the date of the next annual stockholders meeting (or, if such date is unknown, the date one year after the date of the previous stockholders meeting). 3.Stock Options. Each director shall receive an initial grant of an option to purchase 10,000 shares of the Company's common stock and annual grants thereafter of options to purchase 10,000 shares of the Company's common stock. -------------------------------------------------------------------------------- QuickLinks Exhibit 10.1

EXHIBIT 10.35     STOCK PURCHASE AGREEMENT Among MMI PRODUCTS, INC., SECURITY FENCE SUPPLY CO., INC., HENRY F. LONG, JR. and HENRY F. LONG, III               Dated as of October 6, 1998                 TABLE OF CONTENTS   Page ARTICLE I 1 1.1 Agreement 1 1.2 Closing 1 1.3 Purchase Price 1 1.4 Delivery and Payment 2 1.5 Transfers of Owned Real Property; Leases 2 1.6 Purchase Price Estimate and Post-Closing Adjustment 3 ARTICLE II 4 2.1 Due Organization 4 2.2 Due Authorization 4 2.3 Brokers and Finders 4 2.4 Investment Intent 4 ARTICLE III 4 3.1 Capitalization; Ownership of Shares 5 3.2 No Liens on Shares 5 3.3 Other Rights to Acquire Capital Stock 5 3.4 Due Organization 5 3.5 Subsidiaries 5 3.6 Due Authorization 5 3.7 Financial Information 6 3.8 Conduct of Business; Certain Actions 7 3.9 Properties 7 3.10 Licenses and Permits 7 3.11 Intellectual Property Rights 8 3.12 Compliance with Laws 9 3.13 Insurance 9 3.14 Employee Benefit Matters 9 3.15 Contracts and Agreements 10 3.16 Claims and Proceedings 10 3.17 Taxes 10 3.18 Personnel 11 3.19 Business Relations 11 3.20 [Intentionally Omitted] 12 3.21 Bank Accounts 12 3.22 Agents 12 3.23 Indebtedness To and From Officers, Directors, Stockholders, and Employees 12 3.24 Commission Sales Contracts 12 3.25 Brokers 12 3.26 Interest in Competitors, Suppliers, and Customers 12 3.27 Inventory 12 3.28 Warranties 12 3.29 Environmental 13 ARTICLE IV 13 4.1 Inspection 13 4.2 Compliance 13 4.3 Satisfaction of All Conditions Precedent 13 4.4 No Solicitation 13 4.5 Notice of Developments 14 4.6 Notice of Breach 14 4.7 Notice of Litigation 14 4.8 Continuation of Insurance Coverage 14 4.9 Maintenance of Credit Terms 14 4.10 Financial Statements 14 4.11 Interim Operations of the Company 15 4.12 Resignations of Directors and Plan Trustees 16 4.13 Physical Inventory 16 4.14 Tax Defenses 16 ARTICLE V 16 5.1 Conditions to Obligations of Buyer 16 5.2 Conditions to Obligations of the Sellers 18 ARTICLE VI 19 ARTICLE VII 19 7.1 Indemnification of Buyer and the Company 19 7.3 Defense of Third-Party Claims 20 7.4 Direct Claims 21 7.5 No Right of Contribution 21 7.6 Remedies Exclusive 21 ARTICLE VIII 21 8.1 Collateral Agreements, Amendments, and Waivers 21 8.2 Successors and Assigns 21 8.3 Expenses 22 8.4 Weaving Machines 22 8.5 Certain Ornamental Iron Purchases 22 8.6 Invalid Provisions 22 8.7 Information and Confidentiality 22 8.8 Waiver 23 8.9 Notices 23 8.10 Survival of Representations and Warranties 24 8.11 Public Announcement 24 8.12 Waiver of Certain Rights 24 8.13 Further Assurances 24 8.14 Certain Payment 25 8.15 Pension Plan Participation 25 8.16 No Third-Party Beneficiaries 25 8.17 Governing Law 25   Schedules 1.3 Owned Real Property 1.4 Ownership of Shares 2.2 Buyer, Consents, Approvals, Etc. 3.6 Seller Consents, Approvals, Etc. 3.8 Conduct of Business 3.9 Properties 3.10 Licenses and Permits 3.11 Intellectual Property Rights 3.13 Insurance 3.14(a) Employee Contracts and Arrangements 3.14(b) Effect of Consummation 3.15 Contracts and Agreements 3.16 Claims and Proceedings 3.19 Business Relations 3.21 Bank Accounts 3.22 Agents 3.23 Indebtedness To and From Officers, Etc. 3.24 Commission Sales Contracts 3.26 Interest in Competitors, Etc. 3.27 Inventory 3.28 Warranties 3.29 Environmental Exhibits A Form of Real Property Leases B Opinion Matters With Respect to Opinion of Counsel to the Sellers C Form of Noncompetition Agreement D Form of Henry F. Long, III Employment Agreement E Form of Other Employment Agreements F Opinion Matters With Respect to Opinion of Counsel to Buyer       STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement" ) is entered into as of October 6, 1998, among MMI Products, Inc., a Delaware corporation ("Buyer"), Security Fence Supply Co., Inc., a Maryland corporation (the "Company"), and Henry F. Long, Jr. and Henry F. Long, III (each a "Seller" and, collectively, the "Sellers"). The parties hereto agree as follows: ARTICLE I Agreement of Purchase and Sale 1.1 Agreement. Upon the basis of the representations and warranties, for the consideration, and subject to the terms and conditions set forth in this Agreement, each of the Sellers agrees to sell all of the shares of common stock, no par value per share ("Shares"), of the Company owned by such Seller to Buyer, and Buyer agrees to purchase such Shares from each such Seller, for a price per Share to be determined in the manner set forth in Section 1.3 hereof and payable in accordance with the terms of Section 1.4 hereof. 1.2 Closing. The closing of the transactions contemplated hereby (the "Closing") shall take place at (a) the offices of O'Malley, Miles, Nylen & Gilmore, P.A., Calverton, Maryland, at 9:00 a.m., local time, on the later of (i) October 6, 1998 or (ii) five business days following the date on which all conditions to the obligations of both parties set forth in Article V hereof (other than conditions which, by their terms, cannot be satisfied until the Closing) shall have been satisfied or waived by the party entitled to waive such conditions, or (b) such other time and place and/or on such other date as Buyer and the Company may agree; provided, however, that the Closing shall occur, if at all, no later than October 31, 1998. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 1.3 Purchase Price. (a) The aggregate purchase price to be paid by Buyer for all Shares (the "Purchase Price") shall be, subject to adjustment as provided in Section 1.3(b), the sum of (i) $20,000,000, plus (ii) the aggregate cost basis for federal income tax purposes of the Company and/or the Subsidiary (as defined below), as of the Closing Date, with respect to the Owned Real Property (the "Owned Real Property Tax Basis"). The "Owned Real Property" means those parcels of real property owned in fee simple by the Company or Discount Fence Center, Inc., a Maryland corporation and a wholly owned subsidiary of the Company (the "Subsidiary"), which parcels of property are identified on Schedule 1.3 attached hereto (which schedule indicates, with respect to each parcel of Owned Real Property, whether such parcel is owned by the Company or the Subsidiary), excluding, however, any machinery or other equipment of the Company that may constitute fixtures on such Owned Real Property. The portion of the Purchase Price payable for each Share shall be equal to the Purchase Price divided by the total number of outstanding Shares. (b) The Purchase Price shall be increased or reduced, as applicable, by an amount equal to the amount by which total cash and cash equivalents of the Company and the Subsidiary, on a consolidated basis as of the Closing Date, are greater than (the "Cash Excess") or less than (the "Cash Deficiency"), as applicable, the sum of (i) amounts owed by the Company or the Subsidiary to either of the Sellers (or any of their respective affiliates) as of the Closing Date, plus (ii) accrued liabilities, including but not limited to accrued income taxes, accrued wages and payroll taxes, and accrued legal and accounting or audit fees of the Company and the Subsidiary on a consolidated basis as of the Closing Date (provided, however, that such accrued liabilities, for purposes of this clause (ii), shall include only 50% of accrued commissions), plus (iii) accounts payable of the Company and the Subsidiary on a consolidated basis as of the Closing Date to the extent such accounts payable do not represent obligations for purchases of inventory, plus (iv) accounts payable of the Company and the Subsidiary on a consolidated basis as of the Closing Date to the extent such accounts payable represent obligations to purchase inventory and such accounts payable are not within their respective terms for timely payment as of the Closing Date, plus (v) estimated payments for any and all legal, accounting and audit services rendered prior to the Closing Date in connection with this Agreement to the extent they have not been accrued as of the Closing Date, plus (vi) estimated payments for any and all fees of Ernst & Young and/or Callow, Machen & Crawford to be rendered following the Closing in connection with the audit of the consolidated balance sheet and statement of income of the Company and the Subsidiary as of July 31, 1998 and for the ten months then ended (the "July 1998 Financial Statements"), plus (vii) estimated payments for any and all legal fees of O'Malley, Miles, Nylen & Gilmore, P.A. for services rendered following the Closing in connection with this Agreement. Any refund to which the Company is entitled for overpayments of federal income tax obligations shall be applied to reduce the amount of accrued liabilities calculated pursuant to clause (ii) of this Section 1.3(b). 1.4 Delivery and Payment. At the Closing, each Seller shall deliver or cause to be delivered to Maryland Title of Hyattsville, Inc. (the "Title Agent"), for redelivery to Buyer, the stock certificate or certificates evidencing the number of Shares set forth opposite such Seller's name on Schedule 1.4 attached hereto, duly endorsed or accompanied by a duly executed stock power assigning such shares to Buyer and otherwise in good form for transfer. At the Closing, Buyer will pay to the Title Agent, for redelivery to each Seller, in immediately available funds, such Seller's pro rata portion, based on the number of Shares owned by such Seller as set forth on Schedule 1.4 attached hereto, of an amount equal to the estimated Purchase Price, less $22,500 (representing the reimbursement by the Sellers of one-half of the filing fee previously paid by Buyer under the HSR Act, as hereinafter defined). The payments to be made by Buyer at the Closing will be based on the amount set forth in the Estimate Statement (as defined in Section 1.6 hereof), as agreed upon by Buyer and the Sellers, and will be adjusted following the Closing, to the extent necessary, in accordance with Section 1.6 hereof. In addition to the Closing documents and deliveries referred to in this Section 1.4, all other Closing documents and deliveries to be delivered or made by any party pursuant to this Agreement shall be delivered or made to the Title Agent for redelivery to the recipient of such documents or deliveries. 1.5 Transfers of Owned Real Property; Leases. (a) At the Closing, effective immediately following the purchase of the Shares by Buyer, (i) the Company and/or the Subsidiary, as applicable, shall execute and deliver to Jack and  Jack Limited Liability Company, an entity affiliated with the Sellers ("J and J"), quit-claim deeds in customary form reasonably satisfactory to Buyer and the Sellers (the "Real Property Deeds"), conveying to J and J all of the Company's and/or the Subsidiary's right, title and interest in and to the Owned Real Property, and (ii) the Sellers will cause J and J to pay to the Company, in immediately available funds, in consideration for the transfer of the Owned Real Property to J and J, an amount equal to the Owned Real Property Tax Basis. J and J will be responsible for any and all transfer taxes, recording fees or similar taxes or fees arising as a result of the transfer of the Owned Real Property to J and J. For the sake of convenience, the payment for the Owned Real Property shall be paid on behalf of J and J by Seller (as J and J's agent) by deducting from the Estimated Purchase Price the amount payable by J and J for the Owned Real Property. (b) At the Closing, immediately upon the transfer of the Owned Real Property to J and J as described in Section 1.5(a), the Company will execute and deliver to J and J, and the Sellers will cause J and J to execute and deliver to the Company, the Real Property Leases with respect to the Owned Real Property in the forms of Exhibits A-1 through A-3 attached hereto. 1.6 Purchase Price Estimate and Post-Closing Adjustment. (a)  Buyer and the Sellers will work together in good faith prior to the Closing to jointly prepare a statement (the "Estimate Statement") setting forth the estimated Purchase Price. (b) Within 60 days after the Closing Date, Buyer shall prepare and deliver to the Sellers a statement (the "Final Statement"), setting forth Buyer's good faith determination of the actual adjustment (for the actual amount of the Cash Excess or Cash Deficiency, as applicable, and any other appropriate adjustments), if any, to the estimated Purchase Price that was used for purposes of determining the amount paid on the Closing Date (the "Final Adjustment Amount"). During the 30-day period following delivery of the Final Statement to the Sellers, Buyer shall provide the Sellers with access during normal business hours to such books, records, working papers or other information as is reasonably necessary in the review of the Final Statement and the calculation of the Final Adjustment Amount to enable the Sellers to verify the accuracy of the Final Statement. The Final Statement shall become final and binding upon all parties hereto on the sixteenth day following delivery thereof (without counting such day of delivery) to the Sellers unless the Sellers give written notice of disagreement with the Final Statement (a "Notice of Disagreement") to Buyer prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted, and relate solely to the review of the Final Statement and the calculation of the Final Adjustment Amount. (c) During the 15-day period following the delivery of a Notice of Disagreement, Buyer and the Sellers shall seek in good faith to resolve any differences which they may have with respect to any matter specified in the Notice of Disagreement and each shall provide the other with reasonable access to such books, records, working papers or other information as is reasonably necessary in the preparation or calculation of (i) the Final Adjustment Amount, (ii) the Final Statement, (iii)  any Notice of Disagreement or (iv) otherwise with respect to any thereof. At the end of such 15-day period if there has been no resolution of the matters specified in the Notice of Disagreement, Buyer and the Sellers shall submit to an arbitrator (the "Arbitrator") for review and resolution any and all matters arising under this Section which remain in dispute. The Arbitrator shall be a nationally recognized independent public accounting firm mutually selected by Buyer and the Sellers. The Arbitrator shall render a decision resolving each of the matters submitted to the Arbitrator within 30 days following submission thereto (or as soon thereafter as reasonably practicable). All fees and expenses of the Arbitrator pursuant to this Agreement with respect to such dispute shall be borne by the party, if any, who the Arbitrator determines was not, in the aggregate, the party substantially closer to being correct with respect to the matters being disputed. All determinations made by the Arbitrator pursuant to this Section shall be set forth in writing and shall be final, conclusive and binding on the parties hereto and shall not be subject to any judicial review. (d) Within five business days after either (i) the Final Statement becomes final and binding upon the parties, or (ii) any dispute with respect to any matter in the Final Statement is resolved in accordance with the provisions of this Section  1.6, then Buyer or the Sellers, as the case may be, shall pay the Final Adjustment Amount. All payments pursuant to this Section 1.6 shall be by wire transfer of immediately available funds to an account designated by the recipient at least two business days prior to the date of payment. ARTICLE II Representations and Warranties of Buyer Buyer represents and warrants to the Sellers and the Company as follows (with the understanding that the Sellers and the Company are relying materially on such representations and warranties in entering into and performing this Agreement): 2.1 Due Organization. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full corporate power and authority to enter into and perform this Agreement. 2.2 Due Authorization. This Agreement has been duly and validly authorized, executed, and delivered by Buyer and constitutes a valid and binding obligation of Buyer enforceable in accordance with its terms. Except as set forth on Schedule 2.2 attached hereto, the execution, delivery, and performance of this Agreement by Buyer will not (a) violate any federal, state, county, or local law, rule, or regulation applicable to Buyer or its property, (b) violate or conflict with, or permit the cancellation of, any agreement to which Buyer is a party or by which it or its property is bound, (c) permit the acceleration of the maturity of any indebtedness of, or any indebtedness secured by the property of, Buyer, or (d)  violate or conflict with any provision of Buyer's certificate of incorporation or bylaws, except, with respect to clauses (b) and (c) above, for any of the foregoing that will be amended for violations thereunder waived at the Closing. Except as set forth on Schedule 2.2 attached hereto, other than filings pursuant to, and the expiration or termination of the applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") or federal or state securities laws, no action, consent, or approval of, or filing with, any federal, state, county, or local governmental authority is required in connection with the execution, delivery, or performance of this Agreement by Buyer. 2.3 Brokers and Finders. Buyer has not engaged, or caused to be incurred any liability to, any finder, broker, or sales agent in connection with the execution, delivery, or performance of this Agreement or the transactions contemplated hereby. 2.4 Investment Intent. Buyer is acquiring the Shares for its own account for investment purposes and not with a view to, or in connection with, any distribution thereof in violation of federal or state securities laws. Buyer acknowledges and agrees that the certificates representing the Shares will bear a legend which will provide that the shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold by Buyer absent registration under the Securities Act or an exemption from such registration requirements. ARTICLE III Representations and Warranties of the Company and the Sellers The Company and each Seller hereby jointly and severally represents and warrants to Buyer as follows (with the understanding that Buyer is relying materially on each such representation and warranty in entering into and performing this Agreement): 3.1 Capitalization; Ownership of Shares. The authorized capital stock of the Company consists exclusively of 1,000 shares of common stock, no par value per share. The Shares are the only shares of capital stock or other equity securities of the Company that are issued and outstanding. The Shares are duly authorized, validly issued, fully paid, and nonassessable. All of the Shares are owned of record and beneficially by the Sellers as set forth on Schedule 1.4 attached hereto. None of the Shares were issued or will be transferred under this Agreement in violation of any preemptive or preferential rights of any person. 3.2 No Liens on Shares. Each Seller is the true and lawful owner, of record and beneficially, of his Shares, free and clear of any liens, restrictions, security interests, claims, rights of another, or encumbrances; none of the Shares are subject to any outstanding options, warrants, calls, or similar rights of any other person to acquire the same; none of the Shares are subject to any restrictions on transfer thereof; and each Seller has the full power and authority to convey, and (assuming that the Sellers deliver at the Closing the bring-down certificate contemplated by Section 5.1(b) hereof) will convey to Buyer at the Closing, good and marketable title to such Seller's Shares, free and clear of any liens, restrictions, security interests, claims, rights of another, or encumbrances (other than any of the foregoing created by Buyer). 3.3 Other Rights to Acquire Capital Stock. There are no authorized or outstanding warrants, options, or rights of any kind to acquire from the Company, the Subsidiary or from any Seller any equity or debt securities of the Company or the Subsidiary or securities convertible into or exchangeable for equity or debt securities of the Company or the Subsidiary. 3.4 Due Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland and has full power and authority to carry on its business as now conducted and as proposed to be conducted. The Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and has full power and authority to carry on its business as now conducted and as proposed to be conducted. Complete and correct copies of the certificate of incorporation and bylaws of each of the Company and the Subsidiary and all amendments thereto have been delivered to Buyer. Neither the Company nor the Subsidiary has received any notice or communication from any other jurisdiction to the effect that it is or may be required to qualify to do business as a foreign corporation in any such jurisdiction. 3.5 Subsidiaries. Except for the Subsidiary, the Company does not directly or indirectly have (or possess any options or other rights to acquire) any subsidiaries or any direct or indirect ownership interests in any person, business, corporation, partnership, association, joint venture, trust, or other entity. 3.6 Due Authorization. The Company has full corporate power and authority to enter into and perform this Agreement and each other agreement, instrument, and document required to be executed by the Company in connection herewith. The execution, delivery, and performance of this Agreement and such other agreements, instruments, and documents have been duly authorized by the Board of Directors of the Company. This Agreement has been duly and validly executed and delivered by the Company and the Sellers and constitutes a valid and binding obligation of the Company and the Sellers enforceable in accordance with its terms. Upon its execution in accordance with Section 5.1(j) hereof, the Noncompetition Agreement (as hereinafter defined) shall have been duly and validly executed and delivered by Henry F. Long, III and shall constitute the valid and binding obligation of Henry F. Long, III enforceable in accordance with its terms. Upon their execution in accordance with Section 1.5(b) hereof, the Real Property Leases shall have been duly and validly executed and delivered by J and J and shall constitute valid and binding obligations of J and J, enforceable in accordance with their terms. Except as set forth on Schedule 3.6 attached hereto, neither the execution, delivery, and performance of this Agreement by the Company and the Sellers, the execution, delivery, and performance of the Noncompetition Agreement by Henry F. Long III, nor the execution, delivery and performance of the Real Property Leases by J and J shall (a) violate any federal, state, county, or local law, rule, or regulation applicable to the Company, any Seller, J and J or their respective properties, (b) violate or conflict with, or permit the cancellation of, any agreement to which the Company, any Seller or J and J is a party, or by which any of them or any of their respective properties is bound, or result in the creation of any lien, security interest, charge, or encumbrance upon any of such properties, (c) violate or conflict with any provision of the certificate of incorporation or bylaws of the Company and J and J, except, with respect to clause (b) above, for any indebtedness to be paid at the Closing and any agreements related thereto to be terminated at the Closing. Except as set forth on Schedule 3.6 attached hereto, and other than filings pursuant to, and the expiration or termination of, the applicable waiting period under, the HSR Act, to the knowledge of the Company and the Sellers, no action, consent, or approval of, or filing with, any governmental authority is required in connection with the execution, delivery, or performance of this Agreement (or any agreement or other document executed in connection herewith by the Company, either of the Sellers or J and J). 3.7 Financial Information. The following Financial Information (herein so called) of the Company has been delivered to Buyer by the Company: (a) Consolidated unaudited balance sheet and statement of income of the Company and the Subsidiary as of September 30, 1997 and for the fiscal year then ended (collectively, the "Year-End Financial Statements"); and (b) General ledgers of the Company for each month in the period beginning October 1, 1997 and ended July 31, 1998 (collectively, the "Ledgers"). The Year-End Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and fairly present the consolidated financial position and results of operations of the Company and the Subsidiary as of the indicated date and for the indicated period (except for the absence of consolidated statements of changes in financial position and footnote disclosures required by GAAP). Except to the extent reflected or provided for in the balance sheet included in the Year-End Financial Statements or the accounts included in the Ledgers, the Company and its subsidiaries have no liabilities or obligations (whether absolute, contingent, or otherwise) of the type which should be reflected on a balance sheet (including the notes thereto) prepared in accordance with GAAP. Since September 30, 1997, there has been no material adverse change in the financial position, assets, results of operations, or business of the Company. To the knowledge of the Company and the Sellers, there are no pending or proposed statutes, rules, or regulations, nor any current or pending developments or circumstances, which would reasonably be expected to have a material adverse effect on the financial position, assets, results of operations, or business of the Company and the Subsidiary, taken as a whole. 3.8 Conduct of Business; Certain Actions. Except as set forth on Schedule 3.8 attached hereto, since September 30, 1997, the Company and the Subsidiary have conducted their business and operations in the ordinary course and consistent with its past practices and have not (a) purchased, retired, or redeemed any capital stock from any stockholder, (b) made any capital expenditures exceeding $25,000 individually or $100,000 in the aggregate, (c) sold any asset (or any group of related assets) in any transaction (or series of related transactions) in which the purchase price for such asset (or group of related assets) exceeded $25,000 (other than sales of inventory in the ordinary course of business), (d)  made or guaranteed any loans or advances to any party whatsoever, (e) suffered or permitted any lien, security interest, claim, charge, or other encumbrance to arise or be granted or created against or upon any of the assets of the Company or the Subsidiary, real or personal, tangible or intangible, (f) cancelled, waived, or released any of debts, rights, or claims against third parties, (g) amended their certificate of incorporation or bylaws, (h) made any investment or commitment therefor in any person, business, corporation, association, partnership, joint venture, trust, or other entity, (i) made, entered into, amended, or terminated any written employment contract, created, made, amended, or terminated any bonus, stock option, pension, retirement, profit sharing, or other employee benefit plan or arrangement, or withdrawn from any "multi-employer plan" (as defined in Section 414(f) of the Internal Revenue Code of 1986, as amended (the "Code")) so as to create any liability under Article IV of ERISA (as hereinafter defined) to any entity, (j) incurred or assumed any indebtedness (whether directly or by way of guaranty or otherwise) for borrowed money, except in the ordinary course of business, (k)  experienced any strike, slowdown, or demand for recognition by a labor organization by or with respect to any employees. 3.9 Properties. Neither the Company nor the Subsidiary owns any real property other than the Owned Real Property. Attached hereto as Schedule 3.9 is a list of machinery and equipment assets owned or leased by the Company or the Subsidiary as of the date hereof. Except as expressly set forth on Schedule 3.9 attached hereto, the personal properties of the Company and the Subsidiary are free and clear of all liens, security interests, claims and encumbrances. To the knowledge of the Company and the Sellers, the physical properties owned or utilized by the Company and the Subsidiary in the conduct of their business are in good operating condition and repair, normal wear and tear excepted, and are free from material defects. Except as otherwise set forth on Schedule 3.9 attached hereto, the Company or the Subsidiary has full and unrestricted legal and equitable title to or a valid leasehold interest in all such properties. To the knowledge of the Company and the Sellers, the operation of the properties and business of the Company and the Subsidiary in the manner in which they are now and have been operated does not violate in any material respect any zoning ordinances, municipal regulations, or other rules, regulations, or laws. No covenants, easements, rights-of-way, or restrictions of record impair in any material respect the uses of the respective properties of the Company or the Subsidiary for the purposes for which they are now operated. 3.10 Licenses and Permits. Attached hereto as Schedule 3.10 is a list of all federal, state, county, and local governmental licenses, certificates, and permits held or applied for by the Company or the Subsidiary. To the knowledge of the Company and the Sellers, the Company and the Subsidiary have complied in all material respects, and are in compliance in all material respects, with the terms and conditions of all such licenses, certificates, and permits, and no material violation of any such licenses, certificates, or permits or the laws or rules governing the issuance or continued validity thereof has occurred. To the knowledge of the Company and the Sellers, no additional license, certificate, or permit is required from any federal, state, county, or local governmental agency or body thereof in connection with the conduct of the business of the Company or the Subsidiary which, if not obtained, would materially and adversely affect the business or properties of the Company and the Subsidiary, taken as a whole. No claim has been made by any governmental authority (and, to the knowledge of the Company and the Sellers, no such claim is anticipated) to the effect that a license, permit, or order is necessary in respect of the business conducted by the Company or the Subsidiary. 3.11 Intellectual Property Rights. Schedule 3.11 hereto contains a true and complete list of (a) all patents, patent applications, trademarks, trademark registrations, and trademark applications, service marks, service mark registrations, and service mark applications, trade names, and copyrights, copyright registrations, and copyright applications ("Intellectual Property") owned by the Company or the Subsidiary in connection with its business as presently conducted or as presently proposed to be conducted, (b) all licenses or other agreements giving the Company or the Subsidiary rights in Intellectual Property of third parties in connection with the business of the Company or the Subsidiary as presently conducted or as presently proposed to be conducted, and (c) all licenses or other agreements giving to third parties rights in the Intellectual Property listed on Schedule 3.11 hereto. Except as set forth on Schedule 3.11 hereto, the Company or the Subsidiary has good and marketable title, free and clear of any liens or other encumbrances, to, owns or possesses adequate and enforceable licenses or other rights to use, all Intellectual Property and all computer software, software programs, inventions, drawings, designs, customer lists, proprietary know-how or information or other rights in connection with the business of the Company or the Subsidiary as presently conducted (hereinafter, collectively, "Proprietary Rights"). Each item of Intellectual Property owned by the Company or the Subsidiary and listed on Schedule 3.11 has been, to the extent indicated in Schedule 3.11 duly registered with, filed in, or issued by the United States Patent and Trademark Office, the United States Copyright Office or such other domestic or foreign government entity as indicated on Schedule 3.11, and such registrations, filings and issuances remain in full force and effect. Except as set forth on Schedule 3.11 hereto, to the knowledge of the Company and the Sellers, the operations of the business of the Company and the Subsidiary, including but not limited to use of patents, trademarks, trade names, service marks and copyrighted material and to products, processes, services, methods, substances, parts or other materials currently made, sold or used by or contemplated to be made, sold or used by the Company or the Subsidiary in connection with their business, do not conflict with or infringe upon any Proprietary Rights of any third party. Except as set forth on Schedule 3.11 hereto, neither the Company nor the Subsidiary has granted to any third parties exclusive licenses or options to obtain exclusive licenses under any of the Intellectual Property owned by the Company or the Subsidiary listed on Schedule 3.11 hereto. Except as set forth on Schedule 3.11 hereto, neither the Company nor the Subsidiary has given any indemnification in connection with any patent, trademark, copyright or other Proprietary Right as to any product made, used or sold by any third party. Except as set forth on Schedule 3.11 hereto, there are no pending or, to the actual knowledge of the Company and the Sellers, threatened claims, proceedings or actions against the Company or the Subsidiary or any of its licensors that could have a material adverse effect on the Proprietary Rights of the Company or the Subsidiary or that could limit the right of the Company or the Subsidiary to use any patent, trademark, trade name, service mark or copyrighted material or to make, have made, sell or use any product, process, service, method, substance, part, or other material in connection with its business. Except as set forth on Schedule 3.11 hereto, there is no infringement by or claim of infringement against any third party of any Proprietary Rights of the Company or the Subsidiary which could be likely to have a material adverse effect on the business, operations, condition (financial or otherwise), or assets of the Company and the Subsidiary, taken as a whole. 3.12 Compliance with Laws. To the knowledge of the Company and the Sellers, the Company and the Subsidiary have complied in all material respects, and are in compliance in all material respects, with all federal, state, county, and local laws, regulations, and orders applicable to their business and have filed with the proper authorities all statements and reports required by the laws, regulations, and orders to which the Company or the Subsidiary or any of their respective properties or operations are subject. No claim has been made by any governmental authority (and, to the knowledge of the Company and the Sellers, no such claim is anticipated) to the effect that the business conducted by the Company or the Subsidiary fails to comply, in any respect, with any law, rule, regulation, or ordinance. 3.13 Insurance. Attached hereto as Schedule 3.13 is a list of all policies of fire, liability, business interruption, and other forms of insurance and all fidelity bonds held by or applicable to the Company or the Subsidiary at any time within the past three years, which schedule sets forth in respect of each such policy the policy name, policy number, carrier, term, type of coverage, deductible amount or self-insured retention amount, limits of coverage, and annual premium. No event relating to the Company or the Subsidiary has occurred which will result in a material retroactive upward adjustment of premiums under any such policies or which is likely to result in any prospective upward adjustment in such premiums. Except as disclosed on Schedule 3.13 attached hereto, there has been no material change in the type of insurance coverage maintained by the Company or the Subsidiary during the past five years which has resulted in any period during which the Company or the Subsidiary had no insurance coverage. Excluding insurance policies which have expired and been replaced, no insurance policy of the Company or the Subsidiary has been cancelled within the last three years and, to the actual knowledge of the Company and the Sellers, no threat has been made to cancel any insurance policy of the Company or the Subsidiary within such period. No pending claims made by or on behalf of the Company or the Subsidiary under such policies have been denied. All premiums payable with respect to such policies have been timely paid, or adequate arrangements for payment have been made. 3.14 Employee Benefit Matters. (a) Employee Contracts and Arrangements. Attached hereto as Schedule 3.14(a) is a list of each deferred compensation plan, bonus plan, stock option plan, employee stock purchase plan, and any other employee benefit plan, agreement, arrangement, or commitment not required under any other provision of this Agreement to be listed in any other schedule to this Agreement (including policies concerning holidays, vacations, and salary continuation during short absences for illness or other reasons) maintained by the Company or the Subsidiary with respect to any individual who contributes to the operations of the Company or the Subsidiary. (b) Effect of Consummation. Except as set forth on Schedule 3.14(b), the consummation of the transactions contemplated by this Agreement will not: (i) entitle any current or former employee of the Company or the Subsidiary or any other individual, to severance pay, unemployment compensation or similar payment, or (ii) otherwise accelerate the time of payment or vesting, or increase the amount of any compensation due to any current or former employer or other individual. (c) Controlled Group Liability. Neither the Company nor the Subsidiary is or will be subject to any liability on account of any of the Sellers, the Company or the Subsidiary having been affiliated, prior to the Closing Date, directly or indirectly, with any other entity or person under Code Section 414, Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any similar foreign law. 3.15 Contracts and Agreements. Attached hereto as Schedule 3.15 is a list and brief description, as of the date hereof, of all written or oral contracts, commitments, leases, and other agreements (including, without limitation, promissory notes, loan agreements, and other evidences of indebtedness) to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary or its properties are bound, pursuant to which the obligations thereunder of either party thereto are, or are contemplated as being, in respect of any such individual contracts, commitments, leases, or other agreements during the term thereof, $100,000 or greater, or which are otherwise material to the business of the Company or the Subsidiary (including, without limitation, all mortgages, deeds of trust, security agreements, pledge agreements, and similar agreements and instruments and all confidentiality agreements and noncompetition agreements). Each such contract, commitment, lease and other agreement is in full force and effect, and, to the knowledge of the Company and the Sellers, the Company or the Subsidiary, as applicable, is not, and no other party thereto is, in default (and no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default) in any material respect under any such contracts, commitments, leases, or other agreements. Neither the Company nor the Subsidiary has waived any right under any such contracts, commitments, leases, or other agreements. Except as set forth on Schedule 3.15 attached hereto, neither the Company nor the Subsidiary has guaranteed any obligations of any other person. 3.16 Claims and Proceedings. Attached hereto as Schedule 3.16 is a list and description of all claims, actions, suits, proceedings, and investigations pending or, to the actual knowledge of the Company and the Sellers, threatened against or affecting the Company or the Subsidiary or any of their properties or assets, at law or in equity, or before or by any court, municipal or other governmental department, commission, board, agency, or instrumentality. Except as set forth on Schedule 3.16 attached hereto, none of such claims, actions, suits, proceedings, or investigations will result in any liability or loss to the Company or the Subsidiary which (individually or in the aggregate) is material, and neither the Company nor the Subsidiary has been, and neither the Company nor the Subsidiary is now, subject to any order, judgment, decree, stipulation, or consent of any court, governmental body, or agency. No inquiry, action, or proceeding has been asserted instituted, or, to the actual knowledge of the Company and the Sellers, threatened to restrain or prohibit the carrying out of the transactions contemplated by this Agreement or to challenge the validity of such transactions or any part thereof or seeking damages on account thereof. To the knowledge of the Company and the Sellers, there is no basis for any such valid claim or action or any other claims or actions which would, or could reasonably be expected to (individually or in the aggregate), have a material adverse effect on the business, operations, or financial condition of the Company and the Subsidiary, taken as a whole, or result in a material liability of the Company or the Subsidiary. 3.17 Taxes. All federal, foreign, state, county, and local income, gross receipts, excise, property, franchise, license, sales, use, withholding, and other tax (collectively, together with additional assessments, penalties and interest chargeable in connection therewith, "Taxes") returns, reports, and declarations of estimated tax (collectively, "Returns") which were required to be filed by the Company or the Subsidiary on or before the date hereof have been filed within the time and in the manner provided by law, and all such Returns are true and correct and accurately reflect the Tax liabilities of the Company and the Subsidiary. All Taxes shown to be due pursuant to such Returns, or that otherwise would have been due had the required Returns been timely filed, and all other Taxes of the Company and the Subsidiary that are attributable to taxable periods beginning on or prior to the Closing, including, without limitation, periods that end as a result of the Closing as well as periods that continue, whether or not returns have become due or Taxes have become due and payable as of the Closing, have been paid or adequately provided for in the Year-End Financial Statements. For purposes of the preceding sentence, payment or adequate provision therefor shall be measured according to the agreement of the parties that (except to the extent the Purchase Price has been reduced therefor pursuant to Section 1.3(b) hereof) the Sellers shall be responsible for all Taxes attributable to periods and partial periods that end on or before the Closing and that begin before the Closing and end at any time; provided, however, that in the latter case (i) Taxes for which the Sellers are responsible (to the extent the Purchase Price has not been reduced therefor pursuant to Section 1.3(b) hereof) shall be Taxes that are attributable to the portion of any incomplete period which has transpired as of the end of the Closing Date, and (ii) Taxes attributable to such partial period shall be determined by prorating Taxes for the entire period according to the number of days through and after the Closing. Neither the Company nor the Subsidiary has executed any presently effective waiver or extension of any statute of limitations against assessments and collection of Taxes. There are no pending or, to the actual knowledge of the Company or the Sellers, threatened claims, assessments, notices, proposals to assess, deficiencies, or audits (collectively, "Tax Actions") with respect to any Taxes owed or allegedly owed by the Company or the Subsidiary. To the knowledge of the Company and the Sellers, there is no basis for any Tax Actions. The Company's and the Subsidiary's federal income tax returns have been audited through the fiscal year ended September 30, 1994, and no Taxes other than as set forth on the Financial Statements are payable by the Company or the Subsidiary. There are no tax liens on any of the assets of the Company or the Subsidiary, other than liens arising in the ordinary course for property taxes not yet due and payable. Proper and accurate amounts have been withheld and remitted by the Company or the Subsidiary from and in respect of all persons from whom it is required by applicable law to withhold for all periods in compliance with the tax withholding provisions of all applicable laws and regulations. Neither the Company, the Subsidiary nor any other corporation has filed an election under section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"), that is applicable to the Company or the Subsidiary or any assets held by the Company or the Subsidiary. Neither the Company nor the Subsidiary is a party to any tax sharing agreement with any stockholder or any other person. The Company and the Subsidiary utilize the accrual method of accounting for federal income tax purposes. There is no contract, plan, or arrangement covering any person that, individually or collectively, would give rise to the payment of any amount that would not be deductible by the Company or the Subsidiary by reason of Section 280G of the Code. None of the Sellers is a "foreign person" within the meaning of Section 1445(b)(2) of the Code. 3.18 Personnel. The employee relations of the Company and the Subsidiary are good and there is no pending or, to the actual knowledge of the Company and the Sellers, threatened labor dispute or union organization campaign. To the knowledge of the Company and the Sellers, each of the Company and the Subsidiary is in compliance in all material respects with all federal and state laws respecting employment and employment practices, terms and conditions of employment, and wages and hours and is not engaged in any unfair labor practices. There is no unfair labor practice claim against the Company or the Subsidiary before the National Labor Relations Board or any strike, labor dispute, work slowdown, or work stoppage pending or, to the actual knowledge of the Company and the Sellers, threatened against or involving the Company or the Subsidiary. 3.19 Business Relations. Except as set forth on Schedule 3.19 attached hereto, none of the Sellers knows or has any reason to believe that any customer or supplier of the Company or the Subsidiary will cease to do business with the Company or the Subsidiary after the consummation of the transactions contemplated hereby in the same manner as previously conducted with the Company or the Subsidiary. Neither the Company nor the Subsidiary has received any notice of any disruption (including delayed deliveries or allocations by suppliers) in the availability of the materials or products used by the Company or the Subsidiary nor are either of the Sellers aware of any facts which could lead them to believe that the business of the Company or the Subsidiary will be subject to any such material disruption. 3.20 [Intentionally Omitted] 3.21 Bank Accounts. Attached hereto as Schedule 3.21 is a list of all banks or other financial institutions with which the Company or the Subsidiary has an account or maintains a safe deposit box, showing the type and account number of each such account and safe deposit box and the names of the persons authorized as signatories thereon or to act or deal in connection therewith. 3.22 Agents. Except as set forth on Schedule 3.22 attached hereto, neither the Company nor the Subsidiary has designated or appointed any person or other entity to act for it or on its behalf pursuant to any power of attorney or any agency which is presently in effect. 3.23 Indebtedness To and From Officers, Directors, Stockholders, and Employees. Except as set forth on Schedule 3.23 attached hereto, neither the Company nor the Subsidiary owes any indebtedness to any of its officers, directors, stockholders, employees, or sales representatives or has indebtedness owed to it from any of its officers, directors, stockholders, employees, or sales representatives, excluding indebtedness for travel advances or similar advances for expenses incurred on behalf of and in the ordinary course of business of the Company and the Subsidiary and consistent with past practices. 3.24 Commission Sales Contracts. Except as disclosed in Schedule 3.24 attached hereto, neither the Company nor the Subsidiary employs or has any relationship with any individual, corporation, partnership, or other entity whose compensation from the Company or the Subsidiary is in whole or in part determined on a commission basis. 3.25 Brokers. None of the Sellers, the Company or the Subsidiary has engaged, or caused any liability to be incurred to, any finder, broker, or sales agent in connection with the execution, delivery, or performance of this Agreement or the transactions contemplated hereby. 3.26 Interest in Competitors, Suppliers, and Customers. Except as set forth on Schedule 3.26 attached hereto, no Seller nor any officer or director of the Company or the Subsidiary or any affiliate of any Seller, officer, or director has any ownership interest in any competitor, supplier, or customer of the Company or the Subsidiary or any property used in the operation of the business of the Company or the Subsidiary. 3.27 Inventory. Except as set forth on Schedule 3.27 attached hereto, the inventories on hand consist of items of a quality and quantity usable and readily saleable in the ordinary course of business by the Company or the Subsidiary. 3.28 Warranties. The Sellers have provided Buyer with true and complete copies of all forms of warranties issued by the Company or the Subsidiary during the past three years. Except as set forth on Schedule 3.28 attached hereto, no claims for breach of product or service warranties to customers have been made against the Company or the Subsidiary since September 30, 1997. To the knowledge of the Company and the Sellers, no state of facts exists, or event has occurred, which may form the basis of any present claim against the Company or the Subsidiary for liability on account of any express or implied warranty to any third party. 3.29 Environmental. Except as described on Schedule 3.29 attached hereto, and except as indicated in the Phase I or Phase II environmental reports conducted on behalf of Buyer, (a) to the knowledge of the Company and the Sellers, each of the Company and the Subsidiary has been in the past and is now in compliance in all material respects with (i) all federal, state, local and foreign laws, rules, regulations and codes, as well as orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder relating to pollution, protection of the environment or health and safety (collectively, "Environmental Laws"); (b) to the knowledge of the Company and the Sellers, each of the Company and the Subsidiary has all permits, licenses, approvals and other authorizations required under Environmental Laws; and (c) substances defined as "hazardous" or "toxic" under applicable Environmental Laws have not been disposed of off-site by the Company or the Subsidiary except in compliance in all material respects with applicable Environmental Laws. ARTICLE IV Covenants 4.1 Inspection. From the date hereof to the Closing, the Sellers shall give and cause the Company and the Subsidiary to give to Buyer and its officers, attorneys, accountants, and representatives free, full, and complete access during reasonable business hours to all books, records, tax returns, files, correspondence, personnel, facilities, and properties of the Company and the Subsidiary; provide Buyer and its officers, attorneys, accountants, and representatives all information and material pertaining to the business and affairs of the Company and the Subsidiary as Buyer may deem necessary or appropriate; and use their best efforts to afford Buyer and its officers, attorneys, accountants, and representatives the opportunity to meet with the customers and suppliers of the Company and the Subsidiary to discuss the business, condition (financial or otherwise), operations, and prospects of the Company and the Subsidiary. At the Closing, the Company shall deliver to Buyer the originals of all minute books and stock transfer records of the Company and the Subsidiary. Any investigation by Buyer or its officers, attorneys, accountants, or representatives shall not in any manner affect the representations and warranties of the Sellers contained herein. 4.2 Compliance. From the date hereof to the Closing, neither any Seller nor the Company shall take any action which shall cause the representations and warranties made by the Sellers or the Company herein to be untrue or incorrect as of the Closing. 4.3 Satisfaction of All Conditions Precedent. From the date hereof to the Closing, each party shall use its commercially reasonable efforts to cause all conditions precedent to its obligations hereunder to be satisfied by the Closing. 4.4 No Solicitation. Neither the Company nor any Seller shall offer any of the Shares or the Company (or a material part of the assets of the Company or the Subsidiary, in one transaction or a series of transactions) for sale, or solicit offers to buy the Shares or the Company (or a material part of the assets of the Company or the Subsidiary, in one transaction or in a series of transactions), or hold discussions with any party (other than Buyer) looking toward such an offer or solicitation or toward a merger or consolidation of the Company with or into another entity or any similar transaction. The Sellers shall not, and shall not allow the Company or the Subsidiary to, enter into any agreement with any party other than Buyer with respect to the sale or other disposition of either the capital stock or the assets of the Company or the Subsidiary or with respect to any merger, consolidation, or similar transaction involving the Company or the Subsidiary. 4.5 Notice of Developments. From the date hereof to the Closing, the Sellers and the Company shall notify Buyer of any material problems or developments with respect to the business, operations, or prospects of the Company. 4.6 Notice of Breach. From the date hereof to the Closing, the Sellers and the Company shall, immediately upon becoming aware thereof, give detailed written notice to Buyer of the occurrence of, or the impending or threatened occurrence of, any event which would cause or constitute a breach, or would have caused or constituted a breach had such event occurred or been known to any Seller prior to the date of this Agreement, of any of their covenants, agreements, representations, or warranties contained or referred to herein or in any document delivered in accordance with the terms hereof. 4.7 Notice of Litigation. From the date hereof to the Closing, immediately upon becoming aware thereof, the Sellers and the Company shall notify Buyer of (a) any suit, action, or proceeding (including, without limitation, any Tax Action or proceeding involving a labor dispute or grievance or union recognition) to which the Company or the Subsidiary becomes a party or which, to the actual knowledge of the Company or the Sellers, is threatened against the Company or the Subsidiary, (b) any order or decree or any complaint praying for an order or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereby, or (c) any notice from any tribunal of its intention to institute an investigation into, or to institute a suit or proceeding to restrain or enjoin the consummation of, this Agreement or the transactions contemplated hereby or to nullify or render ineffective this Agreement or such transactions if consummated. 4.8 Continuation of Insurance Coverage. From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to keep in full force and effect insurance coverage for the Company and the Subsidiary and their respective assets and operations comparable in amount and scope to the coverage now maintained covering the Company and the Subsidiary and their respective assets and operations. 4.9 Maintenance of Credit Terms. From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to continue to effect sales of products and services only on the terms that have historically been offered by the Company and the Subsidiary or on such other terms which are no less favorable to the Company and the Subsidiary. 4.10 Financial Statements. (a)  Until the Closing, as soon as available, and in any event within 30 days after the end of each calendar month, the Sellers shall cause the Company to prepare and furnish to Buyer a compilation of the Company's monthly revenues, inventory purchases and manufacturing and other operating expenses, which shall be prepared in accordance with the Company's past practices. (b) Prior to the Closing, the Company and the Subsidiary shall furnish independent auditors with such access to the books, records and employees of the Company and the Subsidiary, and with such other reasonable assistance, as requested by Buyer or the auditors may request in order to enable such auditors to complete an audit of the financial statements of the Company as of July 31, 1998 and for the ten months then ended. Fees billed (including an estimate of such fees to be billed following the Closing) by such auditors for services rendered relating to such audit or this Agreement will, to the extent not paid prior to the Closing, constitute a reduction to the Purchase Price in accordance with the provisions of Section 1.3(b). 4.11 Interim Operations of the Company. (a)  From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to conduct their business only in the ordinary course consistent with past practice, and neither the Company nor the Subsidiary shall, unless Buyer gives its prior written approval, (i) amend or otherwise change its certificate of incorporation or bylaws, as each such document is in effect on the date hereof, (ii) issue or sell, or authorize for issuance or sale, additional shares of any class of capital stock, or issue, grant, or enter into any subscription, option, warrant, right, convertible security, or other agreement or commitment of any character obligating the Company or the Subsidiary to issue securities, (iii) declare, set aside, make, or pay any dividend or other distribution with respect to its capital stock (provided, however, that the Company may declare and pay dividends in such amount as will not cause any downward adjustment to the Purchase Price pursuant to Section 1.3 hereof), (iv) redeem, purchase, or otherwise acquire, directly or indirectly, any of its capital stock, (v) except in the ordinary course of business, sell, pledge, dispose of, or encumber, or agree to sell, pledge, dispose of, or encumber, any assets of the Company, or authorize any capital expenditure, (vi)  acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership, or other business organization or division thereof, or enter into any contract, agreement, commitment, or arrangement with respect to any of the foregoing, (vii) except in the ordinary course of business, incur any indebtedness for borrowed money, issue any debt securities, or enter into or modify any contract, agreement, commitment, or arrangement with respect thereto, (viii) enter into, amend, or terminate any employment agreement with any director, officer, or key employee or sales representative, enter into, amend, or terminate any employment agreement with any other person otherwise than in the ordinary course of business, or take any action with respect to the grant or payment of any severance or termination pay other than pursuant to policies or agreements of the Company or the Subsidiary in effect on the date hereof, (ix) enter into, extend, or renew any lease for office or manufacturing space otherwise than in the ordinary course of business, (x) except as required by law, adopt, amend, or terminate any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment, or other employee benefit plan, agreement, trust, fund, or arrangement for the benefit or welfare of any officer, employee, or sales representative, or withdraw from any multi-employer plan so as to create any liability under Article IV of ERISA to any entity (provided that this clause (x) shall not prohibit any bonus payments prior to the Closing to either of the Sellers), (xi) grant any increase in compensation payable following the Closing to any director, officer, or key employee or sales representative, (xii) grant any increase in compensation to any other employee or sales representative except in the ordinary course of business consistent with past practice, or (xiii) take any action which decelerates the payment of accounts payable. (b) From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to purchase raw materials and to maintain inventories at levels consistent with historical practice. (c) From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to continue to pay their payables in a manner consistent with historical practice. (d) From the date hereof to the Closing, the Sellers shall cause the Company and the Subsidiary to use their best efforts to preserve intact the business organization of the Company and the Subsidiary, to keep available in all material respects the services of its present officers and key employees, to preserve intact its banking relationships and credit facilities, to preserve the goodwill of those having business relationships with it, and to comply with all applicable laws. (e) From the date hereof to the Closing, the Sellers will cause the Company and the Subsidiary to use their best efforts to maintain their real property, equipment, and other personal property in its present operating condition and repair, ordinary wear and tear excepted. (f) From the date hereof to the Closing, the Sellers will cause the Company and the Subsidiary to use their best efforts to preserve their relationships with suppliers, customers, and others with whom they have business dealings. 4.12 Resignations of Directors and Plan Trustees. The Sellers shall cause all directors of the Company and the Subsidiary to deliver their written resignations to Buyer, which resignations shall be effective at or before the Closing and shall be in form and substance satisfactory to Buyer. To the extent requested by Buyer, the Sellers shall cause all persons serving as trustees with respect to any Welfare Benefit Plan or Pension Benefit Plan to deliver their written resignations to Buyer, which resignations shall be effective at or before the Closing and shall be in form and substance satisfactory to Buyer. 4.13 Physical Inventory. The Sellers will cause the Company to conduct a physical inventory as of the close of the last business day immediately preceding the Closing Date. Buyer will be permitted to observe and participate in such physical inventory. 4.14 Tax Defenses. Following the Closing, Buyer shall cause the Company to use commercially reasonable efforts to assert any valid defenses to any claims by governmental authorities asserting the existence of unpaid Taxes with respect to any period prior to the Closing; provided, however, that nothing in this Section 4.14 shall reduce or modify the Sellers' indemnification obligations with respect to any unpaid Taxes or with respect to out-of-pocket costs or expense in connection with the defense of any claim relating thereto. ARTICLE V Conditions to Closing 5.1 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated hereby are subject to the fulfillment of each of the following conditions: (a) Buyer will be satisfied in its sole discretion with the results of its due diligence investigation of the Company. (b) The representations and warranties of the Sellers and the Company contained in this Agreement shall be true and correct in all material respects at and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing; the Sellers and the Company shall have performed and complied with all agreements required by this Agreement to be performed or complied with by the Sellers and the Company at or prior to the Closing; and Buyer shall have received a certificate, dated as of the Closing Date, signed by the Sellers and an appropriate officer of the Company to the foregoing effect. (c) No action or proceeding shall have been instituted (or threatened in any writing that has been received by any Seller, the Company or Buyer) for the purpose or with the possible effect of enjoining or preventing the consummation of the transactions contemplated by this Agreement or seeking damages on account thereof. (d) Buyer shall have received an opinion of O'Malley, Miles, Nylen & Gilmore, P.A., counsel for the Company and the Sellers, dated as of the Closing Date, to the effect set forth in Exhibit B attached hereto. (e) Prior to the Closing, there shall not have occurred any casualty or damage in excess of $100,000 (whether or not insured) to any facility, property, or equipment owned or used by the Company; there shall have been no material adverse change in the financial condition, business, properties, or operations of the Company and the Subsidiary, taken as a whole, since September 30, 1997; and the business of the Company and the Subsidiary shall have been conducted only in the ordinary course consistent with past practices. (f) Buyer shall have received the minute books and stock transfer records contemplated by Section 4.1 hereof and the resignations contemplated by Section 4.12 hereof. (g) All consents and approvals required in connection with the execution, delivery, or performance of this Agreement shall have been obtained. (h) All necessary action (corporate or otherwise) shall have been taken by the Sellers and the Company to authorize, approve, and adopt this Agreement and the consummation and performance of the transactions contemplated hereby, and Buyer shall have received a certificate, dated as of the Closing Date, of the Sellers and an appropriate officer of the Company to the foregoing effect. (i) Buyer shall have received from each Seller or his duly appointed agent and attorney-in-fact the stock certificate or certificates representing all of the Shares of such Seller duly endorsed for transfer or accompanied by stock powers duly executed in blank. (j) Henry F. Long, III shall have executed and delivered the Noncompetition Agreement with Buyer and the Company in the form of Exhibit C attached hereto (the "Noncompetition Agreement"). (k) The Sellers shall have executed and delivered to the Company and the Subsidiary a general release in a form reasonably satisfactory to Buyer releasing the Company and the Subsidiary from all claims or other obligations arising prior to or concurrently with the Closing (except for any amounts owed by the Company that are taken into account for purposes of clause (i) of Section 1.3(b) hereof). (l) The Sellers and the Company shall have delivered such good standing certificates, officer's certificates, and similar documents and certificates as Buyer shall have reasonably requested prior to the Closing Date. (m) Henry F. Long, III shall have executed and delivered the Employment Agreement with the Company in the form of Exhibit D attached hereto (the "Henry F. Long, III Employment Agreement"). The decision of Buyer to consummate the transactions contemplated hereby without the satisfaction of any of the preceding conditions shall not constitute a waiver of any of the Sellers' representations, warranties, covenants, or indemnities herein. 5.2 Conditions to Obligations of the Sellers. The obligations of the Sellers to consummate the transactions contemplated hereby are subject to the fulfillment of the following conditions: (a) Buyer's representations and warranties contained in this Agreement shall be true and correct in all material respects at and as of the Closing with the same effect as though such representations and warranties had been made as of the Closing; all agreements to be performed hereunder by Buyer at or prior to the Closing shall have been performed; and the Sellers shall have received a certificate, dated as of the Closing Date, signed by an appropriate officer of Buyer to the foregoing effects. (b) All consents and approvals listed on Schedule 2.2 attached hereto shall have been obtained; and the Sellers shall have received a certificate, dated as of the Closing Date, signed by an appropriate officer of Buyer to the foregoing effects. (c) Buyer shall have delivered to the Sellers such good standing certificates, officer's certificates, and similar documents and certificates as counsel for the Sellers shall have reasonably requested prior to the Closing Date. (d) No action or proceeding shall have been instituted (or threatened in any writing that has been received by any Seller, the Company or Buyer) for the purpose or with the possible effect of enjoining or preventing the consummation of the transactions contemplated by this Agreement or seeking damages on account thereof. (e) The Company shall have executed and delivered Employment Agreements with David Holson, David Cooke, Bruce Fischer, Dale Long, Richard Stellabuto and Martin Dittes, in the respective forms of Exhibits E-1, E-2, E-3, E-4 , E-5 and E-6 attached hereto, to the extent such persons desire to enter into such Employment Agreements. (f) The Sellers shall have received an opinion of Weil, Gotshal & Manges LLP, counsel to Buyer, dated as of the Closing Date, to the effect set forth in Exhibit F attached hereto. (g) The Company shall have executed and delivered the Henry F. Long, III Employment Agreement. ARTICLE VI Termination This Agreement shall terminate automatically if the Closing does not occur on or prior to October 31, 1998. In addition, this Agreement may be terminated prior to the Closing by (a) the mutual consent of Buyer and the Sellers, (b)  the Sellers upon the failure of Buyer to perform or comply, in any material respect, with any of its covenants or agreements contained herein prior to the Closing (if such failure is not cured within ten days following the delivery of notice thereof) or if any representation or warranty of Buyer hereunder shall not have been true and correct as of the time at which such was made, or (c) Buyer upon the failure of the Company or any Seller to perform or comply, in any material respect, with any of its or his covenants or agreements contained herein prior to the Closing (if such failure is not cured within ten days following the delivery of notice thereof) or if any representation or warranty of the Company and the Sellers hereunder shall not have been true and correct as of the time at which such was made. No termination of this Agreement shall relieve any party of liability in respect of its prior breach of this Agreement. ARTICLE VII Indemnification 7.1 Indemnification of Buyer and the Company. The Sellers jointly and severally agree to indemnify and hold harmless Buyer (and, following the Closing, the Company) and each officer, director, employee and affiliate of Buyer (and each person who is an officer, director, employee or affiliate of the Company following the Closing) (collectively, the "Buyer Indemnified Parties") from and against any and all damages, losses, claims, liabilities, demands, charges, suits, penalties, costs, and expenses (including court costs and attorneys' fees and expenses incurred in investigating and preparing for any litigation or proceeding) (collectively, "Indemnified Costs") which any of the Buyer Indemnified Parties may sustain, or to which any of the Buyer Indemnified Parties may be subjected, arising out of (i) any breach or default by any of the Sellers or (if committed prior to the Closing) the Company of or under any of the representations, warranties, covenants, conditions, agreements, or other provisions of this Agreement or any agreement, document or certificate executed in connection herewith (including, without limitation, the certificates to be delivered pursuant to Sections 5.1(b) and 5.1(h) hereof; (ii) any Taxes owed by the Company or the Subsidiary with respect to any period prior to the Closing or with respect to partial or prorated periods up to and including the Closing Date or with respect to or arising out of the transfer of the Owned Real Property pursuant to this Agreement; or (iii) any claim, litigation proceeding or investigation with respect to which the principal event or events giving rise thereto occurred prior to the Closing (excluding, however, the matter described on Schedule 3.16 hereto); provided, however, that, notwithstanding the foregoing, following the Closing, the liability of the Sellers to indemnify and hold harmless the Buyer Indemnified Parties for Indemnified Costs shall be subject to the following limitations: (a) With respect to the Sellers' obligation to indemnify and hold harmless the Indemnified Parties for Indemnified Costs under clauses (i), (ii) and (iii) of the first sentence of this Section 7.1, (i) the Sellers shall indemnify and hold harmless the Buyer Indemnified Parties for such Indemnified Costs only if and to the extent such Indemnified Costs exceed $100,000 (the "Basket Amount") in the aggregate (after which, subject to the other limitations set forth in this Agreement, all such Indemnified Costs in excess of such $100,000 shall be recoverable), (ii) such Indemnified Costs for which the Buyer Indemnified Parties actually receive indemnification from the Sellers (other than any such indemnification for the breach of any representation or warranty in Section 3.17 hereof or pursuant to clause (ii) of the first sentence of this Section 7.1) shall not exceed $400,000 in the aggregate (the "Non-Tax Cap Amount"), and (iii) such Indemnified Costs for which the Buyer Indemnified Parties actually receive indemnification from the Sellers for the breach of any representation or warranty in Section 3.17 hereof or pursuant to clause (ii) of the first sentence of this Section 7.1 shall not exceed $1,000,000 in the aggregate (the "Tax Cap Amount"); provided that the limitations set forth in clauses (i) and (ii) of this sentence shall not apply to any breach of a representation or warranty contained in any of Sections 3.1, 3.2, 3.3, or any of the initial five sentences of Section 3.6, or due to the actual fraud or any intentional misrepresentation of any Seller. (b) The Company shall remit to the Sellers any amounts actually received by the Company from any governmental authority or other third party in respect of Indemnified Costs for which the Company has previously been indemnified by the Sellers pursuant to this Section 7.1. 7.2 Indemnification of the Sellers. Buyer agrees to indemnify and hold harmless the Sellers and each affiliate of the Sellers (collectively, the "Seller Indemnified Parties") from and against any and all Indemnified Costs which any of the Seller Indemnified Parties may sustain, or to which any of the Seller Indemnified Parties may be subjected, arising out of any breach or default by Buyer of or under any of the representations, warranties, covenants, conditions, agreements, or other provisions of this Agreement or any agreement, document or certificate executed in connection herewith (including, without limitation, the certificates to be delivered pursuant to Section 5.2(a) hereof). 7.3 Defense of Third-Party Claims. Any person entitled to indemnification hereunder (an "Indemnified Party") shall give prompt written notice to any person who is obligated to provide indemnification hereunder (an "Indemnifying Party") of the commencement or assertion of any action, proceeding, demand, or claim by a third party (collectively, a "third-party action") in respect of which such Indemnified Party shall seek indemnification hereunder. Any failure so to notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it may have to such Indemnified Party under this Article VII if the Indemnified Party can demonstrate that the failure to give such notice did not materially prejudice such Indemnifying Party. The Indemnifying Parties shall have the right to assume control of the defense of, settle, or otherwise dispose of such third-party action on such terms as they deem appropriate; provided, however, that: (a) The Indemnified Party shall be entitled, at his, her, or its own expense, to participate in the defense of such third-party action; (b) The Indemnifying Parties shall obtain the prior written approval of the Indemnified Party before entering into or making any settlement, compromise, admission, or acknowledgment of the validity of such third-party action or any liability in respect thereof, which written approval will not be unreasonably withheld. (c) The Indemnifying Parties shall not be entitled to control (but shall be entitled to participate at their own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement, compromise, admission, or acknowledgment of any third-party action (i) as to which the Indemnifying Parties fail to assume the defense within a reasonable length of time or (ii) to the extent the third-party action seeks an order, injunction, or other equitable relief against the Indemnified Party which, if successful, would materially adversely affect the business, operations, assets, or financial condition of the Indemnified Party; provided, however, that the Indemnified Party shall make no settlement, compromise, admission, or acknowledgment which would give rise to liability on the part of any Indemnifying Party without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The parties hereto shall extend reasonable cooperation in connection with the defense of any third-party action pursuant to this Article VII and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 7.4 Direct Claims. In any case in which an Indemnified Party seeks indemnification hereunder which is not subject to Section 7.3 hereof because no third-party action is involved, the Indemnified Party shall notify the Indemnifying Parties in writing of any Indemnified Costs which he, she, or it claims are subject to indemnification under the terms hereof. The failure of the Indemnified Party to exercise promptness in such notification shall not amount to a waiver of such claim if the Indemnified Party can demonstrate that the resulting delay did not materially prejudice the position of the Indemnifying Parties with respect to such claim. 7.5 No Right of Contribution. The Sellers hereby expressly and irrevocably waive and release any right that they otherwise might have to contribution from the Company or the Subsidiary (or any similar right) as a result of the payment by any Seller of any amounts pursuant to Section 7.1 hereof. 7.6 Remedies Exclusive. The remedies in this Article VII shall constitute the sole remedies of the parties with respect to any breaches of the representations and warranties contained in this Agreement and with respect to any breaches prior to the Closing of the covenants contained in this Agreement. ARTICLE VIII Miscellaneous 8.1 Collateral Agreements, Amendments, and Waivers. This Agreement (together with the documents delivered pursuant hereto) supersedes all prior documents, understandings, and agreements, oral or written, relating to this transaction and constitutes the entire understanding among the parties with respect to the subject matter hereof. Any modification or amendment to, or waiver of, any provision of this Agreement (or any document delivered pursuant to this Agreement unless otherwise expressly provided therein) may be made only by an instrument in writing executed by the party against whom enforcement thereof is sought. 8.2 Successors and Assigns. Neither Buyer's, the Company's, nor any Seller's rights or obligations under this Agreement may be assigned, in whole or in part, prior to the Closing, except that Buyer may assign its rights and obligations to any wholly-owned subsidiary or affiliate thereof and may effect a collateral assignment of its rights under this Agreement for the benefit of its senior lenders, Fleet Capital Corporation and Transamerica Business Credit Corporation. Any assignment in violation of the foregoing shall be null and void. Subject to the preceding sentences of this Section 8.2, the provisions of this Agreement (and, unless otherwise expressly provided therein, of any document delivered pursuant to this Agreement) shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns. No assignment permitted by this Section 8.2 will relieve the assigning party of liability in the event of the breach by the assignee of any provision of this Agreement. 8.3 Expenses. Buyer shall pay all of its costs and expenses incurred in connection with this Agreement, except that the Sellers will reimburse Buyer for 50% of its filing fee under the HSR Act as provided in Section 1.4 hereof. To the extent such costs and expenses do not reduce the Purchase Price pursuant to Section 1.3(b) hereof, the Sellers shall pay all of their costs and expenses incurred in connection with this Agreement, including but not limited to (i) all fees and expenses of counsel to the Sellers and the Company in connection with this Agreement and (ii) all filing fees, transfer taxes and similar expenditures in connection with the transfer of the Owned Real Property to the Sellers. 8.4 Weaving Machines. Following the Closing, if and when requested by Henry F. Long, Jr. within five years following the Closing, Buyer will transfer to Mr. Long, for his own use or for the use of an entity controlled by him, two chain link fabric weaving machines, free of charge. The provisions of this Section 8.4 will not be affected by Mr. Long's status as an employee of the Company, if applicable. 8.5 Certain Ornamental Iron Purchases. Buyer agrees that Henry F. Long, Jr. will be permitted following the Closing to effect purchases, for his own account, of ornamental iron fencing materials from the Chinese supplier, Overseas Supply (or its affiliated entities); provided, however, that the Company will have a right of first refusal with respect to any such ornamental iron fencing materials acquired from such source. The provisions of this Section 8.5 will not be affected by Mr. Long's status as an employee of the Company, if applicable. 8.6 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. 8.7 Information and Confidentiality. Each party hereto agrees that such party shall hold in strict confidence all information and documents received from any other party hereto, and, (i) if the Closing occurs, the Sellers shall keep confidential all information of the Company or the Subsidiary that, as of the Closing Date, is in the possession of the Company or the Sellers and that is proprietary in nature or otherwise confidential, (ii) if the Closing does not occur each such party shall return to the other parties hereto all such documents then in such receiving party's possession without retaining copies and (iii) if the Closing does not occur, Buyer shall keep confidential all information of the Company or the Subsidiary that is proprietary in nature or otherwise confidential and shall not use any such information to directly or indirectly compete with the Company or to solicit the customers of the Company; provided, however, that each party's obligations under this Section 8.7 shall not apply to (a) any information or document required to be disclosed by law or (b) any information or document in the public domain (provided that such information or document does not enter the public domain as a result of the violation of this Agreement). This Section 8.7 shall not be construed to in any way restrict Buyer's or the Company's use of confidential information of the Company following the Closing. 8.8 Waiver. No failure or delay on the part of any party in exercising any right, power, or privilege hereunder or under any of the documents delivered in connection with this Agreement shall operate as a waiver of such right, power, or privilege; nor shall any single or partial exercise of any such right, power, or privilege preclude any other or future exercise thereof or the exercise of any other right, power, or privilege. 8.9 Notices. Any notices required or permitted to be given under this Agreement (and, unless otherwise expressly provided therein, under any document delivered pursuant to this Agreement) shall be given in writing and shall be deemed received (a) when personally delivered (including by recognized overnight courier) to the relevant party at its address as set forth below (or when such delivery is refused) or (b) if sent by mail, on the date of delivery (or the date on which delivery is refused) if such notice is sent by United States certified or registered mail, postage prepaid, return receipt requested, to the relevant party at its address indicated below: Buyer: MMI Products, Inc.   515 West Greens Road   Houston, Texas 77067   Suite 710   Attn.: Julius Burns     with a copy to: Weil, Gotshal & Manges LLP   100 Crescent Court, Suite 1300   Dallas, Texas 75201   Attn.: Michael A. Saslaw     the Company: Security Fence Supply Co. Inc.   4301 46th Street   Bladensburg, Maryland 20710   Attn.: Henry F. Long, III     with a copy to: O'Malley, Miles, Nylen & Gilmore, P.A. (if prior to the Closing) 11785 Beltsville Drive, 10th Floor Calverton, Maryland 20705   Attn.: Matthew Osnos     with a copy to: Weil, Gotshal & Manges LLP (if following the Closing) 100 Crescent Court, Suite 1300 Dallas, Texas 75201   Attn.: Michael A. Saslaw     the Sellers: c/o Security Fence Supply Co. Inc.   4301 46th Street   Bladensburg, Maryland 20710   Attn.: Henry F. Long, III     with a copy to: O'Malley, Miles, Nylen & Gilmore, P.A.   11785 Beltsville Drive, 10th Floor   Calverton, Maryland 20705   Attn.: Matthew Osnos Each party may change its address for purposes of this Section 8.9 by proper notice to the other parties. 8.10 Survival of Representations and Warranties. Regardless of any investigation at any time made by or on behalf of any party hereto or of any information any party may have in respect thereof, all representations, warranties and covenants to be performed prior to the Closing made hereunder or pursuant hereto or in connection with the transactions contemplated hereby shall survive the Closing for a period of two years; provided, however, that (a) the representations and warranties contained in Section 3.17 hereof shall survive the Closing until the expiration of the applicable statute(s) of limitations and (b) the representations and warranties contained in Sections 3.1, 3.2 and 3.3, the initial five sentences of Section 3.6 and Section 3.25 hereof shall survive forever. 8.11 Public Announcement. All press releases and other public announcements concerning this Agreement and the transactions contemplated hereby must be approved by Buyer and the Company prior to publication. 8.12 Waiver of Certain Rights. The Company and each Seller hereby waives any rights of first refusal, preemptive rights, or other rights of any nature whatsoever which the Company or such Seller may have to purchase any of the Shares or other capital stock or equity securities of any nature of the Company. Each Seller agrees that, upon the consummation of the transactions contemplated hereby, any and all rights of such Seller with respect to the payment of dividends (whether or not previously earned, accrued, or declared), preferential payments, or distributions of the Company's assets upon the liquidation, dissolution, or merger of the Company or otherwise, or any other right of any nature whatsoever to receive any monies or assets of the Company as a result of such Seller's ownership of Shares, shall terminate, and each Seller hereby waives any and all such rights and agrees to indemnify and hold harmless the Company and its officers, directors, employees, and affiliates from and against any and all Indemnified Costs suffered or incurred by or assessed against the Company or any of its officers, directors, employees, or affiliates and arising, directly or indirectly, from the exercise or attempted exercise of any of such rights by any Seller. Furthermore, each Seller agrees that, immediately prior to consummation of the transactions contemplated hereby, each voting, stock transfer restriction, and buy-sell agreement to which he is a party and which relates to any Shares shall be terminated and be of no further force or effect. 8.13 Further Assurances. At, and from time to time after, the Closing, at the request of any party hereto, but without further consideration, each other party hereto shall execute and deliver such other instruments of conveyance, assignment, transfer, and delivery and take such other action as the requesting party may reasonably request in order more effectively to consummate the transactions contemplated hereby. 8.14 Certain Payment. The parties acknowledge that certain contracts with terms similar in some ways to this Agreement have been construed to be option contracts. Accordingly, simultaneously with the execution of this Agreement, Buyer has paid to the Sellers the sum of Ten Dollars ($10.00) as consideration to the Sellers for the granting of any and all options to Buyer contained in this Agreement, the receipt and adequacy of which are hereby conclusively acknowledged. Said option consideration is separate and apart from the Purchase Price and in no event will be returned to Buyer. 8.15 Pension Plan Participation. Prior to December 31, 2001, Henry F. Long, Jr. shall not be permitted to participate in, and shall not accrue benefit under, the MMI Products, Inc. Pension Plan (the "Plan"). If Mr. Long's employment with the Company continues following such date, and if the Plan is implemented for Company employees, then Mr. Long shall thereupon begin to participate in and to accrue benefits under the Plan, subject to the terms and conditions of the Plan, and will be fully vested with respect to all such benefits. 8.16 No Third-Party Beneficiaries. Except as provided in Article 7 hereof (and except with respect to Section 1.5 hereof, with respect to which J and J is a third party beneficiary), no person or entity not a party to this Agreement shall be deemed to be a third-party beneficiary hereunder or entitled to any rights hereunder. 8.17 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (without giving effect to principles of conflict of laws). IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in one or more counterparts (all of which shall constitute one and the same agreement) as of the day and year first above written. MMI PRODUCTS, INC. By: /s/ Robert N. Tenczar Name: Robert N. Tenczar Title: Vice President - Finance SECURITY FENCE SUPPLY CO., INC. By: /s/ Henry F. Long III Name: Henry F. Long Title: President /s/ Henry F. Long, Jr. HENRY F. LONG, JR. /s/ Henry F. Long, III HENRY F. LONG, III

AGREEMENT This Agreement is made by and among Raymond J. Milchovich ("Optionee") and Kaiser Aluminum Corporation and Kaiser Aluminum & Chemical Corporation, both Delaware corporations (together, the "Company"). WHEREAS, the Company granted to Optionee a stock option to purchase 635,000 shares of common stock, $.01 par value per share, of Kaiser Aluminum Corporation, and the terms and conditions of such grant are set forth in that certain Time-Based Stock Option Grant between Optionee and the Company having an effective date of July 2, 1998 (the "1998 Grant"); and WHEREAS, Optionee and the Company desire to amend the 1998 Grant to cancel 135,000 of the unvested Option Shares and to specify the vesting provisions for the 246,000 unvested Option Shares thereafter remaining under the 1998 Grant; and WHEREAS, Optionee and the Company desire to evidence the grant of a new stock option to Optionee to purchase up to 135,000 Option Shares and to specify the terms and conditions applicable thereto; NOW, THEREFORE, Optionee and the Company hereby agree as follows: 1. All capitalized terms used herein shall have the meanings provided in the 1998 Grant unless otherwise specifically provided herein. 2. Effective as of April 12, 2000, the 1998 Grant is amended to cancel 135,000 of the unvested Option Shares. Provided Optionee's Qualified Service Period has not previously terminated, and subject to the terms of the last sentence of Paragraph 4 of the 1998 Grant, the 246,000 unvested Option Shares thereafter remaining under the 1998 Grant shall become Vested Options as of 12:01 a.m. Houston time on the following schedule: December 31, 2000 127,000 Option Shares December 31, 2001 119,000 Option Shares Except as expressly set forth herein, the terms and conditions of the 1998 Grant are hereby ratified and affirmed. 3. This Agreement evidences that the Company has granted to Optionee, effective as of April 12, 2000, the right, privilege and option to purchase up to 135,000 Option Shares. Provided Optionee's Qualified Service Period has not previously terminated, and subject to the same terms as are set forth in the last sentence of Paragraph 4 of the 1998 Grant, such 135,000 Option Shares shall become Vested Options as of 12:01 a.m. Houston time on the following schedule: December 31, 2001 8,000 Option Shares December 31, 2002 127,000 Option Shares Except as expressly set forth herein, such stock option is granted on the same terms and conditions as are set forth in the 1998 Grant. IN WITNESS WHEREOF, Optionee and the Company have executed this Agreement effective as of the 12th day of April, 2000. "COMPANY" KAISER ALUMINUM CORPORATION By: /S/ JOHN BARNESON John Barneson Vice President and Chief Administrative Officer KAISER ALUMINUM & CHEMICAL CORPORATION By: /S/ JOHN BARNESON John Barneson Vice President and Chief Administrative Officer "OPTIONEE" /S/ RAYMOND J. MILCHOVICH Raymond J. Milchovich

QuickLinks -- Click here to rapidly navigate through this document FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT     This FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT (this "Amendment"), dated as of April 30, 2001 is made by and between FLOW INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), and each of CONNECTICUT GENERAL LIFE INSURANCE COMPANY and LIFE INSURANCE COMPANY OF NORTH AMERICA (the "Holders"). BACKGROUND     A.  Pursuant to the Note Purchase Agreement (as amended prior to the date hereof, the "Existing Note Agreement;" and, after giving effect to this Amendment, the "Note Agreement"), dated as of September 1, 1995, between the Company and each of the Holders, the Company issued and the Holders purchased Fifteen Million Dollars ($15,000,000) in aggregate principal amount of the Company's 7.20% Notes due September 26, 2005 (the "Notes").     B.  In connection with the issuance by the Company of subordinated notes and warrants and the amendment of certain bank credit documents, it is necessary to amend the Existing Note Agreement to make changes to certain existing provisions thereof and to add certain additional provisions thereto.     C.  The Company and the Holders desire to enter into this Amendment to effectuate the above-mentioned amendments.     NOW, THEREFORE, in order to induce the Holders to grant the amendments specified below and in consideration of other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the Company and the Holders agree as follows: 1.Definitions. All capitalized terms used, but not specifically defined, in this Amendment have the respective meanings assigned to them in the Existing Note Agreement as amended hereby. 2.Effective Date. The provisions of Section 4 shall take effect as of April 30, 2001 provided that the following conditions precedent have been satisfied: (a)Consenting Parties—Holders holding not less than sixty-six and two-thirds percent (662/3%) in aggregate principal amount of the Notes then outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiaries and any affiliates) and the Company shall have duly authorized, executed and delivered this Amendment; (b)No Defaults—no Default or Event of Default exists after giving effect to the amendments set forth in Section 4, as of the date hereof and as of the date of the closing of the purchase and sale of the Company's 13% Subordinated Notes due 2008; (c)Subordinated Notes—the Holders shall have approved the issuance and the terms of, and the covenants and other agreements applicable to, the 13% Subordinated Notes due 2008 to be issued by the Company, including the subordination of such Subordinated Notes to the Notes on terms and conditions acceptable to the Holders, which approval shall be evidenced by the Holders' execution and delivery of this Amendment to the Company; and (d)Payment of Fees and Expenses—the Company shall have paid the legal fees and disbursements of the Holders' in-house legal department allocable to this Amendment. 1 -------------------------------------------------------------------------------- 3.False or Misleading Information. The amendments set forth in Section 4 shall terminate and shall be null and void and of no force and effect if any written materials furnished in connection with this Amendment shall have been false or misleading in any material respect when made. 4.Amendments. (a)Section 8.1(g). Section 8.1(g) of the Existing Note Agreement shall be amended and restated in its entirety as follows:     (g) Delivery of Notices to Bank Agent and to Subordinated Noteholders; Delivery of Addresses—(i) to the extent not otherwise required to be delivered to the holders of the Notes pursuant to the provisions of this Section 8.1 (x) contemporaneously with the delivery to the Bank Agent, copies of all notices, reports and financial information delivered to the Bank Agent in accordance with the terms of the Bank Credit Agreement and (y) contemporaneously with the delivery to the holders of the Subordinated Notes, copies of all notices, reports and financial information delivered to the holders of the Subordinated Notes in accordance with the terms of the Subordinated Note Purchase Agreement; (ii) notice of any default under the Bank Credit Agreement or the Subordinated Note Purchase Agreement; and (iii) concurrently with the delivery of any notice pursuant to the preceding clause (ii) and from time to time in the event of any changes thereto, the names and addresses of the holders of indebtedness under the Bank Credit Agreement and the holders of the notes issued pursuant to the Subordinated Note Purchase Agreement, and the name and address of any agent acting on their behalf. (b)Section 9.2A. The following new Section 9.2A is added to the Existing Note Agreement:     9.2A. Prepayment Upon Change of Control.     In the event that any Change of Control shall occur or the Company shall have knowledge of any proposed Change of Control that is likely to occur, the Company will give written notice (the "Company Notice") of such fact in the manner provided in Section 19 hereof to the holders of the Notes. The Company Notice shall be delivered promptly upon receipt of such knowledge by the Company and, in the case of a Change of Control of which the Company had no prior knowledge, no later than five Business Days following the occurrence of any Change of Control. The Company Notice shall (1) describe the facts and circumstances of such Change of Control in reasonable detail, (2) make reference to this Section 9.2A and the right of the holders of the Notes to require prepayment of the Notes on the terms and conditions provided for in this Section 9.2A, (3) offer in writing to prepay all, but not less than all, of the outstanding Notes, together with accrued interest to the date of prepayment, plus a prepayment charge equal to the applicable Make-Whole Amount, and (4) specify a date for such prepayment (the "Change of Control Prepayment Date"), which Change of Control Prepayment Date shall be not more than 45 days nor less than 20 days following the date of such Company Notice (subject to deferral as provided in this Section 9.2A). Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment of the Notes held by such holder in full by written notice to the Company (a "Noteholder Notice") given not later than 15 days after receipt of the Company Notice. The Company shall on the Change of Control Prepayment Date prepay in full all of the Notes held by holders which have so accepted such offer of prepayment; provided that the obligation of the Company to prepay the Notes pursuant to the requirement of this Section 9.2A is subject to the occurrence of the Change of Control giving rise to such notice of optional prepayment. In the event that such Change of Control does not occur on the date specified for prepayment, the prepayment shall be deferred until and shall be made on the date on which such Change of Control actually occurs. The prepayment price of the Notes payable upon the occurrence of any Change of Control shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, plus a 2 -------------------------------------------------------------------------------- prepayment charge equal to the applicable Make-Whole Amount. In no event will the Company take any action to consummate or finalize a Change of Control unless contemporaneously with such action the Company prepays all Notes required to be prepaid pursuant to this Section 9.2A.     For purposes of this Section 9.2A:     "Acquiring Person" means a "person" or "group of persons" within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.     "Change of Control" means the earliest to occur of: (a) the date a tender offer or exchange offer results in an Acquiring Person, directly or indirectly, beneficially owning more than 50% of the Voting Stock of the Company then outstanding, or (b) the date an Acquiring Person becomes, directly or indirectly, the beneficial owner of more than 50% of the Voting Stock of the Company then outstanding, or (c) the date of a merger between the Company and any other Person, a consolidation of the Company with any other Person or an acquisition of any other Person by the Company, if immediately after such event, the Acquiring Person shall hold more than 50% of the Voting Stock of the Company outstanding immediately after giving effect to such merger, consolidation or acquisition, or (d) the replacement (other than solely by reason of retirement, death or disability) of more than 50% of the members of the Board of Directors of the Company over a 12-month period from the directors who constituted such Board of Directors at the beginning of such period and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such 12-month period or whose election as members of the Board of Directors was so previously approved.     "Voting Stock" means Securities of any class or classes, the holders of which are ordinarily in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). (c)Section 9.3: Section 9.3 of the Existing Note Agreement is hereby amended and restated in full as follows:     In the case of each partial prepayment of the Notes pursuant to Section 9.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. All partial prepayments made pursuant to Section 9.2A shall be applied only to the Notes of the holders who have elected to participate in such prepayment. (d)Section 11.3(a)(ii). Section 11.3(a)(ii) of the Existing Note Agreement is hereby amended and restated in full as follows: (ii)(A) at any time during the fiscal year ending April 30, 2002, Consolidated Debt does not exceed 65% of Consolidated Total Capitalization and (B) at any time thereafter, Consolidated Debt does not exceed 60% of Consolidated Total Capitalization. (e)Section 11.5. Section 11.5 of the Existing Note Agreement is hereby amended by the addition of the following subsection (c) thereto:     (c) Prepayment of Subordinated Notes. The Company shall not prepay any of the Subordinated Notes pursuant to Section 8.2 or 8.3 of the Subordinated Note Purchase Agreement until the Notes have been paid in full or provision therefor has been made satisfactory to the holders of the Notes; provided, that, if any or all of the Holders of the Notes elect not to be prepaid in connection with an offer made by the Company pursuant to Section 9.2A, the Company shall be permitted to prepay the Subordinated Notes to the extent 3 -------------------------------------------------------------------------------- that the holders thereof have elected to be prepaid pursuant to Section 8.3 of the Subordinated Note Purchase Agreement. (f)Section 11.8. Section 11.8 of the Note Agreement shall be amended and restated in its entirety as follows: 11.8 Minimum Fixed Charges Coverage.     The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 1.80 to 1. (g)Section 11.13. The following new Section 11.13 is hereby added to the Existing Note Purchase Agreement: 11.13 Amendments to Subordinated Note Purchase Agreement.     Without the consent of the Required Holders, the Company shall not amend, waive or otherwise modify (i) the terms of Section 8 of the Subordinated Note Purchase Agreement to permit or require the Subordinated Notes to be paid or prepaid, in whole or in part, prior to the dates set forth in the Subordinated Note Purchase Agreement as of the date of original execution thereof, (ii) the terms of the Subordinated Notes to cause the maturity thereof to be less than 366 days after the maturity date of the Notes, or (iii) the terms of Section 11 of the Subordinated Note Purchase Agreement as in effect on the date of the original execution thereof. (h)Definitions—Existing. The following definitions in Schedule B are hereby amended and restated as set forth in full below:     "Bank" means Bank of America, National Trust and Savings Association, doing business as Seafirst Bank.     "Bank Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of December 29, 2000 among the Company and the Bank, as Bank Agent and Lender, U.S. Bank National Association and Keybank National Association, as amended by the First Amendment dated as of February 28, 2001, and the Second Amendment dated as of May 6, 2001, as the same may be further amended, modified or supplemented in accordance with the terms hereof.     "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of August 31, 1998 among the Company, the Bank Agent, the Bank Lenders, and the holders of the Notes, as amended from time to time in accordance with the provisions thereof, which Intercreditor Agreement replaced the Intercreditor Agreement dated as of September 26, 1995 by and among the Company the holders of the Notes and U.S Bank National Association, individually and as collateral agent.     "Security Agreement" means that certain Security Agreement dated as of August 31, 1998, by the Company in favor of the Bank Agent as agent for itself, the other Bank Lenders and the holders of the Notes, as amended from time to time in accordance with the provisions thereof, which Security Agreement replaced the Security Agreement dated as of September 26, 1995 by and among the Company, the holders of the Notes and U.S. Bank National Association. (i)Definitions—New. Schedule B shall be amended by adding, in the correct alphabetical order, the following definitions to the list of definitions:     "Acquiring Person" is defined in Section 9.2A.     "Change of Control" is defined in Section 9.2A. 4 --------------------------------------------------------------------------------     "Change of Control Prepayment Date" is defined in Section 9.2A.     "Company Notice" is defined in Section 9.2A.     "Noteholder Notice" is defined in Section 9.2A.     "Subordinated Notes" means the 13% Subordinated Notes due 2008 issued by the Company pursuant to the Subordinated Note Purchase Agreement.     "Subordinated Note Purchase Agreement" means the Subordinated Note Purchase Agreement dated as of April 30, 2001 between the Company and each of the purchasers of the Subordinated Notes and Warrants (as defined therein) issued pursuant thereto, as amended from time to time to the extent permitted by the provisions hereof.     "Voting Stock" is defined in Section 9.2A. 6.Effect of Agreement. Except as expressly provided in this Amendment, the Note Agreement and all documents and instruments executed in connection with, or contemplated by, the Note Agreement shall remain in full force and effect, without modification or amendment. This Amendment shall be binding upon, and shall inure to the benefit of, the successors and assigns of the parties hereto and the holders from time to time of the Notes. 7.Duplicate Originals: Execution in Counterpart. Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party to this Amendment, and each set of counterparts which, collectively, show execution by each such party to this Amendment shall constitute one duplicate original. 8.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, internal Connecticut law. 5 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have each caused this Third Amendment to Note Purchase Agreement to be duly executed and delivered by their respective, duly authorized officers as of the date first above written. COMPANY:     FLOW INTERNATIONAL CORPORATION             By:         --------------------------------------------------------------------------------       Name:       Title:                 HOLDERS:     CONNECTICUT GENERAL LIFE INSURANCE COMPANY* By: CIGNA Investments, Inc.                     By:             -------------------------------------------------------------------------------- Name: Stephen A. Osborn Title: Managing Director                 LIFE INSURANCE COMPANY OF NORTH AMERICA*     By: CIGNA Investments, Inc.         By:             -------------------------------------------------------------------------------- Name: Stephen A. Osborn Title: Managing Director     -------------------------------------------------------------------------------- *The entity signing this agreement is either a holder of a Note referred to herein or the beneficial holder of such Note registered in the name of the nominee of such beneficial holder. Signature page to Fourth Amendment to Note Purchase Agreement dated as of April 30, 2001 by and between FLOW INTERNATIONAL CORPORATION, and each of CONNECTICUT GENERAL LIFE INSURANCE COMPANY and LIFE INSURANCE COMPANY OF NORTH AMERICA. 6 -------------------------------------------------------------------------------- QuickLinks FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENT BACKGROUND

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.2 US SEARCH.COM INC. FIRST AMENDMENT TO INVESTORS' RIGHTS AGREEMENT     THIS FIRST AMENDMENT TO INVESTORS' RIGHTS AGREEMENT (this "Amendment") is entered into as of June 5, 2001, by and among US SEARCH.COM INC., a Delaware corporation (the "Company"), PEQUOT PRIVATE EQUITY FUND II, L.P., a Delaware limited partnership (the "Investor") and the holders of common stock of the Company set forth on the signature page to this Amendment (the "KL Holders"). R E C I T A L S     WHEREAS, the parties to this Amendment are parties to that certain Investors' Rights Agreement, dated as of September 7, 2000 (the "Agreement");     WHEREAS, the Company and the Investor have entered into a Preferred Stock Exchange and Purchase Agreement, of even date herewith (the "Exchange Agreement"), pursuant to which the Investor has agreed to exchange certain securities of the Company for newly issued shares of Series A-1 Convertible Preferred Stock of the Company (the "Series A-1 Shares"), to convert outstanding promissory notes of the Company held by the Investor into additional Series A-1 Shares and to receive a warrant to purchase up to 5,000 additional Series A-1 Shares subject to the terms and conditions set forth therein; and     WHEREAS, in connection with the transactions contemplated by the Exchange Agreement and to induce the Investor to enter into the Exchange Agreement the parties hereto desire to amend the Agreement as provided below. A M E N D M E N T     NOW, THEREFORE, BE IT RESOLVED, that in consideration of the foregoing and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Agreement is hereby amended as set forth below.     1.  The definition of "Purchase Agreement" appearing in the first recital to the Agreement is hereby deleted, and all references to the Purchase Agreement shall mean the Exchange Agreement for all purposes under the Agreement.     2.  The definition of "First Closing" appearing in Section 1.1 of the Agreement is hereby deleted, and all references to the First Closing shall mean September 7, 2000.     3.  The definition of "Second Closing" appearing in Section 1.1 of the Agreement is hereby deleted, and all references to the Second Closing shall mean the "Closing," as defined in the Exchange Agreement, for all purposes under the Agreement.     4.  The definition of "Registrable Securities" appearing in Section 1.1 of the Agreement is hereby deleted in its entirety and replaced with the following: "Registrable Securities" shall mean (a) shares of Common Stock or any other security received or receivable upon conversion of the Shares or upon conversion of the Series A-1 Preferred Stock issuable upon exercise of the Series A-1 Warrant (as defined in the Exchange Agreement) (the "Warrant Shares"); (b) all shares of Common Stock, or Common Stock issued as or issuable upon the conversion or exercise of any warrant, right or any other convertible security, which is purchased from or exchanged with the Company by the Pequot Holder on or after the Second Closing; (c) shares of Common Stock held by the KL Holders; (d) any securities received by the -------------------------------------------------------------------------------- Pequot Holder pursuant to the exercise of their Preemptive Rights; (e) any security received or receivable as a dividend, stock split or other distribution with respect to any Shares or the Warrant Shares; (f) any security received in exchange for or in replacement or any Registrable Securities; (g) any security issued or issuable with respect to any Registrable Securities as a result of change or reclassification of Registrable Securities or any capital reorganization of the Company; (h) shares of Common Stock held by the Pequot Holder and (i) any security received or receivable by a holder in respect of Registrable Securities as a result of a merger or consolidation of the Company. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned.     5.  The definition of "Shares" appearing in Section 1.1 of the Agreement is hereby deleted in its entirety and replaced with the following: "Shares" shall mean the Company's Series A-1 Convertible Preferred Stock issued pursuant to the Exchange Agreement and held by the Pequot Holder listed on Exhibit A hereto and its permitted assigns.     6.  Section 2.2(a) of the Agreement is hereby deleted in its entirety and replaced with the following: (i) At any time, and from time to time, the Holders of more than fifty percent (50%) of then outstanding Registrable Securities which are then owned by the Pequot Holder (the "Pequot Initiating Holder") shall have the right, by written notice, delivered to the Company to require the Company to register Registrable Securities having an aggregate offering price (before deducting of underwriting discounts and commissions) to the public in excess of $5,000,000 (a "Qualified Public Offering") and (ii) at any time, and from time to time, the Holders of more than fifty percent (50%) of then outstanding Registrable Securities which are then owned by the KL Holders (the "KL Initiating Holders") shall have the right, by written notice, delivered to the Company to require the Company to register Registrable Securities in a Qualified Public Offering, then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered.     7.  Exhibit A of the Agreement is hereby deleted in its entirety and replaced with Exhibit A hereto.     8.  The definition of "Series A Preferred Stock" appearing in the first recital to the Agreement is hereby deleted, and all references to Series A Preferred Stock shall mean Series A-1 Shares for all purposes under the Agreement. [Signature Page Follows] 2 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above. US SEARCH.COM INC.   PEQUOT PRIVATE EQUITY FUND II, L.P.         By:   Pequot Capital Management, Inc.         Its:   Investment Manager By:   /s/ BRENT N. COHEN    -------------------------------------------------------------------------------- Brent N. Cohen Chief Executive Officer                 By:   /s/ KEVIN E. O'BRIEN    -------------------------------------------------------------------------------- Kevin E. O'Brien General Counsel         THE KUSHNER-LOCKE COMPANY                       By:   /s/ PETER LOCKE    --------------------------------------------------------------------------------         Name:         Title:                       /s/ DONALD KUSHNER    -------------------------------------------------------------------------------- Donald Kushner                       /s/ PETER LOCKE    -------------------------------------------------------------------------------- Peter Locke 3 -------------------------------------------------------------------------------- Exhibit A SCHEDULE OF Pequot Holders PEQUOT PRIVATE EQUITY FUND II, L.P. 500 Nyala Farm Road West Port, CT 06880 Attn: Amber Tencic and Carol Holley Facsimile: (203) 429-2900 -------------------------------------------------------------------------------- QuickLinks US SEARCH.COM INC. FIRST AMENDMENT TO INVESTORS' RIGHTS AGREEMENT R E C I T A L S A M E N D M E N T Exhibit A SCHEDULE OF Pequot Holders

CREDIT AGREEMENT              THIS AGREEMENT is entered into as of May 30, 2001 by and between NORTHWEST PIPE COMPANY, an Oregon Corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS              Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.              NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I CREDIT TERMS              SECTION 1.1.                LINE OF CREDIT.              (a)         Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including June 30, 2003 not to exceed at any time the aggregate principal amount of Thirty Million Dollars ($30,000,000.00) ("Line of Credit"), the proceeds of which shall be used for working capital and general corporate purposes. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit "A" attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference.              (b)        Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause an affiliate to issue Standby letters of credit for the account of Borrower to finance borrower's self insurance for worker's compensation (each, a "Letter of Credit" and collectively, "Letters of Credit "); provided however, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed One Million Five Hundred Thousand Dollars ($1,500,000.00). No Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of Credit. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit agreements, applications and any related documents required by Bank in connection with the issuance thereof. Each draft paid under a Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided however, that if advances under the Line of Credit are not available, for any reason, at the time any draft is paid, then Borrower shall immediately pay to Bank the full amount of such draft, together with interest thereon from the date such draft is paid to the date such amount is fully repaid by Borrower, at the Prime Rate-based rate of interest applicable to advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any account maintained by Borrower with Bank for the amount of any such draft.              (c)         Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above.              SECTION 1.2.                INTEREST/FEES.              (a)         Interest. The outstanding principal balance of the Line of Credit shall bear interest at the rate(s) of interest set forth in the Line of Credit Note.              (b)        Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note.              (c)         Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to Ten Thousand Dollars, which fee shall be due and payable in full on the date of Borrower's execution of this Agreement.              (d)        Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-fifth percent (0.20%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a monthly basis by Bank and shall be due and payable by Borrower in arrears within five (5) days after each billing is sent by Bank.              (e)         Letter of Credit Fees. Borrower shall pay to Bank fees (i) upon the issuance of each Letter of Credit equal to one and three quarters percent (1.75%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) upon the payment or negotiation of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity.              SECTION 1.3.                COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest and fees due under each credit subject hereto by charging Borrower's deposit account number 4496887373 with Bank, or any other deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower.              SECTION 1.4.                GUARANTIES. All indebtedness of Borrower to shall be guaranteed jointly and severally by Southwestern Pipe, Inc.; North American Pipe, Inc.; and P & H Tube Corporation (collectively, together with any other entity, incorporated under the laws of any state or territory of the United States of America, hereafter formed or acquired, which is required under generally accepted accounting principles, consistently applied ("GAAP") to be included in Borrower's consolidated financial statements, the "Domestic Subsidiaries") in the principal amount of Thirty Million Dollars ($30,000,000.00) each, as evidenced by and subject to the terms of guaranties in form and substance satisfactory to Bank. Southwestern Pipe, Inc.; North American Pipe, Inc.; and P & H Tube Corporation, together with any other hereafter formed or acquired entity constituted or incorporated under the laws of any state or territory of the United States of America, which is required under generally accepted accounting principles, consistently applied ("GAAP") to be included in Borrower's consolidated financial statements, are referred to hereinafter as, individually, a "Domestic Subsidiary", and collectively as the "Domestic Subsidiaries". Borrower shall cause each hereafter acquired or formed Domestic Subsidiary to execute and deliver to Bank a guaranty and resolution, in the same form as executed by the existing Domestic Subsidiaries, contemporaneously with such acquisition or formation. ARTICLE II REPRESENTATIONS AND WARRANTIES              Except as set forth on Schedule I attached to this Agreement, Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.              SECTION 2.1.                LEGAL STATUS. Borrower is a Corporation, duly organized and existing and in good standing under the laws of the State of Oregon, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on the operations, business or condition (including financial condition) of Borrower and Subsidiaries, taken as a whole. with "Subsidiaries" defined as all Domestic Subsidiaries, as defined in Section 1.4, together with Thompson Tanks Mexico S.A. de C.V. and any other foreign entity(ies) required under GAAP to be included in Borrower’s consolidated financial statements. Except as set forth in the preceding sentence, as of the date hereof Borrower has no subsidiaries which would be required under generally accepted accounting principles to be consolidated with Borrower.              SECTION 2.2.                AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.              SECTION 2.3.                NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents and by Domestic Subsidiaries of the guaranties do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower or any Domestic Subsidiary, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower or any Domestic Subsidiary may be bound.              SECTION 2.4.                LITIGATION. There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material effect on Borrower or its Subsidiaries, other than those disclosed by Borrower to Bank in writing prior to the date hereof.              SECTION 2.5.                CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated December 31, 2000 a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower and Subsidiaries that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with GAAP. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower or any Subsidiary, nor has Borrower or any Subsidiary mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing.              SECTION 2.6.                INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its or any Subsidiary's income tax payable with respect to any year.              SECTION 2.7.                NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower or a Domestic Subsidiary is a party or by which Borrower or a Domestic Subsidiary may be bound that requires the subordination in right of payment of any of Borrower's or a Domestic Subsidiary's obligations to Bank to any other obligation of Borrower.              SECTION 2.8.                PERMITS, FRANCHISES. Borrower and each Subsidiary possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.              SECTION 2.9.                ERISA. To the best of Borrower's knowledge, Borrower and each Domestic Subsidiary is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); neither Borrower nor any Domestic Subsidiary has violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower or a Domestic Subsidiary; Borrower and each Domestic Subsidiary has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.              SECTION 2.10.              OTHER OBLIGATIONS. Neither Borrower nor any Subsidiary is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.              SECTION 2.11.              ENVIRONMENTAL MATTERS. Borrower and each Subsidiary is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, with respect to Borrower and Domestic Subsidiaries, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or any Subsidiary is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Neither Borrower nor any Subsidiary has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS              SECTION 3.1.                CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions:              (a)         Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel.              (b)        Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed:                            (i)          This Agreement and each promissory note or other instrument required hereby.                            (ii)         Addendum to Promissory Note.                            (iii)        Guaranties.                            (iv)       Certificates of Incumbency.                            (v)        Borrowing and Guaranty Resolutions.                            (vi)       Such other documents as Bank may require under any other Section of this Agreement.              (c)         Financial Condition. There shall have been no material adverse change in the operations, business or condition (including financial condition) of Borrower and Subsidiaries, taken as a whole..              (d)        Sale-Leaseback Financing. Borrower shall have delivered to Bank evidence of Borrower having closed a sale-leaseback transaction on terms reasonably satisfactory to Bank in an amount not less than $40,000,000.00,              SECTION 3.2.                CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions:              (a)         Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.              (b)        Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS              Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, and shall cause each Subsidiary to, unless Bank otherwise consents in writing:              SECTION 4.1.                PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein.              SECTION 4.2.                ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books, and records, to make copies of the same, and to inspect the real and personal property of Borrower or any Subsidiary.              SECTION 4.3.                FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank:              (a)         As soon as available, and in any event within 105 days after the end of each fiscal year of Borrower, the Annual Report and 10-K report of Borrower. Unless already included within the annual report and 10-K report, Borrower will deliver to Bank, as soon as available, and in any event within 105 days after the end of each fiscal year of Borrower, the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and retained earnings and statement of changes in financial position of Borrower and its Subsidiaries for such fiscal year, accompanied by the audit report thereon by independent certified public accountants selected by Borrower and reasonably acceptable to Bank (which reports shall be prepared in accordance with GAAP and shall not be qualified by reason of qualified or restricted examination of any material portion of the records of Borrower or any Subsidiary and shall contain no disclaimer of opinion or adverse opinion except such as Bank in its sole discretion determines to be immaterial);              (b)        As soon as available, and in any event within 105 days after the end of each fiscal year of Borrower, a copy of the unaudited division and product line consolidating income statements of Borrower and Subsidiaries as of the end of such fiscal year.              (c)         As soon as available, and in any event within 60 days after the end of each fiscal quarter of Borrower, except for fiscal year end, the 10-Q report of Borrower. Unless already included within the 10-Q report, Borrower will deliver to Bank, as soon as available, and in any event within 60 days after the end of each such fiscal quarter, the unaudited consolidated balance sheet of Borrower and its Subsidiaries as of the end of such fiscal quarter. At the same time, Borrower shall deliver to Bank the division and product line consolidating income statements of Borrower and Subsidiaries as of the end of such fiscal quarter;              (d)        contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate of chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default, together with calculations demonstrating compliance with financial covenants;              (e)         not later than 30 days after and as of the end of each month, an asset coverage report;              (f)         from time to time such other information as Bank may reasonably request.              SECTION 4.4.                COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower and each Subsidiary is organized and/or which govern Borrower's or such Subsidiary's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower, Subsidiaries and their business.              SECTION 4.5.                INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower and its Subsidiaries, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect.              SECTION 4.6.                FACILITIES. Keep all properties useful or necessary to Borrower's and each Subsidiary's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.              SECTION 4.7.                TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower or any Subsidiary may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower or such Subsidiary has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.              SECTION 4.8.                LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower or any Subsidiary in excess of $500,000.00 to the extent not covered by insurance.              SECTION 4.9.                FINANCIAL CONDITION. Maintain Borrower's consolidated financial condition as follows in accordance with GAAP (except to the extent modified by the definitions herein):              (a)         Tangible Net Worth, determined as of each fiscal quarter end, not less than an aggregate of (i) $85,000,000.00, plus (ii) 75% of cumulative consolidated net income for all fiscal quarters ending after December 31, 2000, in which such net income was greater than zero, and (iii) the amount by which the consolidated shareholders equity has increased or shall increase after December 31, 2000 solely as a result of the issuance of common or preferred stock or the conversion of debt securities into such stock, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets.              (b)        EBITDA Coverage Ratio not less than 1.75 to 1.0, determined as of each fiscal quarter end on a trailing four (4) fiscal quarter basis, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt, the prior period current maturity of capital leases and the prior period current maturity of subordinated debt.              (c)         Ratio of Funded Debt to EBITDA, determined as of each fiscal quarter end, not greater than 2.75 to 1.00 to and including September 30, 2002, and 2.50 to 1.00 thereafter, with "Funded Debt" defined as the aggregate of all interest bearing obligations, inclusive of (without duplication) letters of credit, capital leases and guaranteed indebtedness, and with "EBITDA" as defined above.              (d)        Ratio of unsecured Funded Debt to Asset Coverage, determined as of the end of each month, not greater than 1.00 to 1.00, with "Funded Debt" as defined above, and with "Asset Coverage" defined as the aggregate of (i) seventy-five percent (75%) of Borrower's and Domestic Subsidiaries' accounts receivable aged to 60 days past due or less, plus (ii) fifty percent (50%) of the book value of Borrower's and Domestic Subsidiaries' inventory under contract, and without duplication, of raw materials and finished goods, plus (iii) 50% of the net book value of Borrower's and Domestic Subsidiaries' unencumbered real estate located in the United States, plus (iv) 50% of the net book value of Borrower's and Domestic Subsidiaries' unencumbered machinery and equipment located in the United States.              SECTION 4.10.              NOTICE TO BANK.  Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower or any Subsidiary; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower or any Subsidiary is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower’s property. ARTICLE V NEGATIVE COVENANTS              Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not, and will not cause or permit any Subsidiary to, without Bank's prior written consent:              SECTION 5.1.                USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.              SECTION 5.2.                OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, capital leases, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof, and (c) additional purchase money indebtedness, not to exceed an aggregate principal amount of $3,500,000.00 per calendar year, provided that such indebtedness shall be fully secured by equipment and/or real estate. For purposes of clause (c), the amount of indebtedness under capital leases shall be determined in accordance with GAAP. Operating leases are excluded from the scope of this Section.              SECTION 5.5.                MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity in except (i) to the extent permitted in Section 5.8 hereof, and (ii) merger of any Subsidiary into Borrower or into another Subsidiary; make any substantial change in the nature of Borrowers or any Subsidiary's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity except to the extent permitted in Section 5.8 below; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business.              SECTION 5.6.                GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank.              SECTION 5.7.                LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except (i) any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof, (ii) without duplication of any advances included in clause (i), advances for travel and other expenses in the ordinary course of business in an aggregate outstanding amount of $500,000.00, and (iii) investments to the extent permitted in Section 5.8 below.              SECTION 5.8.                PERMITTED ACQUISITIONS. Acquire any business (whether by merger, acquisition of all or substantially all of the assets of any other entity, investment, or otherwise) without Bank's prior review and consent if the total of all such acquisitions in any fiscal year exceeds 10% of Tangible Net Worth as of the end ofthe prior fiscal year.  For purposes of the 10% limitation above, acquisitions shall be valued at the fair market value of all consideration given, including without limitation, cash, notes, assumption of debt and stock. All acquisitions otherwise permitted hereunder shall be approved by the board of directors of the entity owning the business to be acquired or otherwise not considered "hostile" by Bank.              SECTION 5.9.                PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest or lien (collectively, "Lien") in or upon, all or any portion of Borrower's assets now owned or hereafter acquired, except:              (a)         Liens in favor of Bank;              (b)        Liens which are existing as of, and disclosed to Bank in writing prior to, the date hereof;              (c)         Liens securing indebtedness permitted under Section 5.2(c);              (d)        Liens for taxes which are not delinquent or which remain payable without penalty or the validity or amount of which are being contested in good faith by appropriate proceedings by stay of execution of enforcement thereof;              (e)         Liens imposed by law (such as mechanics' liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which are being contested in good faith by appropriate proceedings by stay of execution of enforcement thereof, with, in the case of liens on property of Borrower or any Subsidiary under this clause (e) or clause (d), provision having been made, to the satisfaction of Bank, for the payment thereof in the event the contest is determined adversely to either Borrower or such Subsidiary; and              (d) deposits or pledges under worker's compensation. ARTICLE VI EVENTS OF DEFAULT              SECTION 6.1.                The occurrence of any of the following  shall constitute an "Event of Default" under this Agreement:              (a)         Borrower shall fail to pay any principal when due, or any interest, fees or other amounts payable under any of the Loan Documents within 5 calendar days from the applicable due date.              (b)        Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading when furnished or made and which could reasonably be anticipated to have a material adverse effect on the operations, business or condition (including financial condition) of Borrower and Subsidiaries, taken as a whole.              (c)         Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default (other than a breach of Section 4.9 or of any Section of Article V), such default shall continue for a period of thirty (30) days the date Borrower first knew (or using reasonable due diligence, should have known) of its occurrence              (d)        Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any Subsidiary has incurred any debt or other liability to any person or entity, including Bank, and, if such debt or liability is owed to a party other than Bank (i) the aggregate amount thereof exceeds $250,000.00 and such default continues beyond any applicable grace period, (ii) the holder of such debt or liability has the right to accelerate the same by reason of such default, or (iii) such debt or liability is or has been declared to be due and payable or required to be prepaid (other than by regularly scheduled required prepayment) prior to the stated maturity date.              (e)         The filing of a notice of judgment lien against Borrower or any Subsidiary; or the recording of any abstract of judgment against Borrower or any Subsidiary in any county in which Borrower or such Subsidiary has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any Subsidiary or the entry of a judgment against Borrower or any Subsidiary; and with respect to any of the foregoing, the amount thereof exceeds $500,000.00 (to the extent not fully insured) and the proceeding is not dismissed or vacated within 30 days after its occurrence.              (f)         Borrower or any Subsidiary shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any or a material portion of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Subsidiary shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Subsidiary (and, if filed against Borrower or a Subsidiary, the proceeding is not dismissed within 90 days after such filing), or Borrower or any such Subsidiary shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any such Subsidiary shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any such Subsidiary by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.              (g)        There shall occur any material adverse change in the operations, business or condition (including the financial condition), of the Borrower and Subsidiaries, taken as a whole after the date of this Agreement. .            (h)        The dissolution or liquidation of Borrower or any Subsidiary; or Borrower or any such Subsidiary, or any of their directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such Subsidiary, except as otherwise permitted in this Agreement.              SECTION 6.2.                REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without further notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS              SECTION 7.1.                NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.              SECTION 7.2.                NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:   BORROWER: NORTHWEST PIPE COMPANY   200 S.W. MARKET STREET, SUITE 1800   PORTLAND OR 97201       BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION   PORTLAND RCBO   1300 S.W. Fifth Avenue T-13   Portland OR 97201 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.              SECTION 7.3.                COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity.              SECTION 7.4.                SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right, subject to Borrower's prior written consent, not to be unreasonably withheld, to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. Notwithstanding the foregoing, Bank may sell participations, without Borrower's consent, in all or any portion of the Line of Credit and the Loan Documents, but such sales shall not entitle the participant(s) to any direct rights against Borrower under the terms of this Agreement or any of the other Loan Documents. Any outright sale or assignment of Bank's rights hereunder must be to a commercial bank organized under the laws of the United States or any state thereof, having a combined capital and surplus of at least $100,000,000.00. In connection with any assignment or participation hereunder, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder, subject to the terms of a confidentiality agreement customarily used by Bank in connection therewith.              SECTION 7.5.                ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.              SECTION 7.6.                NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.              SECTION 7.7.                TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.              SECTION 7.8.                SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.              SECTION 7.9.                COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.              SECTION 7.10.              GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon.              SECTION 7.11.              ARBITRATION.              (a)         Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.              (b)        Governing Rules. Any arbitration proceeding will (i) proceed in a location in Oregon selected by the American Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.              (c)         No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.              (d)        Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators: provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Oregon or a neutral retired judge of the state or federal judiciary of Oregon, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Oregon and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Oregon Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.              (e)         Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.              (f)         Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.              (g)        Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.              (h)        Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision, as it pertains to the Loan Documents and the Line of Credit, shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.              IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. NORTHWEST PIPE COMPANY   WELLS FARGO BANK, NATIONAL ASSOCIATION       By: /s/ BRIAN W. DUNHAM   By: /s/ STEPHEN J. DAY --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Stephen J. Day Title: President & CEO   Title: Vice President EXHIBIT A REVOLVING LINE OF CREDIT NOTE $30,000,000.00 Portland, Oregon   May 30, 2001              FOR VALUE RECEIVED, the undersigned NORTHWEST PIPE COMPANY ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Portland RCBO, 1300 S.W. Fifth Avenue T-13, Portland, Oregon, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Thirty Million Dollars ($30,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS:              As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:              (a)         "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Oregon are authorized or required by law to close.              (b)        "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2, 3 or 6 months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Two Hundred and Fifty Thousand Dollars ($250,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.              (c)         "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR   Base LIBOR = --------------------------------------------------------------------------------   100% – LIBOR Reserve Percentage                            (i)          "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.                            (ii)         "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term.              (d)        "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST:              (a)         Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum one half percent (0.50%) below the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be one and one half percent above LIBOR in effect of the first day of each Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.              (b)        Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it's sole option but without obligation to do so, accepts Borrower's notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied.              (c)         Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.              (d)        Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing June 1, 2001 and on the maturity date of this Note.              (e)         Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to three percent (3.00%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT:              (a)         Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 30, 2003.              (b)        Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Paul Parsons, Mike Van Note, Al Rose or John Murakami, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of any Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower.              (c)         Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT:              (a)         Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty.              (b)        LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:   (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.         (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.         (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full-extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2.00%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT:              This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 1, 2001, as amended from time to time (the "Credit Agreement"). Any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS:              (a)         Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option and without further notice, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable  attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holders rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity.              (b)        Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.              (c)         Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Oregon. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.              IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. NORTHWEST PIPE COMPANY   By: /s/ BRIAN W. DUNHAM --------------------------------------------------------------------------------   Title: President & CEO -------------------------------------------------------------------------------- ADDENDUM TO PROMISSORY NOTE (LIBOR PRICING ADJUSTMENTS)              THIS ADDENDUM is attached to and made a part of that certain promissory note executed by NORTHWEST PIPE COMPANY ("Borrower") and payable to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of May 30, 2001, in the principal amount of THIRTY MILLION Dollars ($30,000,000.00) (the "Note").              The following provisions are hereby incorporated into the Note to reflect the interest rate adjustments agreed to by Bank and Borrower: INTEREST RATE ADJUSTMENTS:              (a)         Initial LIBOR Margin. The initial LIBOR margin applicable to this Note shall be as set forth in the "Interest" paragraph herein.              (b)        LIBOR Rate Adjustments. Bank shall adjust the LIBOR margin used to determine the rate of interest applicable to LIBOR options selected by Borrower under this Note on a quarterly basis, commencing with Borrower's fiscal quarter ending June 30, 2001, if required to reflect a change in Borrower’s ratio of Funded Debt to EBITDA (as defined in the Credit Agreement referenced herein), in accordance with the following grid: Ratio of Funded Debt to EBITDA   Applicable LIBOR Margin --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Greater than 2.50 to 1.00   2.00% Equal to or less than 2.50 to 1.00 and greater than 2.00 to 1.00   1.50% Equal to or less than 2.00 to 1.00 and greater than 1.50 to 1.00   1.25% Equal to or less than 1.50 to 1.00   1.00% Each such adjustment shall be effective on the first Business Day of Borrower's fiscal quarter following the quarter during which Bank receives and reviews Borrower's most current fiscal quarter-end financial statements in accordance with any requirements established by Bank for the preparation and delivery thereof.              IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the Note. NORTHWEST PIPE COMPANY   By: /s/ BRIAN W. DUNHAM --------------------------------------------------------------------------------   Title: President & CEO --------------------------------------------------------------------------------  

  LOAN AGREEMENT No. 81/01/LCD     entered into by and between   1. Commercial Name: Ceska sporitelna, a.s.   Registered Address: Prague 4, Olbrachtova 1929/62, Zip Code: 140 00   IČ (Company Id. No.): 45244782   as lender (the "Bank")     and   2. Commercial Name: CME Media Enterprises B.V.   Registered Address: Hoogoorddreef 9, 1101BA Amsterdam Zuidoost, The Netherlands   Registration number: 33246826     as borrower (the "Client")       as of the date set forth below (this "Loan Agreement"). The Bank shall provide the funds up to the amount of the Loan Facility to the Client and the Client shall repay the Loan and pay any interest accrued thereon to the Bank in accordance with this Loan Agreement and the General Terms and Conditions of Ceska sporitelna, a.s. for the Provision of Loans, including, without limitation, Mortgage Loans, to Legal Entities and Individuals - Entrepreneurs that are valid and effective as of the date of execution of this Loan Agreement (hereinafter "General Loan Terms and Conditions").   ARTICLE I THE LOAN 1. Loan Facility and Loan Currency. The Bank shall provide to the Client funds up to the amount of CZK 249.764.513,28 (in words: twohundredandfortyninemillionsevenhundredandsixtyfourthousandfivehundredandthirteen,28 CZK). 2. Purpose of Loan. The Client shall use the Loan for the following purpose: repayment of loan provided to the Client by the Bank on the basis of the Loan Agreement "Smlouva o uveru" concluded between the Client and the Bank on August 1, 1996 (the "Senior Loan Agreement").   ARTICLE II THE INTEREST 1. Interest Rate. The interest shall accrue on the Loan at the Variable Rate. The Variable Rate shall be the sum of the amount of the Reference Rate on the Calculation Date plus a margin of 3,5% per annum. The Reference Rate shall mean 12 months PRIBOR. PRIBOR is the interest rate for 12 months deposits quoted by Reuters on the PRBO-page on the Calculation Date, or, if no such interest rate is quoted on the said page on such day, the interest rate determined by the Bank at the beginning of each Interest Rate Period as common market rate at which 12 months deposit moneys in CZK are offered at the Prague interbank market.   2. Interest Period. Interest Periods shall be recurrent. The term of each Interest Period shall be calendar quarter.   ARTICLE III DRAWING OF ADVANCE 1. Draw-Down Period. The Client shall be entitled to draw any Advances up to the amount of the Loan Facility only within the Draw-Down Period commencing on execution of this Loan Agreement and ending on November 30, 2001. 2. Minimum Advance Amount. The Client shall not draw any Advance which is less than CZK 249.764.513,28 (in words: twohundredandfortyninemillionsevenhundredandsixtyfourthousandfivehundredandthirteen,28 CZK). 3. Procedure of Drawing of Advance. The Bank shall transfer the funds representing any Advance to the Client's account No. 4503-0309614449/0800 pursuant to the Client's drawdown request delivered to the Bank according to the respective provisions of General Loan Terms and Conditions. 4. Conditions of Drawing of Advance. Prior to the first drawing of Advance, the Client shall (i) deliver to the Bank the following documents: in form and content satisfactory to the Bank any and all documents confirming the Client is a company duly established and existing under the laws of the Netherlands and is entitled to conclude this Loan Agreement as well as any and all agreements concluded on the basis and in relation to this Loan Agreement, in form and content satisfactory to the Bank any and all documents confirming the representatives of the Client are entitled to conclude this Loan Agreement as well as any and all agreements concluded on the basis and in relation to this Loan Agreement, an excerpt from the Land Register Praha-mesto, property sheet No. 1326 pertaining to the owner, company Ceska nezavisla televizni spolecnost, spol. s r.o., Praha1, Vladislavova 20, IC 49616668, proving that the Bank has become a pledgee in terms of a collateral contract specified in the Article VII of this Loan agreement (the "Collateral contract") and there are no registered liens in favor of any third party burdening buildings and lands named therein, a confirmation letter notifying a security assignment of receivables performed pursuant to the Collateral contract, duly signed by authorized representatives of the company Ceska nezavisla televizni spolecnost, spol. s r.o., Praha1, Vladislavova 20, IC 49616668. and (ii) the following conditions of drawing of the first Advance shall be met: execution of the Collateral contract entered into and between the Bank and company, CME Czech Republic B.V., with its registered seat at Hoogoorddreef 9, 1101BA Amsterdam Zuidoost, The Netherlands, pursuant to the Article VII of this Loan agreement.   ARTICLE IV REPAYMENT OF THE LOAN 1. Loan Repayment. The Client shall repay the Loan to the Bank in full by a lump-sum installment or in partial installments by November 30, 2005. No installment shall be less than CZK 10.000.000,-. 2. Repayment Date. The final repayment date in respect of the Loan shall be November 30, 2005. 3. Current Account for Transferring Repayment Funds. The Client shall transfer the funds necessary for the repayment of the Loan and payment of any other obligations of the Client in connection with this Loan Agreement to bank account no. 000000-2000635339/0800. At least two business days prior to any repayment of the Loan, the Client shall deliver to the Bank a written notification of (i) its intention to repay or partially repay the Loan, (ii) the exact amount that shall be used for such repayment and (iii) the date of such repayment. Based on such notification the Bank shall set-off the respective amount on the date stated therein. 4. Extraordinary Repayment The Bank and the Client agree that all proceeds received by the Bank in connection with the collateral specified in the Article VII of this agreement, particularly all dividend payments assigned onto the Bank for security purposes, shall be used by the Bank as an extraordinary repayment of the Loan without a prior notice to the Client. 4. Release of Collateral. The Bank shall, within five business days after the Loan and all other payments connected thereto are fully repaid, issue the Client with a confirmation that the Collateral (Article VII) can be released.   ARTICLE V REPRESENTATIONS OF THE CLIENT 1. The Client represents that in the legal relationship established under this Loan Agreement it acts as a legal entity and that the execution of this Loan Agreement falls within the scope of its entrepreneurial activity or other business operations. 2. The Client represents that all representations made by the Client in the General Loan Terms and Conditions are true, complete, accurate and not misleading in any material respect. 3. The Client represents that a person providing collateral under this Loan agreement, company CME Czech Republic B.V., with its registered seat at Hoogoorddreef 9, 1101BA Amsterdam Zuidoost, The Netherlands (hereinafter as "Security assignor"), is its 100% subsidiary and agrees to execution of the collateral contract specified in the Article VII herein. ARTICLE VI DUTIES AND OBLIGATIONS OF THE CLIENT For the purpose of this Loan Agreement omitted.   ARTICLE VII COLLATERAL 1. Collateral. To secure due and timely payment of any claims that the Bank may have against the Client in connection with this Loan Agreement and the General Loan Terms and Conditions, the Client shall ensure the creation of the following Collateral: security assignment of a receivable in the amount of CZK 283.087.301,-- for dividend payment arising from the decision of the Security assignor's general meeting held on April 17, 2000 in Prague, and all other rights connected thereto, particularly pledge right over the property owned by Ceska nezavisla televizni spolecnost, spol. s r.o., Praha1, Vladislavova 20, IC 49616668 consisting of building no. 1477 on the plot no. 696, building no. 28 on the plot no. 709 and plots no. 696, 709 and 697 registered in the district Nove Mesto, municipality Praha, Land Register Praha - mesto on the property sheet no. 1326.   ARTICLE VIII INSURANCE For the purpose of this Loan Agreement omitted.   ARTICLE IX FEES AND CHARGES For the purpose of this Loan Agreement omitted.   ARTICLE X SANCTIONS 1. Default Interest. Should the Client fail to duly and timely repay the Loan, the Client shall in addition to, and not in lieu of, any interest accruing on the Loan also pay to the Bank in respect of overdue Loan or any part thereof a default interest in the amount of 10% per annum. If the Client fails to duly and timely pay any interest which accrues on the Loan, contractual penalties, Charges, Fees, damages, costs incurred by the Bank, or any other monetary obligations of the Client in connection with this Loan Agreement, the Client shall pay to the Bank in respect of such overdue amounts a default interest in the amount of 10% per annum. 2. Grace Period. The Bank shall grant the Client a grace period of three business days before the Default Interest takes effect.   ARTICLE XI FINAL PROVISIONS 1. Relation between the Loan Agreement and the General Loan Terms and Conditions. The General Loan Terms and Conditions form an integral part of this Loan Agreement. If the provisions of the General Loan Terms and Conditions differ from or conflict with the provisions of this Loan Agreement, the latter shall prevail. By executing this Loan Agreement, the Client confirms that it (i) has received a copy of the General Loan Terms and Conditions, (ii) consents to thereto free of any reservations, and (iii) shall comply with the General Loan Terms and Conditions. 2. Modifications and Amendments of the Loan Agreement and the General Loan Terms and Conditions. This Loan Agreement may only be changed, modified, or amended by written agreement between the Client and the Bank that express the clear will of the Parties to change, modify or amend this Loan Agreement. The General Loan Terms and Conditions may be changed, modified, or amended in the manner specified therein. 3. Counterparts. This Agreement is executed in two (2) counterparts of which the Client and the Bank shall each receive one (1) counterpart. 4. Disputes. Any disputes arising from or in connection with this Loan Agreement shall be finally resolved in arbitration proceedings conducted before the arbitration tribunal of the Arbitration Court attached to the Economic Chamber of the Czech Republic and Agricultural Chamber of the Czech Republic in Prague in accordance with its rules by three (3) arbitrators appointed in accordance with such rules. The Parties shall perform all of their respective obligations under the arbitration award within the time-limits specified therein. 5. Mailing Address of the Client and the Bank. The parties agree that any correspondence and other written materials to be delivered under this Loan Agreement shall be delivered as follows: If to the Client, at: CME Media Enterprises B.V., 8th Floor, Aldwych House, 71-91 Aldwych, London, WC2B 4HN, for the attention of the VP-Finance, Mark Wyllie, telephone: 44 20 7430 5337, Fax: 44 20 7430 5402, and, if to the Bank, at: Ceska sporitelna, a.s., Olbrachtova 62, Prague 4, Czech Republic, Department of Restructuring and Workout (1260), for the attention of Mr. Jaroslav Jirat or Mr. Daniel Hribal, telephone: 0042 2 61073563 or 0042 2 61073572, Fax: 0042 2 61073229, e-mail address: [email protected] or [email protected]. 6. Effect of this Loan Agreement. This Loan Agreement shall become valid and effective upon execution by all parties thereto. 7. Expression of Free Will. After having read the Agreement, the parties declare their consent to its contents, and that the same was prepared on the basis of truthful information and their true and free will, and that it has not been negotiated under duress or on conspicuously disadvantageous conditions. ARTICLE XII INTERIM PROVISIONS 1. Applicability of Interim Provisions. Each of the following provisions of this Article XII shall apply to the legal relationship between the Client and the Bank until the delivery by the Bank to the correspondence address of the Client of a written notice of termination thereof. In such case the following provisions of this Article XII shall not apply to the legal relationship between the Client and the Bank from the date that is fifteen (15) days following the delivery of the above described notice to the Client. 2. Priority of Interim Provisions. Should the provisions of this Article XII differ from or conflict with other provisions of this Loan Agreement or the General Loan Terms and Conditions, the provisions of this Article XII shall prevail. 3. Repayment Order. The Bank shall set-off the funds deposited in the Client's current account specified in Section IV.3 of this Loan Agreement against any due claims that the Bank may have against the Client in the following order: a) reimbursement for losses and costs incurred by the Bank; b) Charges; c) Fees; d) interest accrued on the Loan; e) payment of contractual penalties and default interest; and f) installments of the Loan (if the Loan is repaid by installments, commencing with the installment of oldest maturity and ending with the most recent installment) 4. Interest Period. The Client shall pay the interest accrued on the Loan on the last day of the applicable Interest Period for each day of the Interest Period commencing on the later of: the first day of the applicable Interest Period (inclusive), or the date of provision of the Loan (inclusive), and ending on the earlier of: the last day of the applicable Interest Period (inclusive), or the day preceding the repayment date (inclusive). 5. Availability of Funds. If any receivable that the Bank may have against the Client pursuant to this Loan Agreement becomes due and payable on a day other than a Business Day for the currency in which such claim is denominated, the Client shall ensure sufficient funds be available in its current account specified in Section IV.3 on or prior to the Business Day for such currency immediately preceding the due date for the payment of such receivable.     IN WITNESS WHEREOF, each of the parties has affixed its authentic signature on the day and year set forth below.     Ceska sporitelna, a.s. : By : ___ /s/ Josef Suryn ____ By : __/s/ Jaroslav Jirat _____ Name : Josef Suryn Name : Jaroslav Jirat Title : Head of Section 1263 - Big Corporations Title : Disponent, Section 1263 Date : October 5, 2001 Date : October 5, 2001     CME Media Enterprises B.V.   By : ___ /s/ Frederic Thomas Klinkhammer _____ Name : Frederic Thomas Klinkhammer Title : Director A Date : October 2, 2001

EXHIBIT 10.27 AMENDMENT NO. 3 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 31, 1997 THIS AMENDMENT NO. 3 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT ("Amendment") is made as of this 25th day of June, 1999 by and among SOUTH CENTRAL POOL SUPPLY, INC., a Delaware corporation (the "Borrower"), the financial institutions listed on the signature pages hereof (the "Lenders") and LASALLE BANK NATIONAL ASSOCIATION, formerly known as LaSalle National Bank, in its individual capacity as a Lender and in its capacity as agent ("Agent") under that certain Third Amended and Restated Credit Agreement dated as of December 31, 1997 by and among the Borrower, the Lenders and the Agent (as amended, the "Credit Agreement") and each of the Persons identified on the signatories hereto as a Loan Party (individually, a "Loan Party" and collectively, the "Loan Parties"). Defined terms used herein and not otherwise defined herein shall have the meaning given to them in the Credit Agreement. WITNESSETH WHEREAS, the Borrower, the Lenders and the Agent are parties to the Credit Agreement; and WHEREAS, the Borrower, the Required Lenders and the Agent have agreed to amend the Credit Agreement on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Required Lenders and the Agent have agreed to the following amendments to the Credit Agreement. 1. Amendment to the Credit Agreement. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement is amended as follows: 1.1 Section 1.1 of the Credit Agreement is hereby amended by adding the following definition immediately after the definition of Acquisition: -7- "Acquisition Adjustment" means, as of any determination date, an amount determined with respect to each Acquisition or other transaction or series of transactions in which Borrower or any of its Subsidiaries acquires all or any significant portion of the assets of another Person, equal to the product obtained by multiplying (a) the aggregate cash consideration paid by Borrower and/or its Subsidiary in connection therewith, including closing costs but excluding amounts paid with cash equity directly or indirectly contributed by Holdings, by (b) (i) 75%, if such transaction was consummated in the 3 month period ending on the determination date, (ii) 50%, if such transaction was consummated in the 6 month period ending on the determination date, (iii) 25%, if such transaction was consummated in the 9 month period ending on the determination date, (iv) 0%, if such transaction was consummated more than 9 months prior to the determination date." The amount described in clause (a) above with respect to the Benson Pump Acquisition is $21,000,000. 1.2 Section 2.8(b)(i)(a) of the Credit Agreement is hereby amended by deleting such clause in its entirety and substituting the following therefor: "(a) with respect to Revolving Loans, the sum of (x) the average of the outstanding amounts as of the last day of each quarter for the four quarters in the period then ended plus (y) with respect to each calculation of Leverage Ratio, commencing March 31, 1999, the sum of the Acquisition Adjustments for all Acquisitions or other transactions or series of transactions in which Borrower or any of its Subsidiaries acquires all or any significant portion of the business of another Person, if any, consummated within the 9-month period ended on the date of calculation, but not including any Acquisitions by Holdings, Borrower or any Subsidiary of Holdings or Borrower of any Person who was a wholly owned Subsidiary of Borrower or Holdings immediately prior to such Acquisition; and" 1.3 Section 6.3(F) of the Credit Agreement is hereby amended by adding the following at the end of such Section: "(vi) Borrower may make distributions to Holdings which are used by Holdings solely to redeem outstanding capital stock of Holdings provided all of the following conditions are satisfied: (a) no Default or Unmatured Default shall have occurred and be continuing at the date of declaration or payment thereof or would result therefrom; (b) the maximum distribution permitted during the period commencing April 1, 1999 until termination of the Commitments and payment in full of all of the Obligations (other than contingent indemnity obligations) shall not exceed $7,322,000; and (c) after giving effect to such distribution, Borrower is in compliance on a proforma basis with the covenants set forth in Section 6.4, recomputed for the most recent fiscal quarter for which financial statements are available. 1.4 Section 6.3(G) of the Credit Agreement is hereby amended by adding the following at the end of such Section: "Notwithstanding anything herein to the contrary, but without limiting the foregoing, Borrower shall not, and shall not permit any of its Subsidiaries, without the prior written consent of Agent and Required Lenders, to enter into any Acquisition or transaction or series of transactions in which Borrower and/or any of its Subsidiaries, acquires all or any significant portion of the assets of another Person, if the aggregate purchase price thereof (including, without duplication, Indebtedness assumed or incurred in connection therewith and the fair market value of any non-cash consideration thereof), (a) when combined with the aggregate purchase price of all such transactions consummated within the same 12 month period, commencing with the twelve month period ending March 31, 2000, exceeds $10,000,000 or (b) when combined with the aggregate purchase price of all such transactions consummated since April 1, 1999, exceeds $30,000,000." 1.5 Section 6.4(D) is hereby amended by deleting clause (i) in the last paragraph thereof and substituting the following therefor: "(i) with respect to Revolving Loans, the sum of (x) the average of the outstanding amounts as of the last day of each quarter for the four quarters in the period then ended plus (y) with respect to each calculation of Leverage Ratio, commencing March 31, 1999, the sum of the Acquisition Adjustments for all Acquisitions or other transactions or series of transactions in which Borrower or any of its Subsidiaries acquires all or any significant portion of the business of another Person, if any, consummated within the 9-month period ended on the date of calculation but not including any Acquisitions by Holdings, Borrower or any Subsidiary of Holdings or Borrower of any Person who was a wholly owned Subsidiary of Borrower or Holdings immediately prior to such Acquisition; and" 2. Conditions of Effectiveness. This Amendment shall not become effective unless the Agent shall have received the following on or before June 30, 1999: (1) duly executed originals of this Amendment from each of the Borrower, the Agent and the Required Lenders; (2) the written consent of the holders of the Subordinated Intercompany Indebtedness, in form and substance satisfactory to Agent. 3. Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows: (1) This Amendment and the Credit Agreement as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms. (2) Upon the effectiveness of this Amendment, the Borrower hereby reaffirms all covenants, representations and warranties made in the Credit Agreement and the other Loan Documents to the extent the same are not amended hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (3) No Default or Unmatured Default has occurred and is continuing or would result from the execution of this amendment or the transactions contemplated hereby. (4) The execution, delivery and performance of this Amendment (i) has been duly authorized by all necessary corporate action and (ii) does not conflict with, result in a breach of, or constitute (with or without notice or lapse of time or both) a default under any Contractual Obligation of Holdings, Borrower or any of its Subsidiaries. 4. Reference to the Effect on the Credit Agreement. (1) Upon the effectiveness of Section 1 hereof, on and after the date hereof, each reference in the Credit Agreement and other Loan Documents to "this Credit Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. (2) Except as specifically amended above, the Credit Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (3) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power of remedy of the Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith. 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING 735 ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. 6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 7. Counterparts. This Amendment may be executed by one or more of the parties to the Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be executed by facsimile and a facsimile transmission of a signature to the Agent or the Agent's counsel shall be effective as though an original signature had been so delivered. 8. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Amendment and the Credit Agreement. In the event an ambiguity or question of intent or interpretation arises, this Amendment and the Credit Agreement as hereby amended shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Amendment or the Credit Agreement. 9. Reaffirmation. Each of the Loan Parties as debtor, grantor, pledgor, guarantor, assignor, or in other any other similar capacity in which such Loan Party grants liens or security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be, hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under each of the Loan Documents to which it is a party (after giving effect hereto) and (ii) to the extent such Loan Party granted liens on or security interests in any of its property pursuant to any such Loan Document as security for or otherwise guaranteed the Borrower's Obligations under or with respect to the Loan Documents, ratifies and reaffirms such guarantee and grant of security interests and liens and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. Each of the Loan Parties hereby consents to this Amendment and acknowledges that each of the Loan Documents remains in full force and effect and is hereby ratified and reaffirmed. The execution of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or Lenders, constitute a waiver of any provision of any of the Loan Documents or serve to effect a novation of the Obligations. IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written. BORROWER: SOUTH CENTRAL POOL SUPPLY, INC. By:/S/ Title: AGENT AND LENDER: LASALLE BANK NATIONAL ASSOCIATION, as Agent and as a Lender By:/S/ Title: THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By:/S/ Title: HIBERNIA NATIONAL BANK, as a Lender By:/S/ Title: SOCIETE GENERALE, as a Lender By:/S/ Title: LOAN PARTIES: SCP POOL CORPORATION By:/S/ Title: ALLIANCE PACKAGING INC. By:/S/ Title: SCP INTERNATIONAL INC. By:/S/ Title:

Exhibit 10.8 [Sun Microsystems letterhead] February 1, 1999 LFI#14771 INPRISE Corporation Tim Colling 100 Enterprise Way Scotts Valley, CA 95066-3249 Dear Mr. Colling: We understand that Inprise is seeking Sun's permission to distribute certain files from ***** in conjunction with our SSL technology, which Inprise licensed for use with its CORBA Object Request Broker ("ORB") product pursuant to the Addendum 1 to the Technology License and Distribution Agreement ("TLDA") dated October 31, 1995, between Sun Microsystems, Inc. and Inprise Corporation. #14268 Sun hereby authorizes Inprise to bundle the files listed below, in binary code form, with Sun’s SSL technology when distributed pursuant to the terms of the TLDA, including, but not limited to, any export restrictions and Field of Use limitations. Authorized Classes from: ***** All other terms of the TLDA remain in full force and effect. Other than the rights granted in this letter and in the TLDA, no other rights to classes identified above are granted to Inprise. Please acknowledge the acceptance of these terms by having a duly authorized official of Inprise sign in the space provided below. Sincerely, /s/ Alan Patty Alan Patty Vice President, Sales Inprise Corporation hereby accepts the terms of this letter: /s/ Richard LeFaivre -------------------------------------------------------------------------------- By   Richard LeFaivre -------------------------------------------------------------------------------- Name   SVP, R&D -------------------------------------------------------------------------------- Title   2/11/99 -------------------------------------------------------------------------------- Date *****   Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission.

Exhibit 10.36 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 29, 2000, by and among SangStat Medical Corporation, a corporation organized under the laws of the State of Delaware (the "Company"), and the undersigned (together with its affiliates, the "Initial Investors"). WHEREAS: > A. In connection with the Securities Purchase Agreement of even date herewith > by and between the Company and the Initial Investors (the "Securities Purchase > Agreement"), the Company has agreed, upon the terms and subject to the > conditions contained therein, to issue and sell to the Initial Investors > shares of the Company's common stock, par value $.001 per share (the "Common > Stock"). > > > B. To induce the Initial Investors to execute and deliver the Securities > Purchase Agreement, the Company has agreed to provide certain registration > rights under the Securities Act of 1933, as amended, and the rules and > regulations thereunder, or any similar successor statute (collectively, the > "Securities Act"), and applicable state securities laws. > > > NOW, THEREFORE, in consideration of the premises and the mutual covenants > contained herein and other good and valuable consideration, the receipt and > sufficiency of which are hereby acknowledged, the Company and the Initial > Investors hereby agree as follows: 1. DEFINITIONS. > a. As used in this Agreement, the following terms shall have the following > meanings: > > > > (i) "Investors" means the Initial Investors and any transferees or assignees > > who agree to become bound by the provisions of this Agreement in accordance > > with Section 9 hereof. > > > > > > (ii) "register," "registered," and "registration" refer to a registration > > effected by preparing and filing a Registration Statement or Statements in > > compliance with the Securities Act and pursuant to Rule 415 under the > > Securities Act or any successor rule providing for offering securities on a > > continuous basis ("Rule 415"), and the declaration or ordering of > > effectiveness of such Registration Statement by the United States Securities > > and Exchange Commission (the "SEC"). > > > > > > (iii) "Registrable Securities" means the Common Stock purchased by the > > Initial Investors or their assignees in the First Closing (as defined in the > > Securities Purchase Agreement) and in the Second Closing (as defined in the > > Securities Purchase Agreement) or any shares of capital stock issued or > > issuable, from time to time (with any adjustments), as a distribution on or > > in exchange for or otherwise with respect to any of the foregoing, whether > > as default payments or otherwise. > > > > > > (iv) "Registration Statement" means a registration statement of the Company > > under the Securities Act. > > > b. Capitalized terms used herein and not otherwise defined herein shall have > the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. > a. Mandatory Registration. The Company shall prepare promptly and file with > the SEC as soon as practicable, but in no event later than the later of (i) > the thirtieth (30th) day following the date hereof and (ii) January 31, 2001 > (the "Filing Date")(both as may be extended for the number of days during > which any Investor fails to promptly respond to reasonable written requests > from the Company for information to be included in such filing (which > responsive information shall not be deemed to be prompt in the event that a > reasonable request for such information by the Company is made to the Investor > and the Investor does not provide the requested information within three (3) > business days of such request), a Registration Statement on Form S-3 (or, if > Form S-3 is not then available, on such form of Registration Statement as is > then available to effect a registration of all of the Registrable Securities, > subject to the consent, not to be unreasonably withheld, of the Initial > Investors) covering the resale of at least 1,316,000 Registrable Securities. > The Registration Statement filed hereunder, to the extent allowable under the > Securities Act and the rules promulgated thereunder (including Rule 416), > shall state that such Registration Statement also covers such indeterminate > number of additional shares of Common Stock as may become issuable to prevent > dilution resulting from stock splits, stock dividends or similar transactions. > The Registrable Securities included in the Registration Statement shall be > allocated to the Investors as set forth in Section 11(k) hereof. The > Registration Statement (and each amendment or supplement thereto, and each > request for acceleration of effectiveness thereof) shall be provided to (and > subject to the approval of) the Initial Investors and their counsel prior to > its filing or other submission, not to be unreasonably withheld or delayed. > > > b. Underwritten Offering. If any offering pursuant to the Registration > Statement pursuant to Section 2(a) hereof involves an underwritten offering, > the Investors who hold a majority in interest of the Registrable Securities > subject to such underwritten offering, with the consent of the Initial > Investors if they are still holding Registrable Securities, shall have the > right to select one legal counsel to represent the Investors and an investment > banker or bankers and manager or managers to administer the offering, which > investment banker or bankers or manager or managers shall be reasonably > satisfactory to the Company. In the event that any Investors elect not to > participate in such underwritten offering, the Registration Statement covering > all of the Registrable Securities shall contain appropriate plans of > distribution reasonably satisfactory to the Investors participating in such > underwritten offering and the Investors electing not to participate in such > underwritten offering (including, without limitation, the ability of > nonparticipating Investors to sell from time to time and at any time during > the effectiveness of such Registration Statement). Notwithstanding the > foregoing, if the offering does not involve an underwritten offer, the > Investors shall not be entitled to require that the offering be underwritten. > > > c. Payments by the Company. The Company shall use commercially reasonable > efforts to cause the Registration Statement required to be filed pursuant to > Section 2(a) hereof to become effective as soon as practicable, but in no > event later than the one hundred fiftieth (150th) day following the date > hereof. At the time of effectiveness, the Company shall ensure such > Registration Statement covers at least 100% of the Registrable Securities. If > (i)(A) the Registration Statement required to be filed by the Company pursuant > to Section 2(a) hereof is not filed with the SEC prior to the Filing Date > (except to the extent caused by the Investors or their counsel's failure to > reasonably timely respond pursuant to Section 2(a)) or (B) such Registration > Statement covering all of the Registrable Securities is not declared effective > by the SEC on or before the one hundred fiftieth (150th) day from the date > hereof, as extended for delays in excess of three (3) business days for any > Investor's failure to provide information or approval of filings in a timely > manner in accordance with Section 2(a) (the "Registration Deadline") or (ii) > if, after such Registration Statement has been declared effective by the SEC, > sales of any of the Registrable Securities required to be covered by such > Registration Statement cannot be made pursuant to such Registration Statement > (by reason of a stop order or the Company's failure to update the Registration > Statement or any other reason outside the control of the Investors), then the > Company will make payments to the Investors in such amounts and at such times > as shall be determined pursuant to this Section 2(c) as partial relief for the > damages to the Investors by reason of any such delay in or reduction of their > ability to sell the Registrable Securities (which remedy shall not be > exclusive of any other remedies available at law or in equity). The Company > shall pay to the Investors $2,000 each day (which amount shall be divided > among the Investors on a pro rata basis based on the number of shares of > Common Stock purchased by each Investor pursuant to the Securities Purchase > Agreement) for a consecutive fifteen (15) days (the "Initial Penalty Period") > after the Filing Date and prior to the date the Registration Statement is > filed with the SEC pursuant to Section 2(a). For each thirty (30) day period > (or portion thereof) (each, a "Subsequent Penalty Period") (A) after the > Initial Penalty Period and prior to the date the Registration Statement is > filed with the SEC pursuant to Section 2(a), (B) after the Registration > Deadline and prior to the date the Registration Statement covering all of the > Registrable Securities is declared effective by the SEC, and (C) during which > sales of any Registrable Securities cannot be made pursuant to any such > Registration Statement after the Registration Statement has been declared > effective, the Company shall pay to each Investor an amount equal to the > product of (i) the aggregate purchase price of the Common Stock purchased by > such Investor and with respect to (C) above, currently owned by the Investor, > which cannot be sold under Rule 144 during this time period (the "Aggregate > Share Price"), multiplied by (ii) fifteen thousandths (.015); provided, > however, that there shall be excluded from any Initial Penalty Period or > Subsequent Penalty Period any delays which are solely attributable to changes > (other than corrections of Company mistakes with respect to information > previously provided by the Investors) required by the Investors in the > Registration Statement with respect to information relating to the Investors, > including, without limitation, changes to the plan of distribution, and, > provided further, in no event shall the Company be required to pay such > amounts with respect to both (A) and (B) above for the same period of time. > (For example, if the Registration Statement covering all of the Registrable > Securities is not effective by fifteen (15) days after the Registration > Deadline, in addition to the $30,000 the Company would pay during the Initial > Penalty Period, if applicable, the Company would pay $15,000 for each thirty > (30) day period thereafter with respect to each $1,000,000 of Aggregate Share > Price until the Registration Statement becomes effective.) Such amounts shall > be paid in cash upon demand by the Investors. Payments of cash pursuant hereto > shall be made on the demand of the Investors but in no event later than within > five (5) days after the end of each period that gives rise to such obligation, > provided that, if any such period extends for more than thirty (30) days, > interim payments shall be made for each such thirty (30) day period. > > > d. Piggy-Back Registrations. If at any time prior to the expiration of the > Registration Period (as hereinafter defined) and during a period in which the > Registration Statement required to be filed pursuant to Section 2(a) is not > effective, the Company shall file with the SEC a Registration Statement > relating to an offering for its own account or the account of others under the > Securities Act of any of its equity securities (other than the amendment of a > registration statement now on file or registration statements on Form S-4 or > Form S-8 or their then equivalents relating to equity securities to be issued > solely in connection with any acquisition of any entity or business or equity > securities issuable in connection with stock option or other employee benefit > plans), the Company shall send to each Investor written notice of such filing > and, if within fifteen (15) days after the date of such notice, such Investor > shall so request in writing, the Company shall include in such Registration > Statement all or any part of the Registrable Securities such Investor requests > to be registered, except that if, in connection with any underwritten public > offering, the managing underwriter(s) thereof shall impose a limitation on the > number of shares of Common Stock which may be included in the Registration > Statement because, in such underwriter(s)' judgment, marketing or other > factors dictate such limitation is necessary to facilitate public > distribution, then the Company shall be obligated to include in such > Registration Statement only such limited portion of the Registrable Securities > with respect to which such Investor has requested inclusion hereunder as the > underwriter shall permit. Any exclusion of Registrable Securities shall be > made pro rata among the Investors seeking to include Registrable Securities, > in proportion to the number of Registrable Securities sought to be included by > such Investors; provided, however, that the Company shall not exclude any > Registrable Securities unless the Company has first excluded all outstanding > securities, the holders of which are not contractually entitled to inclusion > of such securities in such Registration Statement or are not contractually > entitled to pro rata inclusion with the Registrable Securities; and provided, > further, however, that, after giving effect to the immediately preceding > proviso, any exclusion of Registrable Securities shall be made pro rata with > holders of other securities having the contractual right to include such > securities in the Registration Statement other than holders of securities > contractually entitled to inclusion of their securities in such Registration > Statement by reason of demand registration rights. Notwithstanding the > foregoing, no such reduction shall reduce the amount of Registrable Securities > included in the registration below twenty- five (25%) of the total amount of > securities included in such registration. No right to registration of > Registrable Securities under this Section 2(d) shall be construed to limit any > registration required under Section 2(a) hereof. If an offering in connection > with which an Investor is entitled to registration under this Section 2(d) is > an underwritten offering, then each Investor whose Registrable Securities are > included in such Registration Statement shall, unless otherwise agreed by the > Company, offer and sell such Registrable Securities in an underwritten > offering using the same underwriter or underwriters and, subject to the > provisions of this Agreement, on the same terms and conditions as other shares > of Common Stock included in such underwritten offering. Notwithstanding > anything to the contrary contained herein, the Investors' rights set forth in > this Section 2(d) shall not apply with respect to any registration statement > filed pursuant to that certain Registration Rights Agreement, dated May 7, > 1999, by and between the Company and Abbott Laboratories. > > > e. Eligibility for Form S-3. The Company represents and warrants that it meets > the requirements for the use of Form S-3 for registration of the sale by the > Initial Investors and any other Investor of the Registrable Securities and the > Company shall file all reports required to be filed by the Company with the > SEC in a timely manner so as to thereafter maintain such eligibility for the > use of Form S-3. > > > f. Rule 416; Notice of Registration Trigger Date. The Company and the > Investors each acknowledge that an indeterminate number of Registrable > Securities shall be registered pursuant to Rule 416 under the Securities Act > so as to include in such Registration Statement any and all Registrable > Securities which may become issuable to prevent dilution resulting from stock > splits, stock dividends or similar transactions (collectively, the "Rule 416 > Securities"). In this regard, the Company agrees to take all steps necessary > to ensure that all Rule 416 Securities are registered pursuant to Rule 416 > under the Securities Act in the Registration Statement and, absent guidance > from the SEC or other definitive authority to the contrary, the Company shall > affirmatively support and not take any action adverse to the position that the > Registration Statements filed hereunder cover all of the Rule 416 Securities. > If the Company determines that the Registration Statement(s) filed hereunder > do not cover all of the Rule 416 Securities, the Company shall immediately > provide to each Investor written notice (a "Rule 416 Notice") setting forth > the basis for the Company's position and the authority therefor. In the event > that a Registration Trigger Date (as defined below) occurs, the Company shall > provide each Investor written notice of such Registration Trigger Date within > three (3) business days thereafter. > > > g. Delay Period. If, at any time prior to the expiration of the Registration > Period (as defined below), in the good faith reasonable judgment of the > Company's Board of Directors, the disposition of Registrable Securities would > require the premature disclosure of material non-public information which may > reasonably be expected to have an adverse effect on the Company, then the > Company shall not be required to maintain the effectiveness of or amend or > supplement the Registration Statement for a period (a "Disclosure Delay > Period") expiring upon the earlier to occur of (i) the date on which such > material information is disclosed to the public or ceases to be material or > (ii) up to ten (10) trading days after the date on which the Company provides > a notice to the Investors under Section 3(f) hereof stating that the failure > to disclose such non-public information causes the prospectus included in the > Registration Statement, as then in effect, to include an untrue statement of a > material fact or to omit to state a material fact required to be stated > therein or necessary to make the statements therein not misleading (each, a > "Disclosure Delay Period Notice"). For the avoidance of doubt, in no event > shall a Disclosure Delay Period exceed ten (10) trading days. The Company will > give prompt written notice, in the manner prescribed by Section 11 hereof, to > the Investors of each Disclosure Delay Period. If practicable, such notice > shall estimate the duration of such Disclosure Delay Period. Each Investor > agrees that, upon receipt of a Disclosure Delay Period Notice prior to > Investor's disposition of all such Registrable Securities, Investor will > forthwith discontinue disposition of such Registrable Securities pursuant to > the Registration Statement, and will not deliver any prospectus forming a part > thereof in connection with any sale of such Registrable Securities until the > expiration of such Disclosure Delay Period. In addition, the provisions of > Section 2(c) hereof shall not apply to the Disclosure Delay Periods. > Notwithstanding anything in this Section 2 to the contrary, the Company shall > not deliver more than two (2) Disclosure Delay Period Notices in any three > hundred sixty five (365) day period. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall have the following obligations: > a. The Company shall prepare and file with the SEC the Registration Statement > required by Section 2(a) (but in no event later than the Filing Date), and > cause such Registration Statement relating to Registrable Securities to become > effective as soon as practicable after such filing (but in no event later than > the Registration Deadline), and keep such Registration Statement effective > pursuant to Rule 415 at all times until such date as is the earlier of (i) the > date on which all of the Registrable Securities have been sold and (ii) the > date on which all of the Registrable Securities (in the reasonable opinion of > counsel to the Initial Investors, which shall be sought upon the reasonable > request of the Company) may be immediately sold to the public without > registration or restriction pursuant to Rule 144(k) under the Securities Act > or any successor provision (the "Registration Period"), which Registration > Statement (including any amendments or supplements thereto and prospectuses > contained therein and all documents incorporated by reference therein) shall > not contain any untrue statement of a material fact or omit to state a > material fact required to be stated therein, or necessary to make the > statements therein not misleading, and (iii) shall comply in all material > respects with the requirements of the Securities Act and the rules and > regulations of the SEC promulgated thereunder. The financial statements of the > Company included in the Registration Statement or incorporated by reference > therein will comply as to form in all material respects with the applicable > accounting requirements and the published rules and regulations of the SEC > applicable with respect thereto. Such financial statements will be prepared in > accordance with U.S. generally accepted accounting principles, consistently > applied, during the periods involved (except (i) as may be otherwise indicated > in such financial statements or the notes thereto, or (ii) in the case of > unaudited interim statements, to the extent they may not include footnotes or > may be condensed on summary statements and fairly present in all material > respects the consolidated financial position of the Company and its > consolidated subsidiaries as of the dates thereof and the consolidated results > of their operations and cash flows for the periods then ended (subject, in the > case of unaudited statements, to immaterial year-end adjustments). > > > b. The Company shall prepare and file with the SEC such amendments (including > post-effective amendments) and supplements to the Registration Statement and > the prospectus used in connection with the Registration Statement as may be > necessary to keep the Registration Statement effective at all times during the > Registration Period, and, during such period, comply with the provisions of > the Securities Act with respect to the disposition of all Registrable > Securities of the Company covered by the Registration Statement until the > earlier of (i) such time as all of such Registrable Securities have been > disposed of in accordance with the intended methods of disposition by the > seller or sellers thereof as set forth in the Registration Statement or (ii) > the expiration of the Registration Period. > > > c. The Company shall furnish to each Investor whose Registrable Securities are > included in the Registration Statement and its legal counsel (i) promptly > after the same is prepared and publicly distributed, filed with the SEC, or > received by the Company, one copy of the Registration Statement and any > amendment thereto, each preliminary prospectus and prospectus and each > amendment or supplement thereto, and, in the case of the Registration > Statement referred to in Section 2(a), each letter written by or on behalf of > the Company to the SEC or the staff of the SEC (including, without limitation, > any request to accelerate the effectiveness of the Registration Statement or > amendment thereto), and each item of correspondence from the SEC or the staff > of the SEC, in each case relating to the Registration Statement (other than > any portion, if any, thereof which contains information for which the Company > has sought confidential treatment), (ii) on the date of effectiveness of the > Registration Statement or any amendment thereto, a notice stating that the > Registration Statement or amendment has been declared effective, and (iii) > such number of copies of a prospectus, including a preliminary prospectus, and > all amendments and supplements thereto and such other documents as such > Investor may reasonably request in order to facilitate the disposition of the > Registrable Securities owned by such Investor. > > > d. The Company shall use reasonable commercial efforts to (i) register and > qualify the Registrable Securities covered by the Registration Statement under > such other securities or "blue sky" laws of such jurisdictions in the United > States as each Investor who holds Registrable Securities being offered > reasonably requests, (ii) prepare and file in those jurisdictions such > amendments (including post-effective amendments) and supplements to such > registrations and qualifications as may be necessary to maintain the > effectiveness thereof during the Registration Period, (iii) take such other > actions as may be necessary to maintain such registrations and qualifications > in effect at all times during the Registration Period, and (iv) take all other > actions reasonably necessary or advisable to qualify the Registrable > Securities for sale in such jurisdictions; provided, however, that the Company > shall not be required in connection therewith or as a condition thereto to (a) > qualify to do business in any jurisdiction where it would not otherwise be > required to qualify but for this Section 3(d), (b) subject itself to general > taxation in any such jurisdiction, (c) file a general consent to service of > process in any such jurisdiction, (d) provide any undertakings that cause the > Company undue expense or burden, or (e) make any change in its charter or > bylaws, which in each case the Board of Directors of the Company determines to > be contrary to the best interests of the Company and its stockholders. > > > e. In the event the Investors who hold a majority in interest of the > Registrable Securities being offered in an offering select underwriters for > the offering, the Company shall enter into and perform its obligations under > an underwriting agreement, in usual and customary form, including, without > limitation, customary indemnification and contribution obligations, with the > underwriters of such offering. > > > f. As promptly as practicable after becoming aware of such event, the Company > shall notify each Investor by telephone and facsimile of the happening of any > event, of which the Company has knowledge, as a result of which the prospectus > included in the Registration Statement, as then in effect, includes an untrue > statement of a material fact or omission to state a material fact required to > be stated therein or necessary to make the statements therein not misleading, > and, use commercially reasonable efforts promptly to prepare a supplement or > amendment to the Registration Statement to correct such untrue statement or > omission, and deliver such number of copies of such supplement or amendment to > each Investor as such Investor may reasonably request. > > > g. The Company shall use commercially reasonable efforts (i) to prevent the > issuance of any stop order or other suspension of effectiveness of a > Registration Statement, and, if such an order is issued, to obtain the > withdrawal of such order at the earliest practicable moment (including in each > case by amending or supplementing such Registration Statement) and (ii) to > notify each Investor who holds Registrable Securities being sold (or, in the > event of an underwritten offering, the managing underwriters) of the issuance > of such order and the resolution thereof (and if such Registration Statement > is supplemented or amended, deliver such number of copies of such supplement > or amendment to each Investor as such Investor may reasonably request). > > > h. The Company shall permit a single firm of counsel designated by the Initial > Investor to review the Registration Statement and all amendments and > supplements thereto a reasonable period of time prior to its filing with the > SEC, and not file any document in a form to which such counsel reasonably > objects. > > > i. The Company shall make generally available to its security holders as soon > as practical, but not later than ninety (90) days after the close of the > period covered thereby, an earnings statement (in form complying with the > provisions of Rule 158 under the Securities Act) covering a twelve-month > period beginning not later than the first day of the Company's fiscal quarter > next following the effective date of the Registration Statement. > > > j. At the request of any Investor in the case of an underwritten public > offering, the Company shall furnish, on the date of effectiveness of the > Registration Statement (i) an opinion, dated as of such date, from counsel > representing the Company addressed to the Investors and in form, scope and > substance as is customarily given in an underwritten public offering and (ii) > a letter, dated such date, from the Company's independent certified public > accountants in form and substance as is customarily given by independent > certified public accountants to underwriters in an underwritten public > offering, addressed to the underwriters, if any, and the Investors. > > > k. The Company shall make available for inspection by (i) any Investor, (ii) > any underwriter participating in any disposition pursuant to the Registration > Statement, (iii) one firm of attorneys and one firm of accountants or other > agents retained by the Investors, and (iv) one firm of attorneys retained by > all such underwriters (collectively, the "Inspectors") all pertinent financial > and other records, and pertinent corporate documents and properties of the > Company (collectively, the "Records"), as shall be reasonably deemed necessary > by each Inspector to enable each Inspector to exercise its due diligence > responsibility, and cause the Company's officers, directors and employees to > supply all information which any Inspector may reasonably request for purposes > of such due diligence; provided, however, that each Inspector shall hold in > confidence and shall not make any disclosure (except to an Investor) of any > Record or other information which the Company determines in good faith to be > confidential, and of which determination the Inspectors are so notified, > unless (a) the disclosure of such Records is necessary to avoid or correct a > misstatement or omission in any Registration Statement (a final determination > of which shall be based upon an opinion of outside counsel to the Company), > (b) the release of such Records is ordered pursuant to a subpoena or other > order from a court or government body of competent jurisdiction, or (c) the > information in such Records has been made generally available to the public > other than by disclosure in violation of this or any other agreement. The > Company shall not be required to disclose any confidential information in such > Records to any Inspector until and unless such Inspector shall have entered > into confidentiality agreements (in form and substance satisfactory to the > Company) with the Company with respect thereto, substantially in the form of > this Section 3(k). Each Investor agrees that it shall, upon learning that > disclosure of such Records is sought in or by a court or governmental body of > competent jurisdiction or through other means, give prompt notice to the > Company and allow the Company, at its expense, to undertake appropriate action > to prevent disclosure of, or to obtain a protective order for, the Records > deemed confidential. Nothing herein shall be deemed to limit the Investors' > ability to sell Registrable Securities in a manner which is otherwise > consistent with applicable laws and regulations. > > > l. The Company shall hold in confidence and not make any disclosure of > information concerning an Investor provided to the Company which was clearly > indicated in writing as "confidential" at the time of its delivery unless (i) > disclosure of such information is necessary to comply with federal or state > securities laws, (ii) the disclosure of such information is necessary to avoid > or correct a misstatement or omission in any Registration Statement, (iii) the > release of such information is ordered pursuant to a subpoena or other order > from a court or governmental body of competent jurisdiction, (iv) such > information has been made generally available to the public other than by > disclosure in violation of this or any other agreement, or (v) such Investor > consents to the form and content of any such disclosure. The Company agrees > that it shall, upon learning that disclosure of such information concerning an > Investor is sought in or by a court or governmental body of competent > jurisdiction or through other means, give prompt notice to such Investor prior > to making such disclosure, and allow the Investor, at its expense, to > undertake appropriate action to prevent disclosure of, or to obtain a > protective order for, such information. > > > > m. The Company shall use commercially reasonable efforts to promptly either > (i) cause all of the Registrable Securities covered by the Registration > Statement to be listed on the NNM, NYSE or the AMEX or another national > securities exchange and on each additional national securities exchange on > which securities of the same class or series issued by the Company are then > listed, if any, if the listing of such Registrable Securities is then > permitted under the rules of such exchange, or (ii) secure the designation and > quotation of all of the Registrable Securities covered by the Registration > Statement on the NNM or SmallCap and, without limiting the generality of the > foregoing, to arrange for or maintain at least two market makers to register > with the National Association of Securities Dealers, Inc. ("NASD") as such > with respect to such Registrable Securities. > > > n. The Company shall provide a transfer agent and registrar, which may be a > single entity, for the Registrable Securities not later than the effective > date of the Registration Statement. > > > o. The Company shall cooperate with the Investors who hold Registrable > Securities being offered and the managing underwriter or underwriters, if any, > to facilitate the timely preparation and delivery of certificates (not bearing > any restrictive legends) representing Registrable Securities to be offered > pursuant to the Registration Statement and enable such certificates to be in > such denominations or amounts, as the case may be, as the managing underwriter > or underwriters, if any, or the Investors may reasonably request and > registered in such names as the managing underwriter or underwriters, if any, > or the Investors may request, and, within three (3) business days after the > Registration Statement which includes Registrable Securities is ordered > effective by the SEC, the Company shall deliver, and shall cause legal counsel > selected by the Company to deliver, to the transfer agent for the Registrable > Securities (with copies to the Investors whose Registrable Securities are > included in such Registration Statement), an opinion of such counsel in the > form attached hereto as Exhibit 1. > > > p. At the request of any Investor, the Company shall prepare and file with the > SEC such amendments (including post-effective amendments) and supplements to a > Registration Statement and the prospectus used in connection with such > Registration Statement as may be necessary in order to change the plan of > distribution set forth in such Registration Statement. > > > q. The Company shall comply with all applicable laws related to a Registration > Statement and offering and sale of securities and all applicable rules and > regulations of governmental authorities in connection therewith (including, > without limitation, the Securities Act and the Securities Exchange Act of > 1934, as amended, and the rules and regulations promulgated by the SEC.) > > > r. From and after the date of this Agreement, the Company shall not, and shall > not agree to, allow the holders of any securities of the Company to include > any of their securities which are not Registrable Securities in the > Registration Statement under Section 2(a) hereof or any amendment or > supplement thereto under Section 3(b) hereof without the consent of the > holders of a majority in interest of the Registrable Securities. 4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: > a. It shall be a condition precedent to the obligations of the Company to > complete the registration pursuant to this Agreement with respect to the > Registrable Securities of a particular Investor that such Investor shall > furnish to the Company such information regarding itself, the Registrable > Securities held by it and the intended method of disposition of the > Registrable Securities held by it as shall be reasonably required to effect > the registration of such Registrable Securities and shall execute such > documents in connection with such registration as the Company may reasonably > request. At least five trading days prior to the first anticipated filing date > of the Registration Statement, the Company shall notify each Investor of the > information the Company requires from each such Investor. > > > b. Each Investor, by such Investor's acceptance of the Registrable Securities, > agrees to cooperate with the Company as reasonably requested by the Company in > connection with the preparation and filing of the Registration Statement > hereunder, unless such Investor has notified the Company in writing of such > Investor's election to exclude all of such Investor's Registrable Securities > from such Registration Statement. > > > c. In the event Investors holding a majority in interest of the Registrable > Securities being offered determine to engage the services of an underwriter, > each Investor agrees to enter into and perform such Investor's obligations > under an underwriting agreement, in usual and customary form, including, > without limitation, customary indemnification and contribution obligations, > with the underwriter(s) of such offering and the Company and take such other > actions as are reasonably required in order to expedite or facilitate the > disposition of the Registrable Securities, unless such Investor has notified > the Company in writing of such Investor's election not to participate in such > underwritten distribution. > > > d. Each Investor agrees that, upon receipt of any notice from the Company of > the happening of any event of the kind described in Sections 3(f) or 3(g), > such Investor will immediately discontinue disposition of Registrable > Securities pursuant to the Registration Statement covering such Registrable > Securities until such Investor's receipt of the copies of the supplemented or > amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed > by the Company, such Investor shall deliver to the Company (at the expense of > the Company) or destroy (and deliver to the Company a certificate of > destruction) all copies in such Investor's possession, of the prospectus > covering such Registrable Securities current at the time of receipt of such > notice. > > > e. No Investor may participate in any underwritten distribution hereunder > unless such Investor (i) agrees to sell such Investor's Registrable Securities > on the basis provided in any underwriting arrangements in usual and customary > form entered into by the Company, (ii) completes and executes all > questionnaires, powers of attorney, indemnities, underwriting agreements and > other documents reasonably required under the terms of such underwriting > arrangements, (iii) agrees to pay its pro rata share of all underwriting > discounts and commissions and any expenses in excess of those payable by the > Company pursuant to Section 5 below, and (iv) complies with all applicable > laws in connection therewith. Notwithstanding anything in this Section 4(e) to > the contrary, this Section 4(e) is not intended to limit an Investor's rights > under Sections 2(a) or 3(b) hereof. 5. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the Company or the Investors in connection with registrations, filings or qualifications pursuant to Sections 2 and 3 above, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company and the reasonably incurred fees and disbursements of one counsel selected by the Investors (not to exceed $7,500) shall be borne by the Company. In addition, the Company shall pay all of the Investors' costs and expenses (including legal fees) incurred in connection with the enforcement of the rights of the Investors hereunder. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: > a. To the extent permitted by law, the Company will indemnify, hold harmless > and defend (i) each Investor who holds such Registrable Securities, and > (ii) the directors, officers, partners, members, employees and agents of such > Investor and each person who controls any Investor within the meaning of > Section 15 of the Securities Act or Section 20 of the Securities Exchange Act > of 1934, as amended (the "Exchange Act"), if any, (each, an "Indemnified > Person"), against any joint or several losses, claims, damages, liabilities or > expenses (collectively, together with actions, proceedings or inquiries by any > regulatory or self-regulatory organization, whether commenced or threatened, > in respect thereof, "Claims") to which any of them may become subject insofar > as such Claims arise out of or are based upon: (i) any untrue statement or > alleged untrue statement of a material fact in a Registration Statement or the > omission or alleged omission to state therein a material fact required to be > stated or necessary to make the statements therein not misleading, (ii) any > untrue statement or alleged untrue statement of a material fact contained in > any preliminary prospectus if used prior to the effective date of such > Registration Statement, or contained in the final prospectus (as amended or > supplemented, if the Company files any amendment thereof or supplement thereto > with the SEC) or the omission or alleged omission to state therein any > material fact necessary to make the statements made therein, in light of the > circumstances under which the statements therein were made, not misleading, or > (iii) any violation or alleged violation by the Company of the Securities Act, > the Exchange Act, any other law, including, without limitation, any state > securities law, or any rule or regulation thereunder relating to the offer or > sale of the Registrable Securities (the matters in the foregoing clauses (i) > through (iii) being, collectively, "Violations"). Subject to the restrictions > set forth in Section 6(c) with respect to the number of legal counsel, the > Company shall reimburse the Investors and each other Indemnified Person, > promptly as such expenses are incurred and are due and payable, for any > reasonable legal fees or other reasonable expenses incurred by them in > connection with investigating or defending any such Claim. Notwithstanding > anything to the contrary contained herein, the indemnification agreement > contained in this Section 6(a): (i) shall not apply to a Claim arising out of > or based upon a Violation which occurs in reliance upon and in conformity with > information furnished in writing to the Company by such Indemnified Person > expressly for use in the Registration Statement or any such amendment thereof > or supplement thereto; (ii) shall not apply to amounts paid in settlement of > any Claim if such settlement is effected without the prior written consent of > the Company, which consent shall not be unreasonably withheld; and (iii) with > respect to any preliminary prospectus, shall not inure to the benefit of any > Indemnified Person if the untrue statement or omission of material fact > contained in the preliminary prospectus was corrected on a timely basis in the > prospectus, as then amended or supplemented, if such corrected prospectus was > timely made available by the Company pursuant to Section 3(c) hereof, and the > Indemnified Person was promptly advised in writing not to use the incorrect > prospectus prior to the use giving rise to a Violation and such Indemnified > Person, notwithstanding such advice, used it. Such indemnity shall remain in > full force and effect regardless of any investigation made by or on behalf of > the Indemnified Person and shall survive the transfer of the Registrable > Securities by the Investors pursuant to Section 9 hereof. > > > b. In connection with any Registration Statement in which an Investor is > participating, each such Investor agrees severally and not jointly to > indemnify, hold harmless and defend, to the same extent and in the same manner > set forth in Section 6(a), the Company, each of its directors, each of its > officers who signs the Registration Statement, its employees, agents and each > person, if any, who controls the Company within the meaning of Section 15 of > the Securities Act or Section 20 of the Exchange Act, and any other > stockholder selling securities pursuant to the Registration Statement or any > of its directors or officers or any person who controls such stockholder > within the meaning of the Securities Act or the Exchange Act (collectively and > together with an Indemnified Person, an "Indemnified Party"), against any > Claim to which any of them may become subject, under the Securities Act, the > Exchange Act or otherwise, insofar as such Claim arises out of or is based > upon any Violation, in each case to the extent (and only to the extent) that > such Violation occurs in reliance upon and in conformity with written > information furnished to the Company by such Investor expressly for use in > connection with such Registration Statement; and subject to Section 6(c) such > Investor will reimburse any legal or other expenses (promptly as such expenses > are incurred and are due and payable) reasonably incurred by them in > connection with investigating or defending any such Claim; provided, however, > that the indemnity agreement contained in this Section 6(b) shall not apply to > amounts paid in settlement of any Claim if such settlement is effected without > the prior written consent of such Investor, which consent shall not be > unreasonably withheld; provided, further, however, that the Investor shall be > liable under this Agreement (including this Section 6(b) and Section 7) for > only that amount as does not exceed the net proceeds actually received by such > Investor as a result of the sale of Registrable Securities pursuant to such > Registration Statement. Such indemnity shall remain in full force and effect > regardless of any investigation made by or on behalf of such Indemnified Party > and shall survive the transfer of the Registrable Securities by the Investors > pursuant to Section 9 hereof. Notwithstanding anything to the contrary > contained herein, the indemnification agreement contained in this Section 6(b) > with respect to any preliminary prospectus shall not inure to the benefit of > any Indemnified Party if the untrue statement or omission of material fact > contained in the preliminary prospectus was corrected on a timely basis in the > prospectus, as then amended or supplemented. > > > c. Promptly after receipt by an Indemnified Person or Indemnified Party under > this Section 6 of notice of the commencement of any action (including any > governmental action), such Indemnified Person or Indemnified Party shall, if a > Claim in respect thereof is to made against any indemnifying party under this > Section 6, deliver to the indemnifying party a written notice of the > commencement thereof, and the indemnifying party shall have the right to > participate in, and, to the extent the indemnifying party so desires, jointly > with any other indemnifying party similarly noticed, to assume control of the > defense thereof with counsel mutually satisfactory to the indemnifying party > and the Indemnified Person or the Indemnified Party, as the case may be; > provided, however, that such indemnifying party shall not be entitled to > assume such defense and an Indemnified Person or Indemnified Party shall have > the right to retain its own counsel with the fees and expenses to be paid by > the indemnifying party, if, in the reasonable opinion of counsel retained by > the indemnifying party, the representation by such counsel of the Indemnified > Person or Indemnified Party and the indemnifying party would be inappropriate > due to actual or potential conflicts of interest between such Indemnified > Person or Indemnified Party and any other party represented by such counsel in > such proceeding or the actual or potential defendants in, or targets of, any > such action include both the Indemnified Person or the Indemnified Party and > the indemnifying party and any such Indemnified Person or Indemnified Party > reasonably determines that there may be legal defenses available to such > Indemnified Person or Indemnified Party which are in conflict with those > available to such indemnifying party. The indemnifying party shall pay for > only one separate legal counsel for the Indemnified Person or the Indemnified > Parties, as applicable, and such legal counsel shall be selected by Investors > holding a majority-in-interest of the Registrable Securities included in the > Registration Statement to which the Claim relates (with the approval of the > Initial Investor if it holds Registrable Securities included in such > Registration Statement), if the Investors are entitled to indemnification > hereunder, or by the Company, if the Company is entitled to indemnification > hereunder, as applicable. The failure to deliver written notice to the > indemnifying party within a reasonable time of the commencement of any such > action shall not relieve such indemnifying party of any liability to the > Indemnified Person or Indemnified Party under this Section 6, except to the > extent that the indemnifying party is actually prejudiced in its ability to > defend such action. The indemnification required by this Section 6 shall be > made by periodic payments of the amount thereof during the course of the > investigation or defense, as such expense, loss, damage or liability is > incurred and is due and payable. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the Indemnified Person or Indemnified Party, as the case may be, on the other hand, with respect to the Violation giving rise to the applicable Claim; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: > a. file with the SEC in a timely manner and make and keep available all > reports and other documents required of the Company under the Securities Act > and the Exchange Act so long as the Company remains subject to such > requirements (it being understood that nothing herein shall limit the > Company's obligations under Section 4(c) of the Securities Purchase Agreement) > and the filing and availability of such reports and other documents is > required for the applicable provisions of Rule 144; and > > > b. furnish to each Investor so long as such Investor owns Shares or > Registrable Securities, promptly upon request, (i) a written statement by the > Company that it has complied with the reporting requirements of Rule 144, the > Securities Act and the Exchange Act, (ii) a copy of the most recent annual or > quarterly report of the Company and such other reports and documents so filed > by the Company, and (iii) such other information as may be reasonably > requested to permit the Investors to sell such securities under Rule 144 > without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, shall be automatically assignable by each Investor to any transferee of 150,000 or more of the Shares (as adjusted for any stock split, stock dividend, recapitalization, reorganization or otherwise) the Registrable Securities, or any assignee of the Securities Purchase Agreement if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained herein, and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. In addition, and notwithstanding anything to the contrary contained in this Agreement, the Shares may be pledged, and all rights of the Investors under this Agreement or any other agreement or document related to the transactions contemplated hereby may be assigned, without further consent of the Company, to a bona fide pledgee in connection with an Investor's margin or brokerage account. 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company and Investors who hold a majority in interest of the Registrable Securities or, in the case of a waiver, with the written consent of the party charged with the enforcement of any such provision; provided, however, that no consideration shall be paid to an Investor by the Company in connection with an amendment hereto unless each Investor similarly affected by such amendment receives a pro- rata amount of consideration from the Company. Unless an Investor otherwise agrees, each amendment hereto must similarly affect each Investor. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. MISCELLANEOUS. > a. A person or entity is deemed to be a holder of Registrable Securities > whenever such person or entity owns of record such Registrable Securities. If > the Company receives conflicting instructions, notices or elections from two > or more persons or entities with respect to the same Registrable Securities, > the Company shall act upon the basis of instructions, notice or election > received from the registered owner of such Registrable Securities. > > > b. Any notices required or permitted to be given under the terms of this > Agreement shall be sent by certified or registered mail (return receipt > requested) or delivered personally or by courier or by confirmed telecopy, and > shall be effective five (5) days after being placed in the mail, if mailed, or > upon receipt or refusal of receipt, if delivered personally or by courier or > confirmed telecopy, in each case addressed to a party. The addresses for such > communications shall be: > > > > If to the Company: > > > > > > SangStat Medical Corporation > > 6300 Dumbarton Circle > > Fremont, California 94555 > > Facsimile: (510) 789-4493 > > Attn: General Counsel > > > > > > with a copy simultaneously transmitted by like means to: > > > > > > Gray Cary Ware & Friedenrich > > 4365 Executive Drive > > Suite 1600 > > San Diego, CA 92121 > > Facsimile: (858) 677-1477 > > Attn: Paul B. Johnson, Esquire > > > and if to any Investor, at such address as such Investor shall have provided > in writing to the Company, or at such other address as each such party > furnishes by notice given in accordance with this Section 11(b). > > > c. Failure of any party to exercise any right or remedy under this Agreement > or otherwise, or delay by a party in exercising such right or remedy, shall > not operate as a waiver thereof. > > > d. This Agreement shall be governed by and construed in accordance with the > laws of the State of Delaware applicable to contracts made and to be performed > in the State of Delaware. The Company and each Investor irrevocably consents > to the jurisdiction of the United States federal courts and the state courts > located in the State of Delaware in any suit or proceeding based on or arising > under this Agreement and irrevocably agrees that all claims in respect of such > suit or proceeding may be determined in such courts. The Company and each > Investor irrevocably waives the defense of an inconvenient forum to the > maintenance of such suit or proceeding. The parties further agree that service > of process upon the other party, mailed by first class mail shall be deemed in > every respect effective service of process upon such party in any such suit or > proceeding. Nothing herein shall affect the parties' right to serve process in > any other manner permitted by law. Each party agrees that a final > non-appealable judgment in any such suit or proceeding shall be conclusive and > may be enforced in other jurisdictions by suit on such judgment or in any > other lawful manner. > > > e. This Agreement and the Securities Purchase Agreement (including all > schedules and exhibits thereto) constitute the entire agreement among the > parties hereto with respect to the subject matter hereof and thereof. There > are no restrictions, promises, warranties or undertakings, other than those > set forth or referred to herein and therein. This Agreement and the Securities > Purchase Agreement supersede all prior agreements and understandings among the > parties hereto with respect to the subject matter hereof and thereof. > > > f. Subject to the requirements of Section 9 hereof, this Agreement shall inure > to the benefit of and be binding upon the successors and assigns of each of > the parties hereto. > > > g. The headings in this Agreement are for convenience of reference only and > shall not limit or otherwise affect the meaning hereof. > > > h. This Agreement may be executed in two or more counterparts, each of which > shall be deemed an original but all of which shall constitute one and the same > agreement. This Agreement, once executed by a party, may be delivered to the > other party hereto by facsimile transmission of a copy of this Agreement > bearing the signature of the party so delivering this Agreement. > > > i. Each party shall do and perform, or cause to be done and performed, all > such further acts and things, and shall execute and deliver all such other > agreements, certificates, instruments and documents, as the other party may > reasonably request in order to carry out the intent and accomplish the > purposes of this Agreement and the consummation of the transactions > contemplated hereby. > > > j. All consents, approvals and other determinations to be made by the > Investors pursuant to this Agreement shall be made by the Investors holding a > majority in interest of the Registrable Securities held by all Investors. > > > k. The initial number of Registrable Securities included on any Registration > Statement and each increase to the number of Registrable Securities included > thereon shall be allocated pro rata among the Investors based on the number of > Registrable Securities held by each Investor at the time of such establishment > or increase, as the case may be. In the event an Investor shall sell or > otherwise transfer any of such holder's Registrable Securities, each > transferee shall be allocated a pro rata portion of the number of Registrable > Securities included on a Registration Statement for such transferor. Any > shares of Common Stock included on a Registration Statement and which remain > allocated to any person or entity which does not hold any Registrable > Securities shall be allocated to the remaining Investors pro rata based on the > number of shares of Registrable Securities then held by such Investors. > > > l. Each party to this Agreement has participated in the negotiation and > drafting of this Agreement. As such, the language used herein shall be deemed > to be the language chosen by the parties hereto to express their mutual > intent, and no rule of strict construction will be applied against any party > to this Agreement. > > > m. For purposes of this Agreement, the term "business day" means any day other > than a Saturday or Sunday or a day on which banking institutions in the State > of New York are authorized or obligated by law, regulation or executive order > to close, and the term "trading day" means any day on which NASDAQ or, if the > Common Stock is not then traded on NASDAQ, the principal securities exchange > or trading market where the Common Stock is then listed or traded, is open for > trading. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. SANGSTAT MEDICAL CORPORATION By: /s/ Stephen G. Dance -------------------------------------------------------------------------------- Name: Stephen G. Dance Its: Senior Vice President, Finance INITIAL INVESTORS: NARRAGANSETT I, LP By: /s/ Joseph L. Dowling III -------------------------------------------------------------------------------- Name: Joseph L. Dowling III Its: Managing Member NARRAGANSETT OFFSHORE, LTD. By: /s/ Joseph L. Dowling III -------------------------------------------------------------------------------- Name: Joseph L. Dowling III Its: Managing Member ROYAL BANK OF CANADA by its agent RBC Dominion Securities Corporation By: /s/ Mark A. Standish -------------------------------------------------------------------------------- Name: Mark A. Standish Its: Managing Director By: /s/ Bruce Runciman -------------------------------------------------------------------------------- Name: Bruce Runciman Its: Chief Financial Officer SDS CAPITAL PARTNERS, LLC By: /s/ Steve Derby -------------------------------------------------------------------------------- Name: Steve Derby Its: Managing Member --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document ADC TELECOMMUNICATIONS, INC. RESTRICTED STOCK AWARD AGREEMENT     THIS AGREEMENT is made as of this 22nd day of May, 2001 by and between ADC Telecommunications, Inc., a Minnesota corporation (the "Company"), and Barclay W. Fitzpatrick ("Participant").     WHEREAS, pursuant to a letter dated April 12, 2001 (the "Offer Letter"), Participant has been offered employment with the Company and in connection with such offer, the Company has agreed to grant to Participant a number of shares of its common stock having a face value of $150,000, such grant to be made as of the end of the month during which Participant commences employment; and     WHEREAS, Participant commenced his employment with the Company on April 23, 2001; and     WHEREAS, notwithstanding the terms of the Offer Letter, the Company is not able to make an award of restricted stock without the approval of the Compensation Committee of the Company's Board of Directors, which approval was received on May 22, 2001.     NOW, THEREFORE, the Company, pursuant to its Global Stock Incentive Plan (the "Plan"), hereby grants the following stock award to Participant, which award shall have the terms and conditions set forth in this Agreement: 1.Award The Company hereby grants to Participant a restricted stock award of 19,973 shares (the "Shares") of common stock, par value $.20 per share, of the Company (the "Common Stock"), subject to the terms and conditions set forth herein (such number of Shares having been computed based on the closing price of the Company's common stock on April 30, 2001). 2.Vesting Subject to the terms and condition of this Agreement, the Shares shall vest in full to Participant on July 30, 2002 if and only if Participant remains continuously employed by the Company from the date hereof until such date. Notwithstanding the foregoing, in the event that the vesting and exercisability of Participant's stock option granted on April 30, 2001 under the Company's Global Stock Incentive Plan is accelerated under the conditions specified in Exhibit A to such stock option agreement, the vesting of the Shares shall similarly be accelerated. 3.Restriction on Transfer Until the Shares vest pursuant to Section 2 hereof, none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to transfer the Shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Shares. 4.Forfeiture If Participant ceases to be an employee of the Company or any majority-owned affiliate of the Company for any reason prior to the vesting of the Shares pursuant to Section 2 hereof, Participant's rights to all of the Shares shall be immediately and irrevocably forfeited. 5.Issuance and Custody of Certificate (a) The Company shall cause to be issued one or more stock certificates, registered in the name of Participant, evidencing the Shares. Each such certificate shall bear the following legend: 1 -------------------------------------------------------------------------------- "The shares of common stock represented by this certificate are subject to forfeiture, and the transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including restrictions against transfer) contained in the ADC Telecommunications, Inc. Global Stock Incentive Plan and a Restricted Stock Award Agreement entered into between ADC Telecommunications, Inc. and the registered owner of such shares. Copies of the Plan and the Agreement are on file in the office of the Secretary of ADC Telecommunications, Inc., 12501 Whitewater Drive, Minnetonka, Minnesota." (b) Participant shall cause stock powers relating to the Shares executed by Participant to be delivered to the Company. (c) Each certificate issued pursuant to Section 5(a) hereof, together with the stock powers relating to the Shares, shall be deposited by the Company with the Secretary of the Company or a custodian designated by the Secretary. The Secretary or such custodian shall issue a receipt to Participant evidencing the certificate or certificates held which are registered in the name of Participant. (d) After any Shares vest pursuant to Section 2 hereof, the Company shall promptly cause to be issued a certificate or certificates evidencing such vested Shares, free of the legend provided in section 5(a) hereof, and shall cause such certificate or certificates to be delivered to Participant or Participant's legal representatives, beneficiaries or heirs. 6.Distributions and Adjustments (a) If all or any portion of the Shares vest in Participant subsequent to any change in the number or character of Shares of Common Stock (through stock dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Shares of Common Stock or other securities of the Company or other similar corporate transaction or event affecting the Shares such that an adjustment is determined by the Compensation and Organization Committee of the Board of Directors (the "Committee") to be appropriate in order to prevent dilution or enlargement of the interest represented by the Shares), Participant shall then receive upon such vesting the number and type of securities or other consideration which he would have received if the Shares had vested prior to the event changing the number or character of outstanding Shares of Common Stock. (b) Any additional Shares of Common Stock, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Shares prior to the date the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares. Any cash dividends payable with respect to the Shares shall be distributed to Participant at the same time cash dividends are distributed to shareholders of the Company generally. (c) Any additional Shares of Common Stock, any securities and any other property (except for cash dividends) distributed with respect to the Shares prior to the date such Shares vest shall be promptly deposited with the Secretary or the custodian designated by the Secretary to be held in custody in accordance with Section 5(c) hereof. 7.Taxes (a) In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it in connection with this restricted stock award, and in order to comply with all applicable federal or state tax laws or regulations, the Company 2 -------------------------------------------------------------------------------- may take such action as it deems appropriate to insure that, if necessary, all applicable federal or state income and social security taxes are withheld or collected from Participant. (b) Participant may elect to satisfy his federal and state income tax withholding obligations in connection with this restricted stock award by (i) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon vesting of this restricted stock award having a fair market value equal to the amount of federal and state income taxes required to be withheld in connection with this restricted stock award, in accordance with the rules of the Committee, or (ii) delivering to the Company shares of Common Stock other than the shares to be delivered upon vesting of this restricted stock award having a fair market value equal to such taxes, in accordance with the rules of the Committee. (c) Notwithstanding clause 7(b) above, if Participant elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize ordinary income in the year of acquisition of the Shares, the Company may require at the time of such election an additional payment for withholding tax purposes based on the fair market value of such Shares as of the date of the acquisition of such Shares by Participant. 8.Miscellaneous (a) This Agreement is issued pursuant to the Plan and is subject to its terms. Participant hereby acknowledges receipt of a copy of the Plan. The Plan is also available for inspection during business hours at the principal office of the Company. (b) This Agreement shall not confer on Participant any right with respect to continuance of employment by the Company or any of its subsidiaries. (c) This agreement shall be governed by and construed under the internal laws of the State of Minnesota, without regard for conflicts of laws principles thereof.     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.     ADC TELECOMMUNICATIONS, INC.     By:   /s/ Laura N. Owen --------------------------------------------------------------------------------     Its:   Vice President, Human Resources --------------------------------------------------------------------------------     PARTICIPANT     /s/ Barclay W. Fitzpatrick -------------------------------------------------------------------------------- Barclay W. Fitzpatrick 3 -------------------------------------------------------------------------------- QuickLinks ADC TELECOMMUNICATIONS, INC. RESTRICTED STOCK AWARD AGREEMENT

Exhibit 10.20(u) Supplemental Agreement No. 20 to Purchase Agreement No. 1951 between The Boeing Company and Continental Airlines, Inc. Relating to Boeing Model 737 Aircraft     THIS SUPPLEMENTAL AGREEMENT, entered into as of December 21, 2000, by and between THE BOEING COMPANY, a Delaware corporation with its principal office in Seattle, Washington, (Boeing) and Continental Airlines, Inc., a Delaware corporation with its principal office in Houston, Texas (Buyer); WHEREAS, the parties hereto entered into Purchase Agreement No. 1951 dated July 23, 1996 (the Agreement), as amended and supplemented, relating to Boeing Model 737-500, 737-600, 737-700, 737-800, and 737-900 aircraft (the Aircraft); and WHEREAS, Buyer has requested to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Buyer have mutually agreed that the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and WHEREAS, Boeing and Buyer have mutually agreed upon the Buyer Furnished Equipment (BFE) provisions of the 737-900 Aircraft; and WHEREAS, Boeing and Buyer have mutually agreed to amend the Agreement to incorporate the effect of these and certain other changes;   NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties agree to amend the Agreement as follows:       1. Table of Contents, Articles, Tables and Exhibits: 1.1 Remove and replace, in its entirety, the "Table of Contents", with the Table of Contents attached hereto, to reflect the changes made by this Supplemental Agreement No. 20. 1.2 Remove and replace, in its entirety, pages T-3-1 and T-3-2 of Table 1, entitled "Aircraft Deliveries and Descriptions, Model 737-800 Aircraft", with revised pages T-3-1 and T-3-2 attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]. 1.3 Remove and replace, in its entirety, Exhibit E, "Buyer Furnished Equipment Provisions Document", with new Exhibit E, "Buyer Furnished Equipment Provisions Document", attached hereto, to reflect supplier selection dates and required on-dock dates.   2. Letter Agreements: 2.1 Remove and replace, in its entirety, Letter Agreement 1951-3R12, "Option Aircraft - Model 737-824 Aircraft", with Letter Agreement 1951-3R13, "Option Aircraft - Model 737-824 Aircraft", attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].     The Agreement will be deemed to be supplemented to the extent herein provided as of the date hereof and as so supplemented will continue in full force and effect.   EXECUTED IN DUPLICATE as of the day and year first written above.   THE BOEING COMPANY Continental Airlines, Inc.       By: /s/ Henry H. Hart   By: /s/ Gerald Laderman   Its: Attorney-In-Fact   Its: Senior Vice President-Finance TABLE OF CONTENTS Page SA Number Number ARTICLES 1. Subject Matter of Sale 1-1 SA 5 2. Delivery, Title and Risk of Loss 2-1 3. Price of Aircraft 3-1 SA 5 4. Taxes 4-1 5. Payment 5-1 6. Excusable Delay 6-1 7. Changes to the Detail Specification 7-1 SA 5 8. Federal Aviation Requirements and Certificates and Export License 8-1 SA 5 9. Representatives, Inspection, Flights and Test Data 9-1 10. Assignment, Resale or Lease 10-1 11. Termination for Certain Events 11-1 12. Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance 12-1 13. Buyer Furnished Equipment and Spare Parts 13-1 14. Contractual Notices and Requests 14-1 SA 17 15. Miscellaneous 15-1   TABLE OF CONTENTS Page SA Number Number TABLES 1. Aircraft Deliveries and Descriptions - 737-500 T-1 SA 3 Aircraft Deliveries and Descriptions - 737-700 T-2 SA 13 Aircraft Deliveries and Descriptions - 737-800 T-3 SA 20 Aircraft Deliveries and Descriptions - 737-600 T-4 SA 4 Aircraft Deliveries and Descriptions - 737-900 T-5 SA 5   EXHIBITS   A-1 Aircraft Configuration - Model 737-724 SA 2 A-2 Aircraft Configuration - Model 737-824 SA 2 A-3 Aircraft Configuration - Model 737-624 SA 1 A-4 Aircraft Configuration - Model 737-524 SA 3 A-5 Aircraft Configuration - Model 737-924 SA 5 B Product Assurance Document SA 1 C Customer Support Document - Code Two - Major Model Differences SA 1 C1 Customer Support Document - Code Three - Minor Model Differences SA 1 D Aircraft Price Adjustments - New Generation Aircraft (1995 Base Price) SA 1 D1 Airframe and Engine Price Adjustments - Current Generation Aircraft SA 1 D2 Aircraft Price Adjustments - New Generation Aircraft (1997 Base Price) SA 5 E Buyer Furnished Equipment Provisions Document SA 20 F Defined Terms Document SA 5   TABLE OF CONTENTS SA Number LETTER AGREEMENTS 1951-1 Not Used 1951-2R3 Seller Purchased Equipment SA 5 1951-3R13 Option Aircraft-Model 737-824 Aircraft SA 20 1951-4R1 Waiver of Aircraft Demonstration SA 1 1951-5R2 Promotional Support - New Generation SA 5 Aircraft 1951-6 Configuration Matters 1951-7R1 Spares Initial Provisioning SA 1 1951-8R2 Escalation Sharing - New Generation Aircraft SA 4 1951-9R8 Option Aircraft-Model 737-724 Aircraft SA 17 1951-11R1 Escalation Sharing-Current Generation Aircraft SA 4 1951-12R1 Option Aircraft - Model 737-924 Aircraft SA 17 1951-13 Configuration Matters - Model 737-924 SA 5     TABLE OF CONTENTS   SA Number RESTRICTED LETTER AGREEMENTS   6-1162-MMF-295 Performance Guarantees - Model 737-724 Aircraft 6-1162-MMF-296 Performance Guarantees - Model 737-824 Aircraft 6-1162-MMF-308R3 Disclosure of Confidential SA 5 Information 6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED AND SA 1 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED AND SA 5 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-MMF-312R1 Special Purchase Agreement Provisions SA 1 6-1162-MMF-319 Special Provisions Relating to the Rescheduled Aircraft 6-1162-MMF-378R1 Performance Guarantees - Model 737-524 Aircraft SA 3 6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED AND SA 2 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-GOC-131R2 Special Matters SA 5 6-1162-DMH-365 Performance Guarantees - Model 737-924 Aircraft SA 5     6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND SA 8 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-680 Delivery Delay Resolution Program SA 9 6-1162-DMH-1020 [CONFIDENTIAL MATERIAL OMITTED AND SA 14 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1035 [CONFIDENTIAL MATERIAL OMITTED AND SA 15 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 6-1162-DMH-1054 [CONFIDENTIAL MATERIAL OMITTED AND SA 16 FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]   TABLE OF CONTENTS   SUPPLEMENTAL AGREEMENTS DATED AS OF: Supplemental Agreement No. 1 October 10,1996 Supplemental Agreement No. 2 March 5, 1997 Supplemental Agreement No. 3 July 17, 1997 Supplemental Agreement No. 4 October 10,1997 Supplemental Agreement No. 5 May 21,1998 Supplemental Agreement No. 6 July 30,1998 Supplemental Agreement No. 7 November 12,1998 Supplemental Agreement No. 8 December 7,1998 Supplemental Agreement No. 9 February 18,1999 Supplemental Agreement No. 10 March 19,1999 Supplemental Agreement No. 11 May 14,1999 Supplemental Agreement No. 12 July 2,1999 Supplemental Agreement No. 13 October 13,1999 Supplemental Agreement No. 14 December 13,1999 Supplemental Agreement No. 15 January 13,2000 Supplemental Agreement No. 16 March 17,2000 Supplemental Agreement No. 17 May 16,2000 Supplemental Agreement No. 18 September 11,2000 Supplemental Agreement No. 19 October 31,2000 Supplemental Agreement No. 20 December 21, 2000 Table 1 to Purchase Agreement 1951 Aircraft Deliveries and Descriptions Model 737-800 Aircraft CFM56-7B26 Engines Detail Specification No. D6-38808-43 Exhibit A-2   [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 1951PA/CALCONTINENTAL AIRLINES, INC.         BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT between THE BOEING COMPANY and CONTINENTAL AIRLINES, INC.         Exhibit E to Purchase Agreement Number 1951     BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT Dated December 21, 2000 Relating to BOEING MODEL 737 AIRCRAFT       This Buyer Furnished Equipment Provisions Document is Exhibit E to and forms a part of Purchase Agreement No. 1951, between The Boeing Company (Boeing) and CONTINENTAL AIRLINES, INC. (Buyer) relating to the purchase of Boeing Model 737 aircraft. BUYER FURNISHED EQUIPMENT PROVISIONS DOCUMENT   1. General. Certain equipment to be installed in the Aircraft is furnished to Boeing by Buyer at Buyer's expense. This equipment is designated "Buyer Furnished Equipment" (BFE) and is listed in the Detail Specification. On or before April 4, 1997 for Model 737-724, July 3, 1997 for Model 737-824, and August 31, 2000 for Model 737-924, Boeing will provide to Buyer a BFE Requirements On-Dock/Inventory Document (BFE Document) or an electronically transmitted BFE Report which may be periodically revised, setting forth the items, quantities, on-dock dates and shipping instructions relating to the in sequence installation of BFE. For planning purposes, a preliminary BFE on-dock schedule is set forth in the attachment to this Exhibit. 2. Supplier Selection. Buyer will: 2.1 Select and notify Boeing of the suppliers of the following BFE items by the following dates should these items not be selected as SPE by Buyer: Model 737-724 Model 737-824 Galley System 10/9/96 2/12/97 Seats (passenger) 9/03/96 9/03/96 Model 737-924 Model 737-524 Galley System 4/18/2000 Complete Seats (passenger) 4/6/2000 Complete 2.2 Meet with Boeing and such selected BFE suppliers promptly after such selection to: 2.2.1 complete BFE configuration design requirements for such BFE; and 2.2.2 confirm technical data submittal dates for BFE certification.   3. Buyer's Obligations. Buyer will: 3.1 comply with and cause the supplier to comply with the provisions of the BFE Document or BFE Report; 3.1.1 deliver technical data (in English) to Boeing as required to support installation and FAA certification in accordance with the schedule provided by Boeing or as mutually agreed upon during the BFE meeting referred to above; 3.1.2 deliver BFE including production and/or flight training spares to Boeing in accordance with the quantities and schedule provided therein; and 3.1.3 deliver appropriate quality assurance documentation to Boeing as required with each BFE part (D6-56586, "BFE Product Acceptance Requirements"); 3.2 authorize Boeing to discuss all details of the BFE directly with the BFE suppliers; 3.3 authorize Boeing to conduct or delegate to the supplier quality source inspection and supplier hardware acceptance of BFE at the supplier location; 3.3.1 require supplier's contractual compliance to Boeing defined source inspection and supplier delegation programs, including availability of adequate facilities for Boeing resident personnel; and 3.3.2 assure that Boeing identified supplier's quality systems be approved to Boeing document D1-9000; 3.4 provide necessary field service representation at Boeing's facilities to support Boeing on all issues related to the installation and certification of BFE; 3.5 deal directly with all BFE suppliers to obtain overhaul data, provisioning data, related product support documentation and any warranty provisions applicable to the BFE; 3.6 work closely with Boeing and the BFE suppliers to resolve any difficulties, including defective equipment, that arise; 3.7 be responsible for modifying, adjusting and/or calibrating BFE as required for FAA approval and for all related expenses; 3.8 warrant that the BFE will meet the requirements of the Detail Specification; and 3.9 be responsible for providing equipment which is FAA certifiable at time of Aircraft delivery, or for obtaining waivers from the applicable regulatory agency for non-FAA certifiable equipment. 4. Boeing's Obligations. Other than as set forth below, Boeing will provide for the installation of and install the BFE and obtain certification of the Aircraft with the BFE installed. 5. Nonperformance by Buyer. If Buyer's nonperformance of obligations in this Exhibit or in the BFE Document causes a delay in the delivery of the Aircraft or causes Boeing to perform out-of-sequence or additional work, Buyer will reimburse Boeing for all resulting expenses and be deemed to have agreed to any such delay in Aircraft delivery. In addition Boeing will have the right to: 5.1 provide and install specified equipment or suitable alternate equipment and increase the price of the Aircraft accordingly; and/or 5.2 deliver the Aircraft to Buyer without the BFE installed. 6. Return of Equipment. BFE not installed in the Aircraft will be returned to Buyer in accordance with Buyer's instructions and at Buyer's expense. 7. Title and Risk of Loss. Title to and risk of loss of BFE will at all times remain with Buyer or other owner. Boeing will have only such liability for BFE as a bailee for mutual benefit would have, but will not be liable for loss of use.   8. Indemnification of Boeing. Buyer hereby indemnifies and holds harmless Boeing from and against all claims and liabilities, including costs and expenses (including attorneys' fees) incident thereto or incident to successfully establishing the right to indemnification, for injury to or death of any person or persons, including employees of Buyer but not employees of Boeing, or for loss of or damage to any property, including any Aircraft, arising out of or in any way connected with any nonconformance or defect in any BFE and whether or not arising in tort or occasioned in whole or in part by the active, passive or imputed negligence of Boeing. This indemnity will not apply with respect to any nonconformance or defect caused solely by Boeing's installation of the BFE. 9. Patent Indemnity. Buyer hereby indemnifies and holds harmless Boeing from and against all claims, suits, actions, liabilities, damages and costs arising out of any actual or alleged infringement of any patent or other intellectual property rights by BFE or arising out of the installation, sale or use of BFE by Boeing. 10. Definitions. For the purposes of the above indemnities, the term "Boeing" includes The Boeing Company, its divisions, subsidiaries and affiliates, the assignees of each, and their directors, officers, employees and agents. BOEING MODEL 737 AIRCRAFT   Item Preliminary On-Dock Dates Dates for 1st delivery of each model: 737-724 737-824 Jan 1998 Apr 1998 Aircraft Aircraft Seats 10/14/97 2/17/98 Galleys 10/9/97 2/12/98 Electronics 10/1/97 2/3/98 Furnishings 10/7/97 2/9/98   737-924 737-524 May 2001 Jul 1997 Aircraft Aircraft Seats 2/22/01 6/5/97 Galleys 2/20/01 6/2/97 Electronics 1/17/01 5/27/97 Furnishings 1/12/01 5/28/97 1951-3R13 December 21, 2000   Continental Airlines, Inc. 1600 Smith Street Houston, Texas 77002   Subject: Letter Agreement No. 1951-3R13 to Purchase Agreement No. 1951 - Option Aircraft - Model 737-824 Aircraft   Ladies and Gentlemen: This Letter Agreement amends Purchase Agreement No. 1951 dated July 23, 1996(the Agreement) between The Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer) relating to Model 737-824 aircraft (the Aircraft). This Letter Agreement supersedes and replaces in its entirety Letter Agreement 1951-3R12 dated October 31, 2000. All terms used and not defined herein shall have the same meaning as in the Agreement. In consideration of Buyer's purchase of the Aircraft, Boeing hereby agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model 737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms and conditions set forth in the Agreement, except as otherwise described in Attachment A hereto, and subject to the terms and conditions set forth below. 1. Delivery. The Option Aircraft will be delivered to Buyer during or before the months set forth in the following schedule: Month and Year Number of of Delivery   Option Aircraft [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 3. Option Aircraft Deposit. In consideration of Boeing's grant to Buyer of options to purchase the Option Aircraft as set forth herein, Buyer has paid a deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option Aircraft (the Option Deposit) prior to the date of this Letter Agreement. In the event Buyer exercises an option herein for an Option Aircraft, the amount of the Option Deposit for such Option Aircraft will be credited against the first advance payment due for such Option Aircraft pursuant to the advance payment schedule set forth in Article 5 of the Agreement. In the event that Buyer does not exercise its option to purchase a particular Option Aircraft pursuant to the terms and conditions set forth herein, Boeing shall be entitled to retain the Option Deposit for such Option Aircraft. 4. Option Exercise. To exercise its option to purchase the Option Aircraft, Buyer shall give written notice thereof to Boeing on or before the first business day of the month in each Option Exercise Date shown below: Option Aircraft Option Exercise Date [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] 5. Contract Terms. Within thirty (30) days after Buyer exercises an option to purchase Option Aircraft pursuant to paragraph 4 above, Boeing and Buyer will use their best reasonable efforts to enter into a supplemental agreement amending the Agreement to add the applicable Option Aircraft to the Agreement as a firm Aircraft (the Option Aircraft Supplemental Agreement). In the event the parties have not entered into such an Option Aircraft Supplemental Agreement within the time period contemplated herein, either party shall have the right, exercisable by written or telegraphic notice given to the other within ten (10) days after such period, to cancel the purchase of such Option Aircraft. 6. Cancellation of Option to Purchase. Either Boeing or Buyer may cancel the option to purchase an Option Aircraft if any of the following events are not accomplished by the respective dates contemplated in this Letter Agreement, or in the Agreement, as the case may be: (i) purchase of the Aircraft under the Agreement for any reason not attributable to the canceling party; (ii) payment by Buyer of the Option Deposit with respect to such Option Aircraft pursuant to paragraph 3 herein; or (iii) exercise of the option to purchase such Option Aircraft pursuant to the terms hereof. Any cancellation of an option to purchase by Boeing which is based on the termination of the purchase of an Aircraft under the Agreement shall be on a one-for-one basis, for each Aircraft so terminated. Cancellation of an option to purchase provided by this letter agreement shall be caused by either party giving written notice to the other within ten (10) days after the respective date in question. Upon receipt of such notice, all rights and obligations of the parties with respect to an Option Aircraft for which the option to purchase has been cancelled shall thereupon terminate. Boeing shall promptly refund to Buyer, without interest, any payments received from Buyer with respect to the affected Option Aircraft. Boeing shall be entitled to retain the Option Deposit unless cancellation is attributable to Boeing's fault, in which case the Option Deposit shall also be returned to Buyer without interest. 7. Applicability. Except as otherwise specifically provided, limited or excluded herein, all Option Aircraft that are added to the Agreement by an Option Aircraft Supplemental Agreement as firm Aircraft shall benefit from all the applicable terms, conditions and provisions of the Agreement.   If the foregoing accurately reflects your understanding of the matters treated herein, please so indicate by signature below. Very truly yours, THE BOEING COMPANY     By   /s/ Henry H. Hart     Its     Attorney In Fact      ACCEPTED AND AGREED TO this Date: December 21, 2000 CONTINENTAL AIRLINES, INC.,     By   /s/ Gerald Laderman                       Its   Senior Vice President - Finance            Attachment Model 737-824 Aircraft 1. Option Aircraft Description and Changes. 1.1 Aircraft Description. The Option Aircraft are described by Boeing Detail Specification D6-38808-43, Revision B, dated April 30,2000, as amended and revised pursuant to the Agreement. 1.2 Changes. The Option Aircraft Detail Specification shall be revised to include: (1) Changes applicable to the basic Model 737-800 aircraft which are developed by Boeing between the date of the Detail Specification and the signing of an Option Aircraft Supplemental Agreement. (2) Changes mutually agreed upon. (3) Changes required to obtain a Standard Certificate of Airworthiness. 1.3 Effect of Changes. Changes to the Detail Specification pursuant to the provisions of the clauses above shall include the effects of such changes upon Option Aircraft weight, balance, design and performance. 2. Price Description. 2.1 Price Adjustments. 2.1.1 Base Price Adjustments. The base aircraft price (pursuant to Article 3 of the Agreement) of the Option Aircraft will be adjusted to Boeing's and the engine manufacturer's then-current prices as of the date of execution of the Option Aircraft Supplemental Agreement. 2.1.2 Special Features. The price for special features incorporated in the Option Aircraft Detail Specification will be adjusted to Boeing's then-current prices for such features as of the date of execution of the Option Aircraft Supplemental Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]. 2.1.3 Escalation Adjustments. The base airframe and special features price will be escalated according to the applicable airframe and engine manufacturer escalation provisions contained in Exhibit D of the Agreement. Buyer agrees that the engine escalation provisions will be adjusted if they are changed by the engine manufacturer prior to signing the Option Aircraft Supplemental Agreement. In such case, the then-current engine escalation provisions in effect at the time of execution of the Option Aircraft Supplemental Agreement will be incorporated into such agreement. 2.1.4 Price Adjustments for Changes. Boeing may adjust the basic price and the advance payment base prices for any changes mutually agreed upon by Buyer and Boeing subsequent to the date that Buyer and Boeing enter into the Option Aircraft Supplemental Agreement. 2.1.5 BFE to SPE. An estimate of the total price for items of Buyer Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE) pursuant to the Detail Specification is included in the Option Aircraft price build-up. The purchase price of the Option Aircraft will be adjusted by the price charged to Boeing for such items plus 10% of such price. 3. Advance Payments. 3.1 Buyer shall pay to Boeing advance payments for the Option Aircraft pursuant to the schedule for payment of advance payments provided in the Purchase Agreement.  

Exhibit 10.2 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT   THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (hereinafter, this “First Amendment”) is executed this 8th day of November, 2001, by and among BANCTEC, INC., a Delaware corporation, (“Borrower”), the financial institution(s) listed on the signature pages hereof, and their respective successors and Eligible Assignees (each individually as “Lender” and collectively “Lenders”) and HELLER FINANCIAL, INC., a Delaware corporation (“Heller”), for itself as Lender and as Agent, to be effective as of the respective date hereinafter specified. RECITALS WHEREAS, Borrower and Heller are parties to that certain Loan and Security Agreement, dated as of May 30, 2001, (as amended or otherwise modified in writing, the “Loan Agreement”); and WHEREAS, Borrower and Heller desire to amend the Loan Agreement in the manner, and subject to the terms and conditions, provided below. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS 1.01     Capitalized terms used in this First Amendment, to the extent not otherwise defined herein, shall have the same meaning as in the Loan Agreement, as amended hereby.   ARTICLE II AMENDMENTS TO LOAN AGREEMENT; OTHER AGREEMENTS 2.01     Amendment to Section 2.1(B) of the Loan Agreement.  Effective as of the date hereof, the second sentence of Section 2.1(B) of the Loan Agreement is hereby amended by deleting it in its entirety and substituting the following sentence therefor:   “The aggregate amount of the Revolving Loan Commitment shall not exceed at any time $60,000,000.00.”   2.02     Amendment to Section 2.1(H)(1) of the Loan Agreement.  Effective as of the date hereof, the reference to “$5,000,000.00” contained in Section 2.1(H)(1) of the Loan Agreement is hereby deleted and “$20,000,000.00” is substituted in lieu thereof.   2.03     Amendment to Section 5.10 of the Loan Agreement.  Effective as of the date hereof, Section 5.10 of the Loan Agreement is hereby deleted in its entirety.   2.04     Amendment to Section 5.12 of the Loan Agreement.  Effective as of the date hereof, Section 5.12 of the Loan Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: “Subject to the satisfaction of the following conditions in a manner reasonably satisfactory to Agent, upon the request of Borrower (which request may only be made if no Default or Event of Default is at such time in existence), BancTec (Canada), Inc. shall be included as a “co-borrower” under this Agreement and the Accounts and Inventory of BancTec (Canada), Inc. shall become eligible for consideration as components of the Borrowing Base: (A)       Agent shall have completed all due diligence and analysis (including audits and field examinations) deemed necessary by Agent in its credit judgment as to the applicability and appropriateness of such Inventory and Accounts as possible components of the Borrowing Base and the results of such due diligence and analysis shall be satisfactory to Agent, and Agent shall have completed all due diligence and analysis regarding BancTec (Canada), Inc. deemed reasonably necessary by Agent and the results of such due diligence and analysis shall be reasonably satisfactory to Agent. (B)       Agent, Borrower and BancTec (Canada), Inc. shall have agreed upon (i) the criteria for eligibility of such Accounts and Inventory as components of the Borrowing Base (which eligibility shall be subject to the overall limitation that such eligible Accounts and such eligible Inventory are such Accounts and Inventory that Agent, in its reasonable credit judgment, deems to be eligible for borrowing purposes), (ii) the terms upon which BancTec (Canada), Inc. will become a “co-borrower,” (iii) all reporting regarding such Accounts and Inventory, the collection of such Accounts, and the other material administration procedures and provisions relating to such Accounts and Inventory, and (iv) such other procedures and agreements as to such Accounts and Inventory typically required by an asset-based lender in this type of credit facility. (C)       Agent shall have received all executed and issued documentation (in form and substance satisfactory to Agent) necessary, in the judgment of Agent, to grant Agent, for the benefit of Lenders, as security for the Obligations of BancTec (Canada), Inc., a perfected first priority Lien in the Accounts and Inventory of BancTec (Canada), Inc., and in such other property of BancTec (Canada), Inc. as shall be required by Agent, provided that the amount of the Obligations secured by such collateral shall be limited to the extent necessary, if at all, to avoid conflict with the Unsecured Senior Notes Indenture. (D)       Agent shall have received all executed and issued documentation (in form and substance satisfactory to Agent) necessary, in the judgment of Agent, to make BancTec (Canada), Inc. a “co-borrower” under this Agreement. (E)       Borrower shall be responsible for the payment of all fees and expenses (including the fees and expenses of Agent and counsel to Agent) relating to making BancTec (Canada), Inc. a co-borrower” under this Agreement, including, without limitation, the effectuation of the above-described conditions precedent.” 2.05     Amendment to Section 5.13 of the Loan Agreement.  Effective as of June 30, 2001, Section 5.13 is hereby amended by deleting the reference to "the thirtieth (30th) day after the Closing Date" contained therein and substituting in lieu thereof "November 30, 2001".   2.06     Amendment to Section 5.14 of the Loan Agreement.  Effective as of June 30, 2001, Section 5.14 is hereby amended by deleting the reference to “the sixtieth (60th) day after the Closing Date” contained therein and substituting in lieu thereof “July 31, 2001”. 2.07     Amendment to Section 5.15 of the Loan Agreement.  Effective as of June 30, 2001, Section 5.15 is hereby amended by deleting the reference to “the thirtieth (30th) day after the Closing Date” contained therein and substituting in lieu thereof “November 30, 2001”. 2.08     Amendment to Schedule 7.1 of the Loan Agreement.  Effective as of May 30, 2001, Schedule 7.1 to the Loan Agreement is hereby amended by deleting the reference to the dollar amount, “$12,955,000” and substituting therefor the dollar amount “$33,220,000.” 2.09     Amendment to the Signature Page of the Loan Agreement.  Effective as of the date hereof, the signature page of the Loan Agreement is hereby amended such that the reference to the dollar amount of the Revolving Loan Commitment thereon shall be “$60,000,000.00”.   ARTICLE III CONDITIONS PRECEDENT   3.01     Conditions to Effectiveness.  Notwithstanding anything herein to the contrary, the effectiveness of this First Amendment is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Heller: (a)        Heller shall have received, in form and substance satisfactory to Heller and duly executed by Borrower, (i) this First Amendment and (ii) such additional documents, instruments and information as Heller or its legal counsel, Patton Boggs LLP, may request; and (b)        All corporate proceedings taken in connection with the transactions contemplated by this First Amendment and the agreements described in clause (a) above and all documents, instruments and other legal matters incident thereto shall be satisfactory to Heller and its legal counsel, Patton Boggs LLP. ARTICLE IV NO WAIVER   4.01     Except as set forth herein, nothing contained herein shall be construed as a waiver by Agent or any Lender of any covenant or provision of the Loan Agreement, the other Loan Documents, this First Amendment, or of any other contract or instrument between Borrower, Agent and/or any Lender, and Agent’s or any Lender’s failure at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of Agent and/or any Lender to thereafter demand strict compliance therewith.  Agent and Lenders hereby reserve all rights granted under the Loan Agreement, the other Loan Documents, this First Amendment and any other contract or instrument between Borrower, Agent and/or any Lender. ARTICLE V RATIFICATIONS, REPRESENTATIONS AND WARRANTIES   5.01     Ratifications.  The terms and provisions set forth in this First Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and the other Loan Documents, and except as expressly modified and superseded by this First Amendment, the terms and provisions of the Loan Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect.  Borrower, Agent and Lenders agree that the Loan Agreement and the other Loan Documents, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. 5.02     Representations and Warranties.  Borrower hereby represents and warrants to Agent that (a) the execution, delivery and performance of this First Amendment and any and all other Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Certificate of Incorporation or Bylaws of Borrower; (b) the representations and warranties contained in the Loan Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof and on and as of the date of execution hereof as though made on and as of each such date; (c) no Event of Default or Default under the Loan Agreement has occurred and is continuing, unless such Event of Default or Default has been specifically waived in writing by Lender; and (d) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, as amended hereby. ARTICLE VI MISCELLANEOUS PROVISIONS   6.01     Survival of Representations and Warranties.  All representations and warranties made in the Loan Agreement or any other Loan Document, including, without limitation, any document furnished in connection with this First Amendment, shall survive the execution and delivery of this First Amendment and the other Loan Documents, and no investigation by Agent or any Lender or any closing shall affect the representations and warranties or the right of Agent or any Lender to rely upon them. 6.02     Reference to Loan Agreement.  Each of the Loan Documents, including the Loan Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby amended so that any reference in such Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement, as amended hereby. 6.03     Expenses of Agent.  As provided in the Loan Agreement, Borrower agrees to promptly pay all fees, costs and expenses incurred by Agent (including attorneys’ fees and expenses, the allocated cash of Agent’s internal legal staff and fees of environmental consultants, accountants and other professionals retained by Agent) incurred in connection with the review, negotiation, preparation, documentation and execution of this First Amendment. 6.04     Severability.  Any provision of this First Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this First Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.05     Agent, Successors and Assigns.  This First Amendment is binding upon and shall inure to the benefit of Agent and Lenders and Borrower and their respective successors and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Agent and Lenders. 6.06     Counterparts.  This First Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.07     Effect of Waiver.  No consent or waiver, express or implied, by Agent or any Lender to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.08     Headings.  The headings, captions, and arrangements used in this First Amendment are for convenience only and shall not affect the interpretation of this First Amendment. 6.09     Applicable Law.  THIS FIRST AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. 6.10     Final Agreement.  THE LOAN DOCUMENTS, AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS FIRST AMENDMENT IS EXECUTED.  THE LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NOT UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS FIRST AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER, LENDERS AND AGENT.   [The Remainder of this Page Intentionally Left Blank]     IN WITNESS WHEREOF, this First Amendment to Loan and Security Agreement has been duly executed as of the date first written above.                 BANCTEC, INC.,             as Borrower                             By: /s/ Brian R. Stone             Name: Brian R. Stone             Title: Senior Vice President and               Chief Financial Officer                                             HELLER FINANCIAL, INC.,             as Agent and as a Lender                             By: /s/ Linda Peddles             Name: Linda Peddles             Title: Vice President          

PROMISSORY NOTE Principal $2,000,000.00 Loan Date 05-09-1997 Maturity 06-30-1998 Loan No. Call Collateral Account Officer 490 Initials References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item.   Borrower: Industrial Services of America, Inc. (TIN: 69-0712746) 7100 Grade Lane Louisville, KY 40232 Lender: Bank of Louisville 500 West Broadway Louisville, KY 40202             Principal Amount: $3,000,000.00 Initial Rate: 8.500% Date of Agreement: November 30, 2000 PROMISE TO PAY. Industrial Services of America, Inc. ("Borrower") promises to pay to Bank of Louisville and Trust Company ("Lender"), or order, in lawful money of the United States of America, the principal amount of Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on June 30, 1998. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning May 30, 1997, and all subsequent interest payments are due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an Index which is the prime rate which shall be deemed to mean, at any time the interest rate per annum most recently designated by the lender as its "prime rate" (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sold discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute Index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The rate of interest shall be adjusted from time to time on the same day on which the "prime rate" is changed by lender. The Index currently is 8.500% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate equal to the Index, resulting in an initial rate of 8.500% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT FEE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is late, Borrower will be charged 5.000% of the regularly scheduled payment. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 6.000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the Commonwealth of Kentucky. If there is a lawsuit, Borrower agrees upon lender's request to submit to the jurisdiction of the courts of Jefferson County, the Commonwealth of Kentucky. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. COLLATERAL. This Note is secured by Security Agreement and UCC-1 Financing Statement on all Inventory, Chattel Paper, Accounts, Equipment, General Intangibles, and Fixtures. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested orally by Borrower or by an authorized person. All oral requests shall be confirmed in writing on the date of the request. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; or (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THIS NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS NOTE. BORROWER: Industrial Services of America, Inc.   By: /s/ Timothy W. Myers                         Timothy W. Myers, President  

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10.23 After Recording Return To: Marco de Sa e Silva Davis Wright Tremaine LLP 2600 Century Square 1501 Fourth Avenue Seattle, Washington 98101-1688 -------------------------------------------------------------------------------- DEED OF TRUST Grantor:   Port Ludlow Associates LLC, a Washington limited liability company Trustee:   Jefferson Title Company, Inc., a Washington corporation Beneficiary:   Pope Resources, a Delaware limited partnership Abbreviated Legal Description:     Portions of Sections 8, 16, 17 and 21, Township 28 North, Range 1 East, W.M., Jefferson County, Washington.     Complete legal description is on pages 14-17 (Exhibit A) of document. Assessor's Property Tax Parcel Account Numbers:     See Attachment 1 hereto. Reference Numbers of Assigned or Released Documents:     None. -------------------------------------------------------------------------------- Attachment 1 969800001   LUDLOW POINT VILLAGE DIV 4 LOT 1 969800002   LUDLOW POINT VILLAGE DIV 4 LOT 2 998500017   TIMBERTON VILLAGE PHASE I LOT 17 SUBJ/EASE 998700009   TEAL LAKE VILLAGE LOT 9 998700015   TEAL LAKE VILLAGE LOT 15 998700016   TEAL LAKE VILLAGE LOT 16 998700017   TEAL LAKE VILLAGE LOT 17 998700018   TEAL LAKE VILLAGE LOT 18 998700074   TEAL LAKE VILLAGE LOT 74 998700075   TEAL LAKE VILLAGE LOT 75 998700076   TEAL LAKE VILLAGE LOT 76 998700077   TEAL LAKE VILLAGE LOT 77 998700078   TEAL LAKE VILLAGE LOT 78 998700094   TEAL LAKE VILLAGE LOT 94 998700099   TEAL LAKE VILLAGE LOT 99 999700011   WOODRIDGE VILLAGE DIV 1 LOT 11 999700019   WOODRIDGE VILLAGE DIV 1 LOT 19 999700023   WOODRIDGE VILLAGE DIV 1 LOT 23 999700024   WOODRIDGE VILLAGE DIV 1 LOT 24 999700025   WOODRIDGE VILLAGE DIV 1 LOT 25 999700026   WOODRIDGE VILLAGE DIV 1 LOT 26 999700027   WOODRIDGE VILLAGE DIV 1 LOT 27 999700028   WOODRIDGE VILLAGE DIV 1 LOT 28 999700030   WOODRIDGE VILLAGE DIV 1 LOT 30 2 -------------------------------------------------------------------------------- 999700036   WOODRIDGE VILLAGE DIV 1 LOT 36 968600027   LUDLOW BAY VILLAGE LOT TH-14 968600028   LUDLOW BAY VILLAGE LOT TH-15 968600029   LUDLOW BAY VILLAGE LOTS TH-16 & 16A 968600030   LUDLOW BAY VILLAGE LOT TH-17 968600031   LUDLOW BAY VILLAGE LOT TH-18 968600032   LUDLOW BAY VILLAGE LOT TH-19 968600033   LUDLOW BAY VILLAGE LOT TH-20 968600034   LUDLOW BAY VILLAGE LOT TH-21 968600035   LUDLOW BAY VILLAGE LOT TH-22 968600036   LUDLOW BAY VILLAGE LOT TH-23 968600037   LUDLOW BAY VILLAGE LOT TH-24 968600038   LUDLOW BAY VILLAGE LOT TH-25 968600039   LUDLOW BAY VILLAGE LOT TH-26 968600040   LUDLOW BAY VILLAGE LOT TH-27 968600041   LUDLOW BAY VILLAGE LOTS TH-28 & 28A 968600042   LUDLOW BAY VILLAGE LOTS TH-29 & 29A 968600043   LUDLOW BAY VILLAGE LOT TH-30 968600044   LUDLOW BAY VILLAGE LOT TH-31 968600045   LUDLOW BAY VILLAGE LOT TH-32 968600046   LUDLOW BAY VILLAGE LOT TH-33 968600047   LUDLOW BAY VILLAGE LOT TH-34 968600048   LUDLOW BAY VILLAGE LOT TH-35 968600049   LUDLOW BAY VILLAGE LOT TH-36 968600050   LUDLOW BAY VILLAGE LOT TH-37 3 -------------------------------------------------------------------------------- 968600051   LUDLOW BAY VILLAGE LOT TH-38 968600052   LUDLOW BAY VILLAGE LOT TH-39 968600053   LUDLOW BAY VILLAGE LOT TH-40 968600054   LUDLOW BAY VILLAGE LOT TH-41 968600055   LUDLOW BAY VILLAGE LOT TH-42 968600056   LUDLOW BAY VILLAGE LOT TH-43 968600057   LUDLOW BAY VILLAGE LOTS TH-44 & 44A 968600058   LUDLOW BAY VILLAGE LOTS TH-45 & 45A 968600059   LUDLOW BAY VILLAGE LOT TH-46 968600060   LUDLOW BAY VILLAGE LOT TH-47 968600061   LUDLOW BAY VILLAGE LOT TH-48 968600062   LUDLOW BAY VILLAGE LOT TH-49 968600063   LUDLOW BAY VILLAGE LOT TH-50 968600064   LUDLOW BAY VILLAGE LOT TH-51 968600065   LUDLOW BAY VILLAGE LOTS TH-52 & 52A 968600066   LUDLOW BAY VILLAGE LOT TH-53 968600009   LUDLOW BAY VILLAGE LOT SF-1 968600010   LUDLOW BAY VILLAGE LOT SF-2 968600011   LUDLOW BAY VILLAGE LOT SF-3 968600012   LUDLOW BAY VILLAGE LOT SF-4 998500028   TIMBERTON VILLAGE PHASE II LOT 28 SUBJ TO EASE 998500029   TIMBERTON VILLAGE PHASE II LOT 29 SUBJ TO EASE 998500030   TIMBERTON VILLAGE PHASE II LOT 30 SUBJ TO EASE 998500031   TIMBERTON VILLAGE PHASE II LOT 31 SUBJ TO EASE 998500034   TIMBERTON VILLAGE PHASE II LOT 34 SUBJ TO EASE 4 -------------------------------------------------------------------------------- 998500035   TIMBERTON VILLAGE PHASE II LOT 35 SUBJ TO EASE 998500036   TIMBERTON VILLAGE PHASE II LOT 36 SUBJ TO EASE 998500037   TIMBERTON VILLAGE PHASE II LOT 37 SUBJ TO EASE 998500038   TIMBERTON VILLAGE PHASE II LOT 38 SUBJ TO EASE 998500039   TIMBERTON VILLAGE PHASE II LOT 39 SUBJ TO EASE 998500040   TIMBERTON VILLAGE PHASE II LOT 40 SUBJ TO EASE 998500046   TIMBERTON VILLAGE PHASE II LOT 46, SUBJ TO EASE 998500050   TIMBERTON VILLAGE PHASE II LOT 50 SUBJ TO EASE 998500051   TIMBERTON VILLAGE PHASE II LOT 51 SUBJ TO EASE 998500052   TIMBERTON VILLAGE PHASE II LOT 52 SUBJ TO EASE 998500054   TIMBERTON VILLAGE PHASE II LOT 54 SUBJ TO EASE 998500055   TIMBERTON VILLAGE PHASE II LOT 55 SUBJ TO EASE 998500057   TIMBERTON VILLAGE PHASE II LOT 57 SUBJ TO EASE 998500058   TIMBERTON VILLAGE PHASE II LOT 58 SUBJ TO EASE 990100005   PORT LUDLOW NO 7 LOT 5 SUBJ TO ESMTS OF RECORD 990100006   PORT LUDLOW NO 7 LOT 6 SUBJ TO ESMTS OF RECORD 990100015   PORT LUDLOW NO 7 LOT 15 SUBJ TO ESMTS OF RECORD 990100019   PORT LUDLOW NO 7 LOT 19/20 SUBJ TO ESMTS OF RECORD 990100021   PORT LUDLOW NO 7 LOT 21 SUBJ TO ESMTS OF RECORD 990100022   PORT LUDLOW NO 7 LOT 22 SUBJ TO ESMTS OF RECORD 821173002   TIMBERTON III 5 -------------------------------------------------------------------------------- DEED OF TRUST     THIS DEED OF TRUST is made this      day of August, 2001, among Port Ludlow Associates LLC, a Washington limited liability company, as Grantor, whose address is c/o HCV Pacific Partners LLC, 625 Market Street, Suite 600, San Francisco, California 94105; Jefferson Title Company, Inc., a Washington corporation, as Trustee, whose address is 2205 Washington Street, P.O. Box 256, Port Townsend, Washington 98368; and Pope Resources, a Delaware limited partnership, as Beneficiary, whose address is 19245 Tenth Avenue N.E., Poulsbo, Washington 98370-0239.     Grantor irrevocably grants, bargains, sells, and conveys to Trustee in trust, with power of sale, the property in Jefferson County, Washington, described on Exhibit A attached hereto and incorporated herein by reference, together with all interest and estate therein that the Grantor may hereafter acquire and together with the rents, issues, and profits therefrom, all waters and water rights however evidenced or manifested, and all appurtenances, buildings, structures, fixtures, attachments, tenements, and hereditaments, now or hereafter belonging or appertaining thereto (the "Property").     The Property is divided into the following four (4) categories or types of lots, as shown on Exhibit A: Type I Lots, Type II Lots, Type III Lots, and Type IV Lots. A Type I Lot is a platted lot improved by a completed single family residence as of the date hereof. A Type II Lot is a platted lot upon which a single family residence is under construction and is fifty percent (50%) or more completed, based on the estimated total construction cost, as of the date hereof. A Type III Lot is a platted lot upon which a single family residence is under construction and is less than fifty percent (50%) completed, based on the estimated total construction cost, as of the date hereof. A Type IV Lot is a vacant platted lot.     Grantor covenants the Property is not used principally for agricultural purposes.     THIS DEED IS FOR THE PURPOSE OF SECURING PAYMENT AND PERFORMANCE of each agreement of Grantor incorporated by reference or contained herein and payment of the sum of FIVE MILLION EIGHT HUNDRED FOURTEEN THOUSAND SEVEN HUNDRED FORTY-TWO DOLLARS (US$5,814,742.00) with interest thereon and any late charges, according to the terms of a promissory note dated of even date herewith, payable to Beneficiary or order and made by Grantor (the "Note"); all renewals, modifications or extensions thereof; and also such further sums as may be advanced or loaned by Beneficiary to Grantor, or any of their successors or assigns, together with interest thereon at such rate as shall be agreed upon.     As used herein, "Loan Documents" means the Note, this Deed of Trust, that certain unrecorded Subordination and Release Agreement of even date herewith between Grantor and Beneficiary (the "Subordination and Release Agreement"), and any other document executed by Grantor in connection with the indebtedness secured hereby, including without limitation any loan agreement, and all renewals, modifications and extensions thereof.     The Grantor covenants and agrees as follows:     1.  To pay all debts and monies secured hereby, when from any cause the same shall become due. To keep the Property free from statutory and governmental liens of any kind except liens for taxes and assessments not delinquent. That the Grantor is seized in fee simple of the Property and owns outright every part thereof, that he has good right to make this Deed of Trust and that he will forever warrant and defend said Property unto the Beneficiary, its successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof. The Grantor upon request by mail will furnish a written statement duly acknowledged of the amount due on this Deed of Trust and whether any offsets or defenses exist against the debt secured hereby.     2.  To maintain the buildings and other improvements on the Property in a rentable and tenantable condition and state of repair, to neither commit nor suffer any waste, to promptly comply 6 -------------------------------------------------------------------------------- with all requirements of the Federal, State and Municipal authorities and all other laws, ordinances, regulations, covenants, conditions and restrictions respecting Property or the use thereof, and pay all fees or charges of any kind in connection therewith. Grantor shall permit Beneficiary or its agents the opportunity to inspect the Property, including the interior of any structures, at reasonable times and after reasonable notice.     3.  To use best efforts and due diligence to complete construction, within one hundred twenty (120) days after commencement of construction, of a single family residence upon each of the Type II Lots and Type III Lots, pursuant to building permits issued by Jefferson County, Washington, including all reasonably necessary appurtenances thereto, which shall include without limitation foundations, framing, sheathing, siding, windows, doors, walls, roofing, painting, and insulation; piping and plumbing fixtures; electrical distribution systems, outlets, and lighting fixtures; heating systems; carpeting and other floor finishes; window coverings; lawns, trees, shrubbery, and other landscaping; and concrete driveways.     4.  To use best efforts and due diligence to sell the Type I Lots, Type II Lots, Type III Lots, and Type IV Lots, to bona fide purchasers for fair market value, which shall include continuously and exclusively listing such lots for sale with a licensed real estate broker and paying fair and reasonable listing and sales commissions to such brokers upon closing, subject to Sections 10 and 13 hereof.     5.  To maintain unceasingly, property insurance with premiums prepaid, on all of the Property, or hereafter becoming part of Property, against loss by fire and other causes of loss, and with such endorsements, as may be reasonably required from time to time by the Beneficiary. Such insurance shall be in such amounts and for such periods of time as Beneficiary reasonably designates and shall include a standard mortgagee clause, and/or a loss payee endorsement (without contribution) in favor of and in form satisfactory to Beneficiary. The foregoing notwithstanding, Grantor shall not be required to maintain insurance against loss by war damage, nuclear accident, flood, or earthquake unless it is available at commercially reasonable rates. Grantor covenants upon demand on Beneficiary to deliver to Beneficiary such policies and evidences of payment of premiums as Beneficiary requests.     6.  To pay in full at least ten (10) days before delinquent all rents, taxes, assessments, encumbrances, charges, or liens with interest, that may now or hereafter be levied, assessed or claimed upon the Property that is the subject of this Deed of Trust or any part thereof, which at any time appear to be prior or superior hereto for which provision has not been made heretofore, and upon request will exhibit to Beneficiary official receipts therefor, and to pay all taxes imposed upon, reasonable costs, fees, and expenses of this Trust; provided, however, that Grantor, at its sole cost and expense and after written notice and furnishing of an appropriate bond to Beneficiary, may contest any rents, taxes, assessments, encumbrances, charges, or liens by appropriate proceedings conducted in good faith and with due diligence.. On default under this paragraph, Beneficiary may, at its option, pay any such sums, without waiver of any other right of Beneficiary by reason of such default of Grantor, and Beneficiary shall not be liable to Grantor for a failure to exercise any such option.     7.  To repay within ten (10) days upon written demand to Grantor all sums expended or advanced under the Loan Documents by or on behalf of Beneficiary or Trustee, with interest from the date of such advance or expenditure at the rate provided in the Note until paid, and the repayment thereof shall be secured hereby. Failure to repay such expenditure or advance and interest thereon within ten (10) days of delivery of such demand will, at Beneficiary's option, constitute an event of default hereunder. All sums expended or advanced by or on behalf of Beneficiary or Trustee in satisfaction of any obligation of Grantor under the Loan Documents and any other loan documents to which Grantor is a party and under which the Property is subject to a lien shall be paid by Grantor to Beneficiary within ten (10) days of delivery of Beneficiary's written demand, and such repayment obligation shall be secured by this Deed of Trust. 7 --------------------------------------------------------------------------------     8.  Time is of the essence hereof in connection with all obligations of the Grantor herein or in the Note. By accepting payment of any amount secured hereby after its due date, Beneficiary does not waive its right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay.     9.  All sums secured hereby shall become immediately due and payable, at the option of the Beneficiary without demand or notice, after any of the following occur, each of which shall be an Event of Default: (a) default by Grantor in the payment of any indebtedness secured hereby and expiration of any applicable cure period provided for in the Note without such default having been cured, (b) default in the performance or observance of any other agreement contained herein or secured hereby and expiration of any applicable cure period provided for herein or in any other Loan Document without such default having been cured; or (c) if Grantor or any party liable on the Note (including guarantors) shall make any assignment for the benefit of creditors or shall permit the institution of any proceedings under any federal or state statutes pertaining to bankruptcy, insolvency, arrangement, dissolution, liquidation or receivership, whether or not an order for relief is entered. In the event of a default, Beneficiary may declare all amounts owed under the Loan Documents immediately due and payable without demand or notice and/or exercise its rights and remedies under the Loan Documents and applicable law including foreclosure of this Deed of Trust judicially or nonjudicially by the Trustee pursuant to the power of sale. Beneficiary's exercise of any of its rights and remedies shall not constitute a waiver or cure of a default. Beneficiary's failure to enforce any default shall not constitute a waiver of the default or any subsequent default. Grantor agrees to pay all reasonable costs, including reasonable attorneys' fees, accountants' fees, appraisal and inspection fees and cost of a title report, incurred by Beneficiary in connection with collection of the Note or any foreclosure of this Deed of Trust, which costs shall be included in the indebtedness secured hereby; and in any suit, action or proceeding (including arbitration or bankruptcy proceedings), or any appeal therefrom, to enforce or interpret the Note or any other Loan Document, or to foreclose this Deed of Trust, the prevailing party shall be entitled to recover its costs incurred therein, including reasonable attorneys fees and costs of litigation. The Property may be sold separately or as a whole, at the option of Beneficiary. Trustee and/or Beneficiary may also realize on any personal property in accordance with the remedies available under the Uniform Commercial Code or at law. In the event of a foreclosure sale, Grantor and the holders of any subordinate liens or security interests waive any equitable, statutory or other right they may have to require marshaling of assets or foreclosure in the inverse order of alienation. Beneficiary may at any time discharge the Trustee and appoint a successor Trustee who shall have all of the powers of the original Trustee.     10.  Except for those instances in which Grantor pays Beneficiary a Release Fee at the closing of a Property lot sale as described at Section 13 below and in the Subordination and Release Agreement, if the Property or any part thereof or any interest therein is sold, conveyed, transferred, encumbered, or full possessory rights therein transferred, or if a controlling interest in Grantor (if a corporation or limited liability company) or a general partnership interest in Grantor (if a partnership) is sold, conveyed, transferred or encumbered, without the prior written consent of the Beneficiary, then Beneficiary may declare all sums secured by the Deed of Trust immediately due and payable. This provision shall apply to each and every sale, transfer, conveyance or encumbrance regardless of whether or not Beneficiary has consented or waived its rights, whether by action, or nonaction, in connection with any previous sale, transfer, conveyance, or encumbrance, whether one or more. Notwithstanding the foregoing, Grantor may sell, convey, transfer, or encumber the Property or any part thereof or any interest therein to any affiliate of Grantor, or to any limited partnership, general partnership, co-tenancy, or a limited liability company that is controlled or managed directly or indirectly by Grantor (an "Approved Transferee"). Notwithstanding any sale, conveyance, transfer, or encumbrance, in no event shall Grantor be released from any obligations under the Loan Documents.     11.   8 --------------------------------------------------------------------------------     11.1 Beneficiary may commence, appear in, and defend any action or proceeding which may affect the Property or the rights or powers of Beneficiary or Trustee.     11.2 If Beneficiary so requires following the occurrence of a default hereunder, Grantor shall pay to Beneficiary monthly, together with and in addition to any payments of principal and/or interest due under the Note, a sum, as estimated by the Beneficiary, equal to the ground rents, if any, the real estate taxes and assessments next due on the Property and the premiums next due on insurance policies required under this Deed of Trust, less all sums already paid therefor, divided by the number of months to elapse before 2 months prior to the date when the ground rents, real estate taxes, assessments and insurance premiums will become delinquent, to be held by Beneficiary without interest and used to pay such items when due.     11.3 This Deed of Trust shall also serve as a financing statement filed for record in the real estate records as a fixture filing pursuant to the Uniform Commercial Code. To the extent applicable, this is a security agreement under the Uniform Commercial Code.     11.4 If any payment made or to be made under the Loan Documents shall constitute a violation of the applicable usury laws, then the payment made or to be made shall be reduced so that in no event shall any obligor pay or Beneficiary receive an amount in excess of the maximum amount permitted by the applicable usury laws.     11.5 If Grantor is in default, any tender of payment sufficient to satisfy all sums due hereunder or under the Note or other documents secured hereby, if any, made at any time prior to foreclosure sale shall constitute an evasion of the prepayment terms of the Note, if any, and shall be deemed a voluntary pre-payment. Any such payment, to the extent permitted by law, shall include the additional payment required under the prepayment privilege in the Note or if at that time there is no prepayment privilege, then such payment, to the extent permitted by law, will include an additional payment of 5% of the then principal balance.     11.6 The right, duties, liabilities and obligations of the parties under the Note shall be construed and governed by and under the laws of the State of Washington. The right, duties, liabilities, and obligations of the parties with respect to the Property shall be governed by the laws of the state where the Property is located. It is the intent of the parties that, to the fullest extent allowable by law, the law of the State of Washington shall apply to the transaction of which this Deed of Trust is a part.     12.  Grantor agrees to provide written notice to Beneficiary immediately upon Grantor becoming aware that the Property or any adjacent property is being or has been contaminated after the date hereof with hazardous or toxic waste or substances. Grantor will not cause nor permit any activities on the Property that directly or indirectly could result in the Property or any other property becoming contaminated with hazardous or toxic waste or substances in violation of any applicable law, regulation, or ordinance. For purposes of this Deed of Trust, the term "hazardous or toxic waste or substances" means any substance or material defined or designated as hazardous or toxic wastes, hazardous or toxic material, a hazardous, toxic or radioactive substance or other similar term by any applicable federal, state or local statute, regulation or ordinance now or hereafter in effect. Grantor shall promptly comply with all statutes, regulations and ordinances which apply to Grantor or the Property, and with all orders, decrees or judgments of governmental authorities or courts having jurisdiction by which Grantor is bound, relating to the use, collection, storage, treatment, transportation, disposal, control, removal or cleanup of hazardous or toxic substances in, on or under the Property or in, on or under any adjacent property that becomes contaminated after the date hereof with hazardous or toxic substances as a result of construction, operations or other activities on, or the contamination of, the Property, at Grantor's expense. Beneficiary may, but is not obligated to, enter upon the Property and take such actions and incur such costs and expenses to effect such compliance as it deems advisable to protect its 9 -------------------------------------------------------------------------------- interest as Beneficiary; and whether or not Grantor has actual knowledge of the existence of hazardous or toxic substances in, on or under the Property or any adjacent property as of the date hereof.     13.  From time to time during the term hereof, Beneficiary shall grant partial releases of the lien of this Deed of Trust as to portions of the Property, subject to Grantor's compliance with and satisfaction of the requirements, terms, and conditions set forth within the Subordination and Release Agreement.     14.  During the term hereof, Beneficiary shall mutually execute and deliver a subordination agreement with Grantor's construction lender to subordinate the lien of this Deed of Trust as to certain of the Type III Lots and Type IV Lots, according to the requirements, terms, and conditions set forth in the Subordination and Release Agreement. EXECUTED as of the day and year first above written.   GRANTOR:   Port Ludlow Associates LLC, a Washington limited liability company     By West Coast Northwest Pacific Partners LLC, a Washington limited liability company, its manager     By:     /s/ RANDALL J. VERRUE    -------------------------------------------------------------------------------- Randall J. Verrue Its President 10 -------------------------------------------------------------------------------- EXHIBIT: A—Legal Description of Property       STATE OF WASHINGTON   )     ) ss. COUNTY OF KING   )     On this    day of August, 2001, before me, a Notary Public in and for the State of Washington, personally appeared RANDALL J. VERRUE, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed this instrument, on oath stated that he was authorized to execute the instrument, and acknowledged it as the PRESIDENT of WEST COAST NORTHWEST PACIFIC PARTNERS LLC, a Washington limited liability company, the manager of PORT LUDLOW ASSOCIATES LLC, a Washington limited liability company, to be the free and voluntary act and deed of said limited liability company for the uses and purposes mentioned in the instrument.     IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written.     --------------------------------------------------------------------------------     NOTARY PUBLIC in and for the State of Washington, residing at         --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     My appointment expires             --------------------------------------------------------------------------------     Print Name             -------------------------------------------------------------------------------- 11 -------------------------------------------------------------------------------- EXHIBIT A LEGAL DESCRIPTION OF PROPERTY TYPE I LOTS     Lots 9, 94 and 99, Teal Lake Village, as per plat recorded in Volume 6 of Plats, pages 186 through 197, which is an amendment to Volume 6 of Plats, pages 158 through 169, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lots 50 and 51 of Timberton Village Phase II as recorded in Volume 7 of plats, pages 107 through 112, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lots 11, 30 and 36, Woodridge Village, Division I, as per plat recorded in Volume 7 of plats, pages 47 through 50, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington. TYPE II LOTS     Lot 15, Teal Lake Village, as per plat recorded in Volume 6 of Plats, pages 186 through 197, which is an amendment to Volume 6 of Plats, pages 158 through 169, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lot 34 of Timberton Village Phase II as recorded in Volume 7 of plats, pages 107 through 112, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lot 27, Woodridge Village, Division I, as per plat recorded in Volume 7 of plats, pages 47 through 50, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington. TYPE III LOTS     Lot 15, Port Ludlow No. 7, as recorded in Volume 7 of Plats, pages 76 through 83, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lots 16, 17, 18 and 78, Teal Lake Village, as per plat recorded in Volume 6 of Plats, pages 186 through 197, which is an amendment to Volume 6 of Plats, pages 158 through 169, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lot 28, Woodridge Village, Division I, as per plat recorded in Volume 7 of plats, pages 47 through 50, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington. 12 -------------------------------------------------------------------------------- TYPE IV LOTS     Parcels TH14 through TH53 inclusive, 16A, 28A, 29A, 44A, 45A, 52A and SF1 through SF4, inclusive, as shown on the face of Ludlow Bay Village, as per plat recorded in Volume 6 of Plats, pages 228 through 233, records of Jefferson County, Washington.     TOGETHER WITH a perpetual non-exclusive easement over and across Tract "A" as shown on the final plat for access, ingress and egress along the private roadway located therein.     Situate in the County of Jefferson, State of Washington.     Lots 1 and 2 of Ludlow Point Village Division IV as recorded in Volume 6 of Plats pages 216 through 222, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lots 5, 6, 21, 22 and Lots 19/20, consisting of that combined property formerly consisting of Lots 19 and 20, Port Ludlow No. 7, as recorded in Volume 7 of Plats, pages 76 through 83, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lots 74 through 77, Teal Lake Village, as per plat recorded in Volume 6 of Plats, pages 186 through 197, which is an amendment to Volume 6 of Plats, pages 158 through 169, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     Lot 17, Timberton Village, Phase I, as per plat recorded in Volume 7 of Plats, page 16, records of Jefferson County, Washington.     EXCEPT the Northwesterly 5 feet thereof adjoining Lot 18 of said plat.     TOGETHER WITH the adjoining 5 feet of Lot 16 of said plat.     Situate in the County of Jefferson, State of Washington.     Lots 28 through 31, Lots 35, 36, 37 through 40, 52, 54, 55, 57 and 58 of Timberton Village Phase II as recorded in Volume 7 of plats, pages 107 through 112, records of Jefferson County, Washington.     ALSO Lot 46 together with that portion of Tract "C" of Timberton Village Phase II as recorded in Volume 7 of Plats at page 107 records of Jefferson County, Washington, lying between the Easterly line of Lot 46 of said Timberton Village Phase II, and the Westerly right-of-way margin of Timber Ridge Drive and Southerly of the Northerly line of said Lot 46 extended Easterly to intersect the Westerly right of way margin of said Timber Ridge Drive.     Situate in the County of Jefferson, State of Washington.     Lots 19, 23 through 26, Woodridge Village, Division I, as per plat recorded in Volume 7 of plats, pages 47 through 50, records of Jefferson County, Washington.     Situate in the County of Jefferson, State of Washington.     All residential building lots now existing or hereafter subdivided within the following described parcel (commonly known as the proposed plat of Timberton Village Phase III):     Revised Parcel "B" of BLA recorded under AFN 440088 being described as:     That portion of the southwest quarter of Section 17, Township 28 North, Range 1 East, W.M., in Jefferson County, Washington, more particularly described as follows:     COMMENCING at the south quarter corner of said Section 17; 13 --------------------------------------------------------------------------------     THENCE along the south line of said southwest quarter of Section 17, N 88°12'07" W, 637.48 feet to the TRUE POINT OF BEGINNING;     THENCE continuing along said south line, N 88°12'07" W, 812.73 feet to a line parallel with the east line of said southwest quarter;     THENCE along said parallel line, N 00°49'24" E, 771.12 feet;     THENCE N 77°03'46" E, 139.89 feet to a line which lies 60.00 feet southerly from AND parallel with the southerly margin of Tract A of "Timberton Village Phase I", filed in Volume 7 of Plats, pages 16 through 23, Records of Jefferson County, Washington, and a point of curvature;     THENCE along said parallel line AND along the southerly margin of Timberton Drive, the following courses:     Northeasterly 34.69 feet along the arc of a tangent curve to the left, having a radius of 410.00 feet, through a central angle of 04°50'50" to a point of reverse curvature;     Easterly 197.04 feet along the arc of a tangent curve to the right, having a radius of 350.00 feet, through a central angle of 32°15'20" to a point of tangency;     S 75°31'55" E, 70.64 feet to a point of curvature;     Southeasterly 305.34 feet along the arc of a tangent curve to the right, having a radius of 350.00 feet, through a central angle of 49°59'05" to a point of tangency;     S 25°32'50" E, 299.29 feet to a point of curvature;     Easterly 474.85 feet along the arc of a tangent curve to the left, having a radius of 280.00 feet, through a central angle of 97°10'00";     THENCE leaving said southerly margin, S 57°17'10" W, 466.67 feet to said south line of the southwest quarter of Section 17 AND the TRUE POINT OF BEGINNING. 14 -------------------------------------------------------------------------------- QuickLinks Exhibit 10.23 DEED OF TRUST Attachment 1 DEED OF TRUST EXHIBIT A LEGAL DESCRIPTION OF PROPERTY

QuickLinks -- Click here to rapidly navigate through this document FINDER'S AGREEMENT     This Finder's Agreement (the "Agreement") is entered into as of August 14, 2001, ("Effective Date") between Microvision, Inc., a Washington corporation ("Company"), and Brookehill Capital Partners ("Finder"). RECITALS     WHEREAS, Finder represents that he will endeavor to introduce the Company to Prospective Investors (as defined in Section 2.2 below) who may be interested in participating in a private placement of the Company's securities (the "Offering"); and     WHEREAS, the Company desires to engage the services of Finder to provide an introduction to such Prospective Investors in accordance with the terms and conditions set forth in this Agreement. AGREEMENT     NOW, THEREFORE, in consideration of the promises and mutual covenants hereinafter contained, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:     1.  Engagement.       1.1   The Company engages Finder to provide services on a non-exclusive basis to assist the Company in identifying Prospective Investors interested in participating in the Offering, and to use his best efforts to introduce Company to such Prospective Investors (the "Services").     1.2   Finder shall perform the Services in a manner that complies with applicable federal and state securities laws. Finder shall take no action that could limit or otherwise adversely affect the ability of the Company to claim an exemption from the registration or qualification requirements of applicable securities laws with respect to the Offering, and in particular will not take any action that could be construed as constituting a general solicitation or general advertising by the Company, as such terms are used in Rule 502 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act").     2.  Identification of Prospective Investors.       2.1   In order to coordinate the Company's and Finder's respective efforts during the period of engagement hereunder, Finder will from time to time notify the Company of Prospective Investors that he proposes to contact. Once Finder has identified a Prospective Investor to Company, Finder shall not identify additional Prospective Investors until either (a) the Company advises Finder, at its discretion, that it is not interested in being introduced to the Prospective Investor proposed by Finder, or (b) the Company requests that Finder identify additional Prospective Investors. If the Company informs Finder that it is interested in being introduced to a Prospective Investor, Finder will introduce representatives of the Company to the Prospective Investor. Finder will not make any contact with a Prospective Investor unless such contact is expressly approved by the Company.     2.2   For purposes of this Agreement, "Prospective Investors" shall mean "accredited investors," as such term is defined in Rule 501 of Regulation D under the Securities Act, who are introduced to the Company by Finder at the Company's request. Prospective Investors shall not include any persons who are current shareholders, officers, directors, consultants or employees of the Company or their respective family members, nor any person who has previously expressed an interest in participating in the Offering, directly or indirectly, such that the Company is already aware of such interest. 1 --------------------------------------------------------------------------------     3.  Annual Report and Other Documents.  The Company will furnish Finder from time to time at Finder's request with copies of the Company's 2001 annual report to shareholders and its quarterly and other periodic reports filed with the Securities and Exchange Commission.     4.  Compensation; Expenses.       4.1   In the event that Finder's efforts result in one or more Prospective Investors participating in the Offering, and provided that the gross proceeds to the Company in the Offering are not less than $15.0 million (the "Proceeds"), the Company shall, upon the closing of the Offering pay to Finder a cash fee equal to seven percent (7%) of the cash invested in the Offering by the Prospective Investors.     4.2   The Company shall reimburse Finder in accordance with the Company's travel expense policy for reasonable travel and entertainment expenses incurred on Company business in connection with performance of the Services, including but not limited to reimbursement for mileage, airfare, hotel, meals and such other non-travel and entertainment expenses as may be approved in advance by the Company.     5.  Term and Termination.       5.1   This Agreement shall commence on the Effective Date and shall remain in effect for six months thereafter. This Agreement will not be subject to any implied or automatic renewals, and any relationship between the parties after the term hereof will be the subject of a new agreement. The parties may extend the term or any subsequent term of this Agreement by executing a separate written agreement of extension.     5.2   Either party may terminate this Agreement for any reason or for no reason upon five days written notice to the other party. In addition, this Agreement shall terminate automatically upon Finder's death or disability.     5.3   The Company may terminate this Agreement without any additional obligation of any kind if Finder breaches a material obligation hereunder, which breach remains uncured by Finder for five days after receipt by Finder of notice from the Company asserting such breach.     5.4   Except if this Agreement is terminated pursuant to Section 5.3 hereof, Finder shall be entitled to payment for all properly documented reimbursable expenses incurred by him up to the date of termination and to the cash fee specified in Section 4.1 related to Prospective Investors who were referred by Finder prior to the date of termination and who participate in the Offering.     6.  Confidentiality.       6.1   Finder acknowledges and agrees that during the term of this Agreement, it may receive, learn or have access to confidential information belonging to the Company (the "Confidential Information"). Confidential Information includes any and all proprietary information disclosed or made available by the Company to Finder in any form, whether now existing or hereafter created, including without limitation all trade secrets, know-how, information systems, technology, data, computer programs, processes, methods, operational procedures, plans, marketing and customer information, vendors, personnel, financing and business information, strategies or results, and other information of a similar nature that is not generally disclosed by the Company to the public. Confidential Information shall not include any information that (i) is proven by written evidence to have been in Finder's possession prior to disclosure by the Company; (ii) is received by Finder from a third party having the right to disclose such information; (iii) is or hereafter becomes public knowledge through no act or fault of Finder; or (iv) is proven by written evidence to have been independently developed by Finder without access to the Confidential Information.     6.2   Finder agrees to keep the Company's Confidential Information in strict confidence and not to disclose it to any person, nor use the same for any purpose other than performance hereunder. 2 -------------------------------------------------------------------------------- Finder shall advise all employees with access to the Company's Confidential Information of their obligations with respect thereto. Notwithstanding the foregoing, Finder shall be and remain liable and responsible for the confidentiality obligations of his employees. In addition to the foregoing, Finder shall protect and safeguard the Company's Confidential Information by using the same degree of care, but no less than a commercially reasonable degree of care, to prevent the unauthorized use, dissemination or publication of the Company's Confidential Information as Finder uses to protect his own most confidential or proprietary information of a like nature.     6.3   Finder acknowledges and agrees that the foregoing terms and conditions are reasonable and necessary for the protection of the Company's Confidential Information and to prevent damage or loss to the Company. Finder further agrees that any breach or threatened breach of such provisions will cause the Company irreparable harm for which there is no adequate remedy at law. Therefore, Finder agrees that the Company shall be entitled, in addition to any other available remedies, to injunctive or other equitable relief to require specific performance or to prevent a breach of the foregoing confidentiality provisions, without posting bond, or by posting bond of the lowest amount required by law. The provisions of this Section 6 shall survive the expiration or termination of this Agreement.     7.  Indemnification.  Finder shall indemnify and hold the Company and its affiliates, directors, officers, agents, and employees (each an "Indemnified Party") harmless from and against any losses, claims, damages, or liabilities, or actions in respect thereof (each, a "Loss"), related to or arising out of Finder's engagement under this Agreement, and will reimburse the Indemnified Parties for all expenses (including attorneys' fees and court costs) as they are incurred by any such Indemnified Party in connection with investigating, preparing, or defending any such action or claim, whether or not in connection with pending or threatened litigation to which the Company is a party; provided, that Finder will not be responsible for any Loss that is finally determined to have resulted primarily and directly from Company's willful misconduct. Finder also agrees that the Indemnified Parties shall not have any liability to Finder for or in connection with Finder's engagement (other than the payment of fees in accordance with Section 4 hereof) except for any such liability for a Loss incurred by the Finder that results from an Indemnified Party's willful misconduct. The foregoing indemnification shall be in addition to any rights that an Indemnified Party may have at common law or otherwise. The provisions of this Section 7 shall survive the expiration or termination of this Agreement.     8.  Expenses.  Except for the expenses included in the fees in Section 4 above, the Company shall not be liable for any retainer, costs, expenses or other charges incurred by Finder or third parties at the request of Finder.     9.  Independent Contractor.  The Company and Finder agree that Finder shall perform services hereunder as an independent contractor and that Finder shall retain control over and responsibility for his own operations and personnel, if any. Nothing herein shall create any partnership, agency, employment or similar relationship between the parties. Finder will not, by reason of this Agreement, be entitled to participate in workers' compensation, retirement, insurance or any benefit under any Company benefit or other employee plan. The Company will not withhold or pay any income or payroll taxes on behalf of Finder. Neither party, nor their principals or employees, shall have authority to contract in the name of or bind the other, except as expressly agreed to in writing by the parties.     10.  Governing Law.  This Agreement shall be governed by the laws of the State of Washington, without giving effect to its conflicts of law rules. Jurisdiction and venue for any action or proceeding hereunder shall lie in the state and federal courts located in Seattle, Washington. The parties expressly agree that all claims in respect of any such action or proceeding may be heard and determined in any such court and Finder waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought.     12.  Notices.  All notices, requests, and other communications hereunder shall be deemed to be duly given if hand delivered or sent by overnight courier with guaranteed next day delivery, by 3 -------------------------------------------------------------------------------- confirmed facsimile transmission, or by U.S. mail, postage prepaid, return receipt requested, addressed to the other party at the address as set forth below: To the Company:   Microvision, Inc. Attn: Chief Financial Officer 19910 North Creek Parkway Bothell, WA 98011-3008 Fax: (425) 481-1625 To Finder:   Brookehill Capital Partners 1221 Post Road East Westport, Connecticut Fax: (203) 341-9364 Any notice or other communication hereunder shall be effective upon actual delivery. Either party may change the address or facsimile number to which notices for such party shall be addressed by providing notice of such change to the other party in the manner set forth in this Section 12.     13.  Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.     14.  Waiver.  No waiver of any term or condition of this Agreement shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement, by law or otherwise afforded, will be cumulative and not alternative.     15.  No Third Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the benefit of the parties hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person or entity.     16.  Survival.  The provisions of Sections 6, 7, 10, 12, and 17 hereof shall survive expiration or termination of this Agreement.     17.  Attorneys' Fees.  If any legal action, arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which a party may be entitled, including those incurred on appeal or in bankruptcy proceedings.     18.  Entire Agreement.  This Agreement, including Annex A hereto, contain the entire agreement of the parties relating to the subject matter hereof. This Agreement shall terminate and supersede any prior written or oral agreements or understandings between the parties regarding the subject matter hereof. Any amendments or modifications to this Agreement must be in writing and executed by the party against whom enforcement is sought.     19.  Successors and Assigns.  Finder acknowledges that the services to be rendered are unique and may not be assigned by Finder without the prior written consent of the Company. This Agreement will inure to the benefit of and be binding upon the parties and their permitted assigns and successors.     20.  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. 4 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the Effective Date. FINDER:   COMPANY: BROOKEHILL CAPITAL PARTNERS   MICROVISION, INC. By: /s/ Walter S Grossman   By: /s/ Richard A. Raisig Name: Walter S Grossman   Name: Richard A. Raisig Its: Chariman   Its: Chief Financial Officer 5 -------------------------------------------------------------------------------- QuickLinks FINDER'S AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. -------------------------------------------------------------------------------- Warrant No.: 2   Number of Shares: 5,000 Date of Issuance: June 5, 2001   (subject to adjustment) US SEARCH.COM INC. Warrant     US SEARCH.com Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that Pequot Private Equity Fund II, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 6 below), up to 5,000 shares of Series A-1 Convertible Preferred Stock, par value $.001 per share, of the Company ("Series A-1 Preferred"), at a purchase price of $100.00 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively.     1.  Exercise.       (a)  Manner of Exercise.  This Warrant may be exercised by the Registered Holder, in whole or in part, at any time after the date hereof and on or before the Expiration Date by surrendering this Warrant, with the purchase form appended hereto as Exhibit A-1 (the "Purchase Form") duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the aggregate Purchase Price payable in respect of the number of shares of Warrant Stock specified in such Purchase Form. The Purchase Price may be paid by cash or certified or official bank check payable to the Company, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder.     (b)  Effective Time of Exercise.  Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant, the accompanying Purchase Form and the aggregate Purchase Price shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise shall be deemed for the purposes hereof to have become the holder or holders of record of the Warrant Stock represented by such certificates issuable upon such exercise, notwithstanding that the stock transfer records of the Company may be closed or that certificates representing the Warrant Stock shall not then be actually delivered to the Registered Holder.     (c)  Net Issue Exercise.        (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to such -------------------------------------------------------------------------------- Registered Holder a number of shares of Warrant Stock computed using the following formula:     X =   Y (A - B)             --------------------------------------------------------------------------------             A     Where     X =   The number of shares of Warrant Stock to be issued to the Registered Holder.     Y =   The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation).     A =   The Fair Market Value of one share of Warrant Stock (at the date of such calculation).     B =   The Purchase Price (as adjusted to the date of such calculation).     (ii) For purposes of this Section 1(c), the "Fair Market Value" of one share of Warrant Stock on the date of calculation shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 7(b) below, in which case the Fair Market Value of one share of Warrant Stock shall be deemed to be the value received by the holder of one share of Series A-1 Preferred pursuant to such acquisition.     (d)  Delivery to Registered Holder.  As soon as practicable after the exercise of this Warrant, in whole or in part, pursuant to Section 1(a) or 1(c) hereof, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct:      (i) a certificate or certificates representing the number of shares of Warrant Stock to which such Registered Holder shall be entitled and cash in lieu of fractional shares issuable upon exercise, and     (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above.     2.  Adjustments.       (a)  Stock Splits and Dividends.  If outstanding shares of the Company's Series A-1 Preferred shall be subdivided into a greater number of shares or a dividend or other distribution in Series A-1 Preferred shall be paid in respect of Series A-1 Preferred, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend or other distribution be proportionately reduced. If outstanding shares of Series A-1 Preferred shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed 2 -------------------------------------------------------------------------------- to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment.     (b)  Reclassification, Etc.  In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, but before the Expiration Date, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property otherwise receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon such consummation if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2.     (c)  Effect of Conversion of Warrant Stock.  In the event that at any time on or after the date hereof, but before the Expiration Date, all of the then outstanding shares of Series A-1 Preferred are converted into shares of the Company's common stock, par value $.001 ("Common Stock"), and this Warrant has not been exercised as provided in Section 1 of this Warrant, this Warrant shall no longer represent the right to purchase Series A-1 Preferred and shall instead thereupon represent the right to purchase for the Purchase Price, in respect of each share (or portion thereof) of Series A-1 Preferred covered hereby immediately prior to such conversion, the number of shares (or portion thereof) of Common Stock into which such shares of Series A-1 Preferred were convertible immediately prior to such conversion. The number of shares of Common Stock purchasable under this Warrant, as determined by the foregoing sentence, shall be subject to adjustment pursuant to any subsequent stock split, combination, dividend, recapitalization or similar event with respect to Common Stock. To the extent that the Series A-1 Preferred converts to Common Stock, such that there are no outstanding shares of Series A-1 Preferred, all references to Warrant Stock or Series A-1 Preferred herein shall be deemed to be a reference to Common Stock.     (d)  Adjustment Certificate.  When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment.     3.  Transfers.       (a)  Unregistered Security.  Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock issuable upon conversion of the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon exercise of this Warrant, or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Act as to this Warrant, such Warrant Stock or such Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock or such other securities shall bear a legend substantially to the foregoing effect. 3 --------------------------------------------------------------------------------     (b)  Transferability.  This Warrant and the rights of the Registered Holder may not be sold, transferred or otherwise disposed of, in whole or in part, except to any Permitted Transferee of the Registered Holder, subject to compliance with Section 3(a) hereof provided, however, that this Warrant may not be transferred in part. Any such transfer shall be effective upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B-1 hereto) and funds sufficient to pay any transfer tax, at the principal office of the Company. "Permitted Transferee" shall mean (i) the Company, (ii) any subsidiary of the Company and (iii) any Affiliate of the Registered Holder. "Affiliate" shall mean (i) with respect to any individual, (A) a spouse or descendant of such individual, (B) any trust or family partnership whose beneficiaries shall solely be such individual and/or such individual's spouse and/or any person related by blood or adoption to such individual or such individual's spouse, and (C) the estate of such individual, (ii) with respect to any Person which is not an individual, any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person and/or one or more Affiliates thereof. For the purposes of this Section 3(b), the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, includes, without limitation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Person" shall mean and includes an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an unincorporated organization and a government or any department or agency thereof, or any entity similar to any of the foregoing.     (c)  Warrant Register.  The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change.     4.  Representations, Warranties and Covenants of the Registered Holder.  This Warrant has been issued by the company in reliance upon the following representations, warranties and covenants of the Registered Holder:     (a) The Registered Holder is experienced in evaluating start-up companies such as the Company, and has either individually or through its current officers such knowledge and experience in financial and business matters that the Registered Holder is capable of evaluating the merits and risks of the Registered Holder's prospective investment in the Company, and has the ability to bear the economic risks of the investment. The Registered Holder either (i) has a preexisting personal or business relationship with the Company or its principals or (ii) has substantial knowledge and experience in financial and business matters, has specific experience making investment decisions of a similar nature, and is capable, without the use of a financial advisor, of utilizing and analyzing the information made available in connection with the issuance of the Warrant and of evaluating the merits and risks of an investment in the Warrant Shares and protecting the Registered Holder's own interests in connection with this transaction. The Registered Holder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.     (b) The Registered Holder is acquiring this Warrant, and upon exercise of this Warrant, will acquire Warrant Stock, for investment for such Registered Holder's own account and not with the view to, or for resale in connection with, any distribution thereof in violation of law. The Registered Holder understands that this Warrant (and the Warrant Stock issuable upon exercise of 4 -------------------------------------------------------------------------------- this Warrant) have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Registered Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any third person with respect to any portion of this Warrant (or any Warrant Stock issuable upon exercise of this Warrant). The Registered Holder understands and acknowledges that this Warrant will not, and any issuance of Warrant Stock upon exercise of this Warrant may not, be registered under the Securities Act on the ground that the issuance of securities hereunder is exempt from the registration requirements of the Securities Act.     5.  No Impairment.  The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.     6.  Termination.  This Warrant (and the right to purchase shares of Series A-1 Preferred upon exercise hereof) shall terminate on the earlier to occur of (a) the date the Registered Holder purchases all of the Warrant Stock issuable upon exercise of this Warrant and (b) at 5:00 p.m., Los Angeles time on June 5, 2011 (in each case, the "Expiration Date").     7.  Notices of Certain Transactions.  In case:     (a) the Company shall take a record of the holders of its Series A-1 Preferred (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or     (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or     (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Series A-1 Preferred (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice.     8.  Reservation of Stock.  The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 5 --------------------------------------------------------------------------------     9.  Exchange of Warrant.  Subject to the terms hereof, upon the surrender by the Registered Holder of this Warrant, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of the Registered Holder, at the Company's expense, a new Warrant of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling for the number of shares of Series A-1 Preferred called for on the face of this Warrant or if partially exercised, such lesser number of shares that shall be issuable upon exercise of the Warrant.     10.  Replacement of Warrant.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company to indemnify it against any claim that may be made against it on account of the alleged loss, theft, destruction or the issuance of a new Warrant, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor.     11.  Mailing of Notices.  Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder.     12.  No Rights as Stockholder.  Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company, either at law or in equity.     13.  No Fractional Shares.  No fractional shares of Series A-1 Preferred will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the Fair Market Value of one share of Series A-1 Preferred on the date of exercise, as determined in good faith by the Company's Board of Directors.     14.  Amendment or Waiver.  Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought.     15.  Headings.  The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.     16.  Governing Law.  This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. (Signature Page Follows) 6 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned has caused this Warrant to be duly executed, all as of the day and year first above written.     US SEARCH.COM INC.               By:   /s/ BRENT N. COHEN    --------------------------------------------------------------------------------     Name:   Brent N. Cohen     Title:   Chief Executive Officer     Address:   5401 Beethoven Street Los Angeles, CA 90066     Fax Number: (310) 882-7898 7 -------------------------------------------------------------------------------- EXHIBIT A-1 PURCHASE FORM To:    US SEARCH.com Inc.                                                             Dated:     The undersigned, pursuant to the provisions set forth in the attached Warrant No. 2, hereby irrevocably elects to purchase            shares of the Series A-1 Convertible Preferred Stock covered by such Warrant and herewith makes payment of $            , representing the aggregate purchase price for such shares at the price per share provided for in such Warrant.     The undersigned acknowledges that s/he has reviewed the representations and warranties contained in Section 4 of the Warrant and by its signature below hereby makes such representations and warranties to the Company as of the date hereof.     Signature: --------------------------------------------------------------------------------     Name (print): --------------------------------------------------------------------------------     Title (if applic.): --------------------------------------------------------------------------------     Company (if applic.): -------------------------------------------------------------------------------- __Check here if a filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any similar state legislation. EXHIBIT A–1 -------------------------------------------------------------------------------- EXHIBIT B-1 ASSIGNMENT FORM     FOR VALUE RECEIVED,                                                    hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series A-1 Convertible Preferred Stock, par value $.001 per share, of US SEARCH.com Inc., a Delaware corporation, covered thereby set forth below, unto: Name of Assignee --------------------------------------------------------------------------------   Address/Fax Number --------------------------------------------------------------------------------   No. of Shares --------------------------------------------------------------------------------                                                                       Dated:   --------------------------------------------------------------------------------   Signature:   --------------------------------------------------------------------------------             --------------------------------------------------------------------------------         Witness:   -------------------------------------------------------------------------------- EXHIBIT B–1 -------------------------------------------------------------------------------- QuickLinks US SEARCH.COM INC. Warrant EXHIBIT A-1 PURCHASE FORM EXHIBIT B-1 ASSIGNMENT FORM

WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES   Exhibit 10.23 FOURTH AMENDMENT TO AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT              THIS FOURTH AMENDMENT TO AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT, dated as of May 31, 2001 (this “Fourth Amendment”), is entered into by and among WLFC FUNDING CORPORATION, as issuer (the “Issuer”) and THE BANK OF NEW YORK, as indenture trustee (the “Indenture Trustee”).  Capitalized terms used and not otherwise defined herein are used as defined in the Supplement (as defined below).              WHEREAS, the parties hereto entered into that certain Amended and Restated Series 1997-1 Supplement, dated as of February 11, 1999, as amended by the First Amendment, dated as of May 12, 1999, a Second Amendment, dated as of February 9, 2000 and a Third Amendment, dated as of February 7, 2001 (the “Supplement”); and              WHEREAS, the parties hereto desire to amend the Supplement in certain respects as provided herein;              NOW THEREFORE, in consideration of the premises and the other mutual covenants contained herein, the parties hereto agree as follows:              Amendments.              (a)             The definition of “Guaranty” in Section 1.1 of the Supplement is hereby amended and restated to read in its entirety as follows: “Guaranty” means the Fourth Amended and Restated Guaranty dated as of May 31, 2001 made by the Guarantor in favor of FUNB, together with its successors and assigns as the same is amended, restated, supplemented and modified from time to time.              (b)             The following definition is hereby added in its entirety to Section 1.1 of the Supplement: “Fourth Amendment Date” shall mean the date on which the Fourth Amendment to this Supplement shall become effective.              (c)             The definition of “Revolving Credit Agreement” in Section 1.1 of the Supplement is hereby amended and restated to read in its entirety as follows: “Revolving Credit Agreement” means that certain Credit Agreement, dated as of May 1, 2001, as amended, restated, supplemented or modified from time to time, among Willis Lease Finance Corporation, a Delaware corporation, certain banking institutions named therein, National City Bank, as administrative agent, and Fortis Bank, as security agent and structuring agent.              (d)             The definition of “Class A Note Commitment” in Schedule 1 to the Supplement is hereby amended and restated to read in its entirety as follows: "Class A Note Commitment" means an amount not to exceed $190,000,000.00, subject to the terms and conditions set forth herein, 100% of which is to be allocated between VFCC and the Investors (as defined in the Class A Note Purchase Agreement) as determined at any time by the Deal Agent in its sole discretion; provided, however, that at no time shall the Class A Note Principal Balance exceed the Asset Base for this Series 1997-1.              Supplement in Full Force and Effect as Amended.  Except as specifically amended hereby, the Supplement shall remain in full force and effect.  All references to the Supplement shall be deemed to mean the Supplement as modified hereby.  This Fourth Amendment shall not constitute a novation of the Supplement, but shall constitute an amendment thereof.  The parties hereto agree to be bound by the terms and conditions of the Supplement, as amended by this Fourth Amendment, as though such terms and conditions were set forth herein.              Effectiveness of Fourth Amendment.   This Fourth Amendment shall become effective on the date (the “Fourth Amendment Date”) when all conditions set forth in Annex I hereto have been met.              Miscellaneous.              (1)             This Fourth Amendment may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.              (2)             The descriptive headings of the various sections of this Fourth Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.              (3)             This Fourth Amendment may not be amended or otherwise modified except as provided in the Supplement.              (4)             THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS.              (5)             First Union Securities, Inc. certifies by acknowledgment hereof that it is the sole Noteholder. [Remainder of Page Intentionally Left Blank]                IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to the Amended and Restated Series 1997-1 Supplement to be executed by their respective officers thereunto duly authorized, as of the date first above written.   WLFC FUNDING CORPORATION           By:  /S/ NICHOLAS J. NOVASIC   Name:  Nicholas J. Novasic   Title: Chief Financial Officer           THE BANK OF NEW YORK, as Indenture Trustee           By: /S/ SCOTT TEPPER   Name  Scott Tepper   Title:           THE BANK OF NEW YORK, as Securities Intermediary           By: /S/ SCOTT TEPPER   Name  Scott Tepper   Title:     Consented and agreed to: FIRST UNION SECURITIES, INC., as the sole Noteholder on behalf of the Purchasers By:  /S/LEAH W. FOSTRICK Title: Managing Director   Consented and agreed to: FORTIS BANK [NEDERLAND] N.V., as Control Party By:   /S/ PRG ZAMAN Title: By:   /S/ MPA ZONDAG Title:   WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Annex I to Fourth Amendment to Amended and Restated Series 1997-1 Supplement              Conditions to Effectiveness of Fourth Amendment.  The effectiveness of the Fourth Amendment to Amended and Restated Series 1997-1 Supplement to which this Annex I is attached is subject to the satisfaction of the following conditions: (1)         All of the respective representations and warranties of the Issuer and of Willis Lease Finance Corporation (“WLFC”), under the Related Documents to which they are a party shall be true and correct in all material respects as of the date made, and no event shall have occurred which, with notice or the passage of time, or both would constitute an Event of Default under the Indenture or an Early Amortization Event under the Indenture and each of such Related Documents shall have been duly authorized, executed and delivered by the Issuer and WLFC respectively to the Deal Agent and shall be in full force and effect; (2)         In-house counsel of WLFC shall have delivered to the Deal Agent its written opinion, dated the Fourth Amendment Date in form and substance satisfactory to the Deal Agent and the Purchasers. (3)         Gibson, Dunn & Crutcher LLP, counsel for WLFC and the Issuer, shall have delivered to the Deal Agent its opinion, dated the Fourth Amendment Date, in form and substance satisfactory to the Deal Agent and the Purchasers; (4)         The Issuer shall have furnished to the Deal Agent on the Fourth Amendment Date a certificate, dated the Fourth Amendment Date, signed by an authorized officer, to the effect that:   (a) The representations and warranties made by the Issuer in the Related  Documents to which it is a party are true and correct in all material respects on the Fourth Amendment Date;   (b) The Issuer has complied with all of the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to the Fourth Amendment Date pursuant to the terms of the Related Documents to which it is a party; and   (c) The written information supplied by the Issuer to the Purchasers (other than projections and other estimates), taken as a whole, did not contain any untrue statement of a material fact, and any estimates or projections so supplied to the Purchasers were based on assumptions which the Issuer believed to be reasonable (except as otherwise disclosed therein). (5)         WLFC shall have furnished to the Deal Agent on the Fourth Amendment Date a certificate, dated the Fourth Amendment Date, signed by an authorized officer, to the effect that;   (a) The representations and warranties made by WLFC in the Related Documents to which it is a party are true and correct in all material respects on the Fourth Amendment Date;   (b) WLFC has complied with all of the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to the Fourth Amendment Date pursuant to the terms of the Related Documents to which it is a party; and   (c) The written factual information supplied by WLFC to the Purchasers (other than projections and other estimates), taken as a whole, did not contain any untrue statement of a material fact in light of the circumstances under which they were made, and any estimates or projections so supplied to the Purchasers were based on assumptions which WLFC believed to be reasonable (except as otherwise disclosed therein);   (6)         Any taxes, fees and other governmental charges which are due and payable prior to the Fourth Amendment Date by WLFC or the Issuer in connection with the execution, delivery and performance of the Related Documents to which they are a party shall have been paid at or prior to the Fourth Amendment Date, as the case may be; (7)         No fact or conditions shall exist under applicable law or applicable regulations thereunder or interpretations thereof by any regulatory authority which in the Purchaser’s reasonable opinion would make it illegal for the Issuer to issue and sell the Class A Note or for the Issuer or any of the other parties thereto to perform their respective obligations under any Related Documents; (8)         The Issuer, WLFC, the Purchasers and the Indenture Trustee shall each have received a fully executed counterpart original and any required conformed copies of all Related Documents delivered at or prior to the Fourth Amendment Date; (9)         All corporate, trust and other proceedings in connection with the sale of the Class A Note and the transactions contemplated hereby and all documents and certificates incident thereto shall be satisfactory in form and substance to the Purchasers, and the Purchaser shall have received such other documents and certificates incident to such transaction as the Purchasers shall reasonably request; (10)       The Purchasers or the Deal Agent shall have received the following, in each case in form and substance satisfactory to them;   (a) a copy of resolutions of the Board of Directors of the Issuer, certified by the Secretary or an Assistant Secretary of the Issuer as of the Fourth Amendment Date, duly authorizing the issuance, sale and delivery of the Class A Note in the aggregate principal amount of $190,000,000 by the Issuer and the execution, delivery and performance by the Issuer of the Related Documents to which it is a party and any other documents executed by or on behalf of the Issuer in connection with the transactions contemplated hereby; and an incumbency certificate of the Issuer as to the person or persons executing and delivering each such documents;   (b) a copy of resolutions of the Board of Directors of WLFC, certified by the Secretary or an Assistant Secretary of WLFC as of the Effective Date, duly authorizing the execution, delivery and performance by WLFC of the Related Documents to which it is a party and any other documents executed by or on behalf of WLFC in connection with the transactions contemplated hereby; and an incumbency certificate of WLFC as to the person or persons executing and delivering each such document; and   (c) such other documents and evidence with respect to WLFC, the Issuer and the Indenture Trustee as the Purchasers may reasonably request in order to establish the corporate existence and good standing of each thereof, the proper taking of all appropriate corporate proceedings in connection with the transactions contemplated hereby and the compliance with the conditions set forth herein.   (11)       No action or proceeding shall have been instituted nor shall any governmental action be threatened before any court or government agency nor shall any order, judgment or decree have been issued or proposed to be issued by any court or governmental agency to set aside, restrain, enjoin or prevent the performance of the Contribution and Sale Agreement, the Indenture, the other Related Documents or any of the other agreements or the transactions contemplated hereby; (12)       All actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorization, rights and licenses required to be taken, given or obtained by or from any Federal, state or other governmental authority or agency, or by or from any trustee or holder of any indebtedness or obligation of WLFC or the Issuer, or that are necessary or, in the opinion of the Purchasers, advisable in connection with the transactions contemplated herein shall have been delivered to the Purchasers; and (13)       The Deal Agent and the Issuer shall furnish to the Indenture Trustee jointly a written statement stating that all conditions precedent to this Annex I have been met.  

EX-10.1   ADVICE OF BORROWING TERMS   Relationship Office: South Yorkshire Corporate Business Centre Date: 28 September 2001   Borrower(s) CJVander Limited International Silver Company Limited     Registered Number 763852 03768277   We intend that the facilities listed in Part 1 of the attached Facility Schedule (the "on-demand facilities") should remain available to the borrower(s) until 30 April 2002 and all facilities should be reviewed on or before that date.  The facilities are, however, subject to the following:-   •          the terms and conditions below, •          the specific conditions applicable to an individual facility as detailed in the Facility Schedule, •          the Security detailed in the attached Security Schedule, and •          the attached General Terms.   All amounts outstanding are repayable on demand which may be made by us at our discretion at any time and the facilities may be withdrawn, reduced, made subject to further conditions or otherwise varied by us giving notice in writing.   Conditions: The following conditions must be satisfied at all times while the facilities are outstanding, but this will not affect our right to demand repayment at any time:   •          A signed copy of this Advice of Borrowing Terms to be returned to us.   •          Audited accounts to be provided to us within 180 days of the financial year end to which they relate.   •          Monthly management accounts to be provided to us within 21 days of the end of the month to which they relate; to include Profit & Loss, Balance Sheet and Aged Debtor/Creditor listings with suitable commentary/explanations re any divergence from budget.   •          Facilities remain available subject to our agreed lending formula calculated on the following basis:               [Debtors < 3 months + Stock x 40%] to cover utilized facilities in a ratio of minimum 2:1   •        Given the current trading of C J Vander Ltd and insolvent balance sheet footings (ie treating the parental suppost as a long term liability), we will continue to extend existing levels of support on the basis of the clear integrity of the parent undertaking.   Interest Set Off: Cleared debit and cleared credit balances in the same currency on non-interest bearing curent accounts and loan accounts repayable on demand specified below (the "Interest Set Off Accounts") will be used to calculate, on a daily basis, the net cleared debit balance of the Interest Set Off Accounts.  The Interest Set Off Accounts, which we have agreed are to be set off for interest calculation purposes, are detailed in the attached Facility Schedule which also specifies the frequency at which interest will be payable and the rate or rates at which it will be charged on the net cleared debit balance.   Cleared debit balances which are set off on a daily basis by cleared credit balances on the Interest Set Off Accounts will incur interest at the Set Off Rate specified in the attached Facility Schedule.   /s/  A Tyas Corporate Manager For and on behalf of National Westminster Bank Plc   Acceptance: •           To signify your agreement to the terms and conditions outlined above please sign and return the enclosed copy of this Advice of Borrowing Terms within 28 days.  

AGREEMENT This Agreement is made by and among George T. Haymaker, Jr. ("Optionee") and Kaiser Aluminum Corporation and Kaiser Aluminum & Chemical Corporation, both Delaware corporations (together, the "Company"). WHEREAS, the Company granted to Optionee a stock option to purchase up to 386,000 shares of common stock, $.01 par value per share, of Kaiser Aluminum Corporation, and the terms and conditions of such grant are set forth in that certain Performance-Accelerated Stock Option Grant between Optionee and the Company having an effective date of January 1, 1998, as amended by that certain Director and Non-Executive Chairman Agreement between Optionee and the Company dated January 1, 2000 (the Performance-Accelerated Stock Option Grant, as so amended, the "1998 Grant"); and WHEREAS, Optionee and the Company desire (i) to amend the 1998 Grant to cancel 97,510 Option Shares, and (ii) to evidence the grant of a new stock option to Optionee to purchase up to 97,510 Option Shares, on the same terms and conditions as were applicable to the canceled portion of the 1998 Grant; NOW, THEREFORE, Optionee and the Company hereby agree as follows: 1. All capitalized terms used herein shall have the meanings provided in the 1998 Grant unless otherwise specifically provided herein. 2. Effective as of April 14, 2000, the 1998 Grant is amended to cancel 97,510 Option Shares. Except as expressly set forth herein, the terms and conditions of the 1998 Grant are hereby ratified and affirmed. 3. This Agreement evidences that the Company has granted to Optionee, effective as of April 14, 2000, the right, privilege and option to purchase up to 97,510 Option Shares and that such grant is on the same terms and conditions as are set forth in the 1998 Grant. IN WITNESS WHEREOF, Optionee and the Company have executed this Agreement effective as of the 14th day of April, 2000. "COMPANY" KAISER ALUMINUM CORPORATION By: /S/ RAYMOND J. MILCHOVICH Raymond J. Milchovich President and Chief Executive Officer KAISER ALUMINUM & CHEMICAL CORPORATION By: /S/ RAYMOND J. MILCHOVICH Raymond J. Milchovich President and Chief Executive Officer "OPTIONEE" /S/ GEORGE T. HAYMAKER, JR. George T. Haymaker, Jr.

  Exhibit 10.6 Conformed Copy EMPLOYMENT AGREEMENT          This Employment Agreement is made as of the 30th day of October 2001, by and between David L. McCall, an individual residing in the State of South Carolina (the “Executive”), and Charter Communications, Inc., a Delaware corporation (“Charter”), with reference to the following facts:          Charter wishes to retain Executive to serve as Senior Vice President of Operations — Eastern Division of Charter from the date hereof and on the terms and conditions set forth herein;          Executive desires to serve as Senior Vice President of Operations - Eastern Division of Charter from the date hereof and on the terms and conditions set forth herein;          NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: 1.     Interpretation.          1.1     Defined Terms.                   “Affiliate” shall mean with respect to any person or entity any other person or entity who controls, is controlled by or is under common control with such person or entity.                   “Allen” shall mean Paul G. Allen.                   “Board” shall mean the Board of Directors of Charter or a committee thereof.                   “Change of Control” means (a) a sale of more than 49.9% of the outstanding capital stock of Charter in a single or related series of transactions, except where Allen and his Affiliates retain effective voting control of Charter, the merger or consolidation of Charter with or into any other corporation or entity, other than a wholly-owned subsidiary of Charter, except where Allen and his Affiliates have effective voting control of the surviving entity, or any other transaction, or event, a result of which is that Allen holds less than 50.1% of the voting power of the surviving entity, except where Allen and his Affiliates retain effective voting control of Charter, or a sale of all or substantially all of the assets of Charter (other than to an entity majority-owned or controlled by Allen and his Affiliates); where, in any such case (b) Executive’s employment with Charter is terminated or his duties are materially diminished (it being understood that neither Charter’s failure to be a “public” company as such term is commonly understood nor his obligation, if any, to report to a committee of the Board following any merger or similar transaction constitute a material diminution in Executive’s duties under this Agreement). 2.     Employment, Duties and Authority.          Charter hereby agrees to employ the Executive, and the Executive agrees to be employed, as Senior Vice President of Operations — Eastern Division of Charter. As Senior Vice President of Operations — Eastern Division of Charter, the Executive shall report directly to the Executive Vice President and Chief Operating Officer of Charter, and, subject -1- --------------------------------------------------------------------------------   to the control and supervision of such Executive Vice President and Chief Operating Officer of Charter, shall have such duties and responsibilities as are typically performed by a divisional head of operations and such other executive duties not inconsistent with the foregoing as may be assigned to Executive from time to time. The Executive shall devote substantially all of his business time, attention, energies, best efforts and skills to the diligent performance of his duties hereunder. Notwithstanding the foregoing, it is understood that the Executive may expend a reasonable amount of time for personal. charitable, investment and other activities so long as such activities shall not interfere in any material respect with the performance by the Executive of his duties and responsibilities hereunder. 3.     Term.          The term of this Agreement shall commence on the date hereof and shall terminate on December 31, 2005 (the “Term”). 4.     Compensation and Benefits.          4.1     Cash Compensation.          a.          Base Salary. During the Term of this Agreement, Charter shall pay the Executive an annual base salary at the rate of $300,000 or such higher rate as may from time to time be determined by the Board in its discretion, which shall be payable consistent With Charter’s payroll practices.          b.          Bonus. The Executive shall be eligible to receive an annual target bonus equal to forty percent of Executive’s base salary, the amount of such bonus to be determined and paid in accordance with Charter’s Executive Bonus Policy, consistent with past practices. Executive shall also be eligible to be considered for additional bonuses at the discretion of the Board. With respect to the year ended December 31, 2001, Executive shall be paid a bonus of $120,000 by January 15, 2002.          4.2     Benefit Plans. The Executive shall be entitled to participate in any disability insurance, pension, or other benefit plan of Charter now existing or hereafter adopted for the benefit of employees or executives of Charter generally. To the extent that Charter does not provide life insurance in an amount at least equal to the unpaid amount of Executive’s base salary through the end of the Term, Charter shall continue to pay to Executive’s estate an amount equal to Executive’s base salary, in installments, through the end of the Term.          4.3     Vacation. Charter acknowledges that the Executive currently has five weeks of accrued vacation (which Charter, at its sole discretion, may compensate Executive for in lieu of having Executive utilize such vacation). The Executive shall be entitled to compensated vacation in each fiscal year consistent with Charter’s policy, to be taken at times which do not unreasonably interfere with the performance of the Executive’s duties hereunder. Unused vacation time shall be treated in accordance with Charter’s policy.          4.4     Expenses. The Executive shall be entitled to receive reimbursement for all reasonable out-of pocket expenses incurred by the Executive in the performance of his duties hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by Charter. -2- --------------------------------------------------------------------------------   5.     Restricted Stock.          As a matter of separate inducement and agreement in connection with his employment hereunder and not in lieu of any salary or other compensation, Charter shall issue to the Executive 35,000 Shares of Class A Common Stock of Charter (the “Shares”). The restrictions on the Shares shall lapse and the grant shall otherwise have the terms and conditions set forth in the form of Restricted Stock Agreement previously delivered to the Executive. 6.     Indemnification.          Charter agrees to indemnity and hold harmless to the maximum extent permitted by law the Executive from and against any claims, damages, liabilities, losses, costs or expenses in connection with or arising out of the performance by the Executive of his duties as an officer of Charter or any of its subsidiaries or Affiliates. 7.     Termination. This Agreement may be terminated as follows:          7.1     By the Executive for Good Reason. The Executive may terminate this Agreement for Good Reason (as defined below) upon thirty (30) days’ advance written notice to Charter. “Good Reason” shall exist if, without the Executive’s consent: (A) there is an assignment to the Executive of any duties materially inconsistent with, or which constitutes a material reduction of the Executive’s position, duties, responsibilities, status or authority with Charter (it being understood that Charter’s cessation as a “public” company shall not be a material reduction in the Executive’s position, duties, responsibilities, status or authority) and Charter shall not have rectified same within the later of (a) thirty (30) days of written notice from the Executive (b) or if Charter elects, within thirty (30) days after receipt of such written notice, to require that any alleged claim of Good Reason be submitted to binding arbitration, then ten days (10) days after any determination adverse to Charter to rectify such event (any such arbitration shall be held in St. Louis under the local arbitration rules of JAMS or other entity mutually agreed to and such arbitration decision shall be made no later than sixty (60) days after Charter’s election to require such arbitration); (B) the Executive is required to report, directly or indirectly to persons other than the Executive Vice President and Chief Operating Officer of Charter (except that Executive may be required to report to a Board committee following any merger or similar transaction); (C) removal of the Executive from the position he holds pursuant hereto, except in connection with the termination of the Executive for Cause (as defined below); (D) the Executive’s principal place of business shall be outside the State of South Carolina; or (e) a Change of Control.          7.2     By Charter for Cause. Charter may terminate this Agreement for Cause upon thirty (30) days’ advance written notice to the Executive. “Cause” shall mean (i) conviction of a felony offense or of a misdemeanor that involves dishonesty or moral turpitude; (ii) the refusal to comply with the lawful directives of Executive Vice President and Chief Operating Officer, the Chief Executive Officer or the Board of Charter, within ten (10) days after written notice of such directive from the Executive Vice President and Chief Operating Officer, the Chief Executive Officer or the Board of Charter; (iii) conduct on the part of the Executive in the course of his employment which constitutes gross negligence or -3- --------------------------------------------------------------------------------   willful misconduct which conduct is not cured within ten (10) days after written notice thereof from the Chief Executive Officer or the Board; (iv) the Executive’s breach of his fiduciary duties to the Company; (v) the Executive’s death or his Disability (as defined in Charter’s 2001 Stock Incentive Plan); or (vi) the Executive’s possession or use of illegal drugs or excessive use of alcohol on Company premises on work time or at a work related function (other than alcohol served generally in connection with such function). Should Executive commit or be alleged to have committed a felony offense or a misdemeanor of the character specified in clause (i), Charter may suspend Executive with pay. If Executive is subsequently convicted with respect to the matters giving rise to the suspension, Executive shall immediately repay all compensation or other amounts paid him hereunder from the date of the suspension and any of the Executive Options or Shares which vested after the date of suspension shall forthwith be cancelled and if theretofore sold by Executive, the cash value thereof paid to Charter.          7.3     Effect of Termination. In the event of the termination of this Agreement by Charter without Cause or by Executive For Good Reason, Charter shall pay to the Executive an amount equal to the aggregate base salary due the Executive during the remainder of the Term and a full prorated bonus for the year in which termination occurs. Upon termination of this Agreement by Charter for Cause or by Executive without Good Reason, then the Executive shall cease to be entitled to receive any compensation or other payments with respect to periods after the date of such termination. 8.     Covenant Not to Compete; Confidentiality.          8.1     Covenant Not to Compete. The Executive recognizes and acknowledges that Charter is placing its confidence and trust in the Executive. The Executive, therefore, covenants and agrees that as to clauses (a), (b), (c) and (e) hereof during the Executive’s employment with Charter and solely as to clause (d) the specific time period provided in such clause, the Executive shall not, either directly or indirectly, without the prior written consent of the Board:                   a.     Engage in or carry on any business or in any way become associated with any business which is similar to or is in competition with the Business of Charter. As used in this Section 8, the term “Business of Charter” shall mean the business of owning or operating cable television systems and related businesses.                   b.     Solicit the business of any person or entity, on behalf of himself or any other person or entity, which is or has been at any time during the term of this Agreement a customer or supplier of Charter including, but not limited to, former or present customers or suppliers with whom the Executive has had personal contact during, or by reason of, his relationship with Charter.                   c.     Be or become an employee, agent. consultant, representative, director or officer of, or be otherwise in any manner associated with, any person, firm, corporation, association or other entity which is engaged in or is carrying on any business which is in competition with the Business of Charter; -4- --------------------------------------------------------------------------------                     d.     For a period of twenty-four (24) months after termination of the Executive’s employment for any reason whether by Charter or Executive, solicit directly or indirectly for employment or employ (or directly or indirectly cause any entity in which the Executive has an interest or is employed by to solicit or employ), any person employed by Charter or any of its subsidiaries at the time of such termination; provided however, that if such termination occurs after January 1, 2005, and is by Charter without Cause or by the Executive with Good Reason, then the applicable period shall be twelve (12) months after termination of employment; or                   e.     Be or become a shareholder, joint venturer, owner (in whole or in part), or partner, or be or become associated with or have any proprietary or financial interest in or of any firm, corporation, association or other entity which is engaged in or is carrying on any business which is similar to or in competition with the Business of Charter, provided, however, that nothing contained in this Section 8 shall prohibit the Executive from owning less than 2% of the shares of a publicly held corporation engaged in the Business of Charter.                            The Executive hereby recognizes and acknowledges that the existing Business of Charter extends throughout the United States of America and therefore agrees that the covenants not to compete contained in this Section 8 shall be applicable nationally. In the event that a court of competent jurisdiction determines that the scope of the non-compete provisions set forth in this Section 8 are unenforceable in any respect, then these provisions shall be deemed to be modified as necessary so that the scope of the non-compete provisions contained herein are nonetheless as broad as possible and yet enforceable under applicable law in accordance with their terms.          8.2     Confidentiality; Non-Disparagement. The Executive will not divulge, and will not permit or suffer the divulgence of, any confidential knowledge or confidential information with respect to the operations or finances of Charter or any of its Affiliates or with respect to confidential or secret customer lists, processes, machinery, plans, devices or products licensed, manufactured or sold, or services rendered, by Charter or any of its Affiliates other than in the regular course of business of Charter or as required by law; provided, however, that the Executive has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public otherwise than by disclosure by the Executive in breach of this Agreement. Executive will not directly or indirectly disparage or otherwise make adverse references to Charter or any of its officers, directors, employees or Affiliates at any time during or after his employment with Charter. 9.     Notices.          Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be sufficiently given if delivered in person or transmitted by facsimile or similar means of recorded electronic communication to the relevant party as follows:                   a.     in the case of the Executive, to the address set forth under his name on the signature page hereto. -5- --------------------------------------------------------------------------------                   Charter Communications, Inc.     12405 Powerscourt Drive     St. Louis, MO 63101     Attn:   Curtis S. Shaw         Senior Vice President,         General Counsel and Secretary     Telephone:     314-543-2308     Facsimile:     314-965-8793     E-mail:     [email protected]                             with a copy to: to:                 Irell & Manella LLP     1800 Avenue of the Stars, Suite 900     Los Angeles, CA 90067     Attn:   Alvin Segel     Telephone:     310 277 1010     Facsimile:     310 203 7199     E-mail:     [email protected]                   Any such notice or other communication shall be deemed to have been given and received on the day on which it is delivered or telecopied (or, if such day is not a business day or if the notice or other communication is not telecopied during business hours, at the place of receipt, on the next following business day). Any party may change its address for the purposes of this Section by giving notice to the other parties in accordance with the foregoing. 10.     Assignability and Enforceability. This Agreement shall be binding on and enforceable by the parties and their respective successors and permitted assigns. No party may assign any of its rights or benefits under this Agreement to any person without the prior written consent of the other party. 11.     Expenses of this Agreement. Each party shall bear its own costs and expenses (including, without limitation, legal, accounting and other professional fees) incurred in connection with this Agreement or the transactions contemplated hereby. 12.     Consultation. The parties shall consult with each other before issuing any press release or making any other public announcement with respect to this Agreement or the transactions contemplated hereby and, except as required by any applicable law or regulatory or stock exchange requirement, neither of them shall issue any such press release or make any such public announcement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed. 13.     Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of laws thereof. -6- --------------------------------------------------------------------------------   14.     Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. 15.     Currency. Unless otherwise indicated, all dollar amounts in this Agreement are expressed in United States dollars. 16.     Sections and Headings. The division of this Agreement into Sections and the insertion of headings are for reference purposes only and shall not affect the interpretation of this Agreement. 17.     Number and Gender. In this Agreement, words importing the singular number only shall include the plural and vice versa and words importing gender shall include all genders. 18.     Entire Agreement. This agreement and any agreements or documents referred to herein or executed contemporaneously herewith, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral. There are no conditions, covenants, agreements, representations, warranties or other provisions, express or implied, collateral, statutory or otherwise, relating to the subject matter hereof except as herein provided. 19.     Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not impair or affect the validity, legality or enforceability of the remaining provisions hereof, and each provision is hereby declared to be separate, severable and distinct. 20.     Amendments and Waivers. No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by such party. No waiver of any provision of this Agreement shall be construed as a waiver of any other provision nor shall any waiver constitute a continuing waiver unless otherwise expressly provided. No provision of this Agreement shall be deemed waived by a course of conduct unless such waiver is in writing signed by all parties and stating specifically that it was intended to modify this Agreement. 21.     Taxes; Withholding. All amounts payable hereunder shall be subject to all applicable withholding requirements under federal, state and local tax law. 22.     Survival. The provisions of Sections 6, 8.1(d), 12 and 13 shall survive the termination of this Agreement. -7- --------------------------------------------------------------------------------            IN WITNESS WHEREOF the parties have executed this Agreement.               CHARTER COMMUNICATIONS, INC.                         By:   /s/ Curtis S. Shaw -------------------------------------------------------------------------------- Authorized Signatory                             /s/ David L. McCall -------------------------------------------------------------------------------- David L. McCall         P.O. Box 168         Laurens, South Carolina 29360 -8-

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.4 THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT     THIS THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT ("Amendment") is entered into as of this 16th day of February, 2001, by and between Health Net, Inc., a Delaware corporation ("Seller"), and Florida Health Plan Holdings II, L.L.C., a Florida limited liability company ("Purchaser"). RECITALS     WHEREAS, Seller and Purchaser entered into that certain Stock Purchase Agreement dated January 19, 2001 (the "Original Agreement") concerning the sale of all of the outstanding shares of capital stock of Foundation Health, A Florida Health Plan, Inc., a Florida corporation (the "Company")(capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Agreement (as defined below)); and     WHEREAS, Seller and Purchaser amended the Original Agreement by (i) that certain Amendment to Stock Purchase Agreement dated as of February 2, 2001 (the "First Amendment"), and (ii) that certain Second Amendment to Stock Purchase Agreement dated as of February 8, 2001 (the "Second Amendment")(the Original Agreement, the First Amendment and the Second Amendment are collectively referred to as the "Agreement"); and     WHEREAS, Seller and Purchaser desire to modify certain terms of the Agreement on the terms set forth hereinbelow.     NOW, THEREFORE, in consideration of the foregoing and of the mutual obligations, promises and covenants herein contained, the receipt and adequacy of which is hereby acknowledged by each of the parties hereto, it is hereby agreed as follows:     1.  Recitals. The foregoing recitals are true and correct and made a part hereof.     2.  Indemnity Contracts. The first sentence of subsection (b) of Section 4.10 of the Agreement is hereby amended by deleting the phrase "Not later than thirty (30) days after the date of this Agreement," and inserting in lieu thereof the phrase "On or before February 28, 2001,".     3.  Miscellaneous. This Amendment is a part of the Agreement; provided, however, that in the event that there are any inconsistencies between the terms and provisions of this Amendment and the remaining portions of the Agreement, the terms and provisions of this Amendment shall govern, control and prevail. In all other respects, the Agreement shall be unchanged and shall remain in full force and effect. The captions appearing in this Amendment are for convenience only and no way define, limit, construe or describe the scope or intent of any section or paragraph. This Amendment shall not be construed more or less favorably with respect to either party as a consequence of the Amendment or various provisions hereof have been drafted by one of the parties hereto. This Amendment may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile copy of this Amendment and any signatures thereon shall be considered for all purposes as originals. –1– --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.                               SELLER: WITNESSES:                             Health Net, Inc., a Delaware corporation /s/ MICHAEL E. JANSEN    -------------------------------------------------------------------------------- Print Name: Michael E. Jansen       By: /s/ B. CURTIS WESTEN    -------------------------------------------------------------------------------- Print Name: B. Curtis Westen Title: Senior Vice President /s/ ERIC G. GROEN    -------------------------------------------------------------------------------- Print Name: Eric G. Groen                         PURCHASER:             Florida Health Plan Holdings II, L.L.C., a Florida limited liability company /s/ MITZI F. MEYERS    -------------------------------------------------------------------------------- Print Name: Mitzi F. Meyers       By: /s/ STEVEN M. SCOTT, M.D.    -------------------------------------------------------------------------------- Print Name: Steven M. Scott, M.D. Title: Manager /s/ KATHLEEN TONBA    -------------------------------------------------------------------------------- Print Name: Katheleen Tonba             –2– -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.4 THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT

EXHIBIT 10(j) FORM OF EXECUTIVE EMPLOYMENT AGREEMENT              THIS AGREEMENT is made and entered into on this 5th day of March, 2001, but effective as of the __ day of _______, 2001 (the "Effective Date"), by and between G&K SERVICES, INC., a Minnesota corporation with its principal business office in the State of Minnesota (hereinafter "Employer"); and ________________,a Minnesota resident now employed at Employer's Corporate Office in Minnetonka, Minnesota (hereinafter "Executive"). INTRODUCTION              A.         Employment and Protection of Employer.  Since before the Effective Date, Executive has been and is presently employed by Employer in the capacity of ______________reporting to Employer's __________________).  Employer desires to retain Executive as an employee and obtain Executive's promises not to harm Employer (as set forth in Article 7).  Article 7 of this Agreement includes a description of Employer's "Confidential Information."  In Executive’s position with Employer, Executive has access to and control over certain of Employer’s Confidential Information, which Employer has developed at great expense, time and effort.  As a result, disclosure of any such Confidential Information to a competitor would cause irreparable harm to Employer, and Employer is not willing to offer Executive the new and additional benefits set forth in this Agreement unless Executive signs this Agreement to provide Employer with reasonable protection for its Confidential Information, and to protect Employer in other ways set forth in Article 7.              B.         New Benefits.  For those purposes, Employer is willing to grant to Executive, as of the Effective Date, new benefits to which Executive is not otherwise entitled, consisting of: (1) certain new restricted shares of Employer Stock (as described in Article 4), pursuant to the Restricted Stock Agreement attached hereto as Exhibit A and the Employer's 1998 Stock Option and Compensation Plan; and (2)  the right to receive certain severance compensation and outplacement benefits (as described in Articles 5 and 6), if Executive's employment with Employer terminates under certain circumstances described therein, including without limitation in connection with a Change in Control (as defined in Article 6).              C.         Other Intentions.  Executive desires to accept Employer's offer of the new and additional benefits set forth in this Agreement, to which Executive is not otherwise entitled; and to continue his salary, incentive compensation and other benefits and perquisites at levels that reflect Executive's past contributions and anticipated future contributions to Employer.              Executive agrees, as a condition of Employer's offer of  the new and additional benefits set forth in this Agreement, to sign this Agreement in order that Employer may have reasonable protections against the disclosure of its Confidential Information and other conduct of Executive prohibited by Article 7 of this Agreement. AGREEMENT              NOW, THEREFORE, in consideration of the facts recited above, which are a part of this Agreement, and the parties' mutual promises contained in this Agreement, Employer and Executive agree as follows: ARTICLE 1 DEFINITIONS              Capitalized terms used generally in  this Agreement shall have their defined meaning throughout the Agreement.  The following terms shall have the meanings set forth below; unless the context clearly requires otherwise.              1.1         "Agreement" means this Agreement, as it may be amended from time to time.              1.2         "Base Salary" means the total annual cash compensation payable to Executive on a regular periodic basis under Section 3.1, without regard to any voluntary salary deferrals or reductions to fund employee benefits.              1.3         "Board" means the Board of Directors of Employer.              1.4         "Cause" has the meaning set forth in Section 5.2.              1.5         "Date of Termination" has the meaning set forth in Section 5.6(b).              1.6         "Disability" means the unwillingness or inability of Executive to perform the essential functions of Executive's position (with or without reasonable accommodation) under this Agreement for a period of ninety (90) days (consecutive or otherwise) within any period of six (6) consecutive months because of Executive's incapacity due to physical or mental illness, bodily injury or disease, if within ten (10) days after a Notice of Termination is thereafter given by Employer, Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, that if Executive (or Executive's legal representative, if applicable) does not agree with a determination to terminate Executive's employment hereunder because of Disability, the question of Executive's Disability shall be subject to the certification of a qualified medical doctor mutually agreed to by Employer and Executive (or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative).  In the absence of such agreement, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Dis-ability.  The decision of the designated physician shall be binding upon the parties hereto.              1.7         "Employer" means all of the following, jointly and severally: (a)  G&K Services, Inc., (b) any Subsidiary thereof and (c) any Successor thereto.              1.8         "Executive" means the individual named in the first paragraph of this Agreement.              1.9         "Notice of Termination" has the meaning set forth in Section 5.6(a).              1.10         "Plan" means any bonus or incentive compensation agreement, plan, program, policy or arrangement sponsored, maintained or contributed to by Employer; to which Employer is a party or under which employees of Employer are covered, including, without limitation, (a) any stock option, restricted stock or any other equity-based compensation plan; (b) any annual or long-term incentive (bonus) plan; (c) any employee benefit plan, such as a thrift, pension, profit sharing, deferred compensation, medical, dental, disability income, accident, life insurance, automobile allowance, perquisite, fringe benefit, vacation, sick or parental leave, severance or relocation plan or policy and (d) any other agreement, plan, program, policy or arrangement intended to benefit employees or executive officers of Employer.              1.11         "Subsidiary" means any corporation or other business entity that is controlled by Employer.              1.12         "Successor" has the meaning set forth in Section 8.2(a). ARTICLE 2 EMPLOYMENT AND DUTIES              2.1         Employment.  Upon the terms and conditions set forth in this Agreement, Employer hereby employs Executive for an indefinite term, and Executive accepts such employment as ________________ (reporting to Employer's _____________________).  This Agreement and Executive's employment by Employer may be terminated at any time pursuant to Article 5.              2.2         Duties.  While Executive is employed hereunder, and excluding any periods of vacation, sick, Disability or other leave to which Executive is entitled, Executive agrees to devote substantially all of Executive's attention and time during normal business hours to the business and affairs of Employer and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder and under Employer's bylaws as amended from time to time, to use Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities.              Executive shall comply with Employer's policies and procedures; provided, however, that to the extent such policies and procedures are inconsistent with this Agreement, the provisions of this Agreement shall control. ARTICLE 3 COMPENSATION AND BENEFITS              3.1         Base Salary.  Commencing as of the Effective Date, Employer shall pay Executive a Base Salary at an annual rate that is not less than  ________________, or such higher or lower annual rate as may from time to time be approved by the Board.  Such Base Salary to be paid in substantially equal regular periodic payments in accordance with Employer's regular payroll practices.  If Executive's Base Salary is increased or decreased at any time during Executive's employment by Employer, the changed amount shall become the Base Salary under this Agreement, subject to any subsequent increases or decreases.              3.2         Other Compensation and Benefits.  While Executive is employed by Employer under this Agreement:              (a)         Executive shall be permitted to participate in all Plans for which Executive is or becomes eligible under their respective terms.              (b)         Employer may, in its sole discretion, amend or terminate any Plan that  provides benefits generally to its employees or its executive officers.              (c)         Executive shall also be entitled to participate in or receive benefits under any Plan made available by Employer in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such Plans and the preceding provisions of this Section 3.2.              3.3         Limitation on Right to Deferred Compensation.  The rights of Executive, or Executive's beneficiaries or estate, to any deferred compensation under this Agreement shall be solely those of an unsecured creditor of Employer.  Neither Executive nor any of Executive's beneficiaries or estate shall be entitled to assign or transfer (except to Employer) any right to receive any part of any deferred compensation amounts hereunder and, in the event of any attempt to assign or transfer any of such amounts, Employer shall have no further liability hereunder for such amounts. ARTICLE 4 RESTRICTED STOCK GRANT              4.1         Restricted Stock Agreement.  As of the Effective Date, Employer hereby grants Executive the right to purchase Employer Stock (as defined below) in the amount, at the price and on the terms set forth in the Restricted Stock Agreement attached hereto as Exhibit A.              4.2         Employer Stock.  "Employer Stock" means the voting common stock of Employer described in the Restricted Stock Agreement attached hereto as Exhibit A. ARTICLE 5 TERMINATION              5.1         Termination.  This Article 5 sets forth the terms for termination of Executive's employment under this Agreement, subject to the respective continuing rights and obligations of the parties under this Agreement.  In general, this Agreement and Executive's employment with the Employer may be terminated by either Employer or Executive at will upon thirty (30) days notice, for any reason or no reason, or any time by mutual written agreement of the parties.  This Agreement and Executive's employment under this Agreement shall terminate in the event of Executive's death or  Disability, as of the applicable Date of Termination.              In any such case, this Agreement shall terminate as of the applicable Date of Termination, except for the rights and obligations of the parties under this Agreement that survive beyond Executive's termination of employment.              5.2         Termination by Employer for Cause.  Employer may terminate this Agreement at any time for Cause, with or without advance notice (except as otherwise provided in this Section 5.2). For purposes of this Agreement, "Cause" means any of the following, with respect to Executive's position of employment with Employer:              (a)         Executive’s failure or refusal to perform the duties and responsibilities set forth in Section 2.2, if such failure or refusal is not due to Disability and is not cured within five (5) days after written notice of such failure or refusal is received by Executive from Employer;              (b)         any drunkenness or use of drugs that interferes with the performance of Executive’s obligations under this Agreement; and continues for more than five (5) days after a written notice to Executive; provided, however, that Employer shall have the right to prevent Executive from performing any duties hereunder and from entering the premises of Employer during any such period;              (c)         Executive’s indictment for or conviction of (including entering a guilty plea or plea of no contest to) a felony or any crime involving moral turpitude, fraud, dishonesty or theft;              (d)         any material dishonesty of Executive involving or affecting Employer;              (e)         any gross negligence or other willful or intentional act or omission of Executive having the effect or reasonably likely to have the effect of injuring the reputation, business or business relationships of Employer in a material way;              (f)         any willful or intentional breach by Executive of a fiduciary duty to Employer;              (g)         Executive’s material nonconformance with Employer's standard business practices and policies, including, without limitation, policies against racial or sexual discrimination or harassment; and              (h)         any material breach (not covered by any of the above clauses (a) through (g)) of any material term, provision or condition of this Agreement, if such breach is not cured (to the extent curable) within five (5) days after written notice thereof is received by Executive from Employer.              For purposes of this Section 5.2, no act, or failure to act, on Executive's part shall be considered "dishonest," "willful" or "intentional" unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive's action or omission was in or not opposed to, the best interest of Employer.  Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for Employer shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Employer.  Furthermore, the term "Cause" shall not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if Executive has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to the position.              5.3         Termination by Executive for Good Reason.  After a Change in Control (as defined in Article 6), Executive may voluntarily resign from employment under this Agreement for Good Reason in accordance with the applicable provisions of Article 6.              5.4         Notice of Termination and Date of Termination.              (a)         For purposes of this Agreement, a "Notice of Termination" shall mean a notice that shall indicate the specific termination provisions in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide the basis for such termination.  Any termination by Employer or by Executive pursuant to this Agreement (other than Executive's death or a termination by mutual agreement) shall be communicated by written Notice of Termination to the other party hereto.              (b)         For purposes of this Agreement, "Date of Termination" shall mean: (i) if Executive's employment is terminated due to death, the date of Executive's death; (ii) if Executive's employment is terminated for Disability, thirty (30) calendar days after the Notice of Termination is given; (iii) if Executive's employment is terminated by Employer for Cause or by Executive for Good Reason (as provided in Article 6), the date specified in the Notice of Termination; (iv) if Executive's employment is terminated by mutual agreement of the parties, the termination date specified in such agreement; or (v) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination, which in such event shall be a date no earlier than thirty (30) calendar days after the date on which the Notice of Termination is given, unless an earlier date has been expressly agreed to by Executive in writing either before or after receiving  such Notice of Termination.              5.5         Compensation During Disability and upon Termination.              (a)         During any period in which Executive fails to perform Executive's duties hereunder as a result of Executive's incapacity due to physical or mental illness included in the definition of Disability, Executive shall continue to receive all Base Salary and other compensation and benefits to which Executive is otherwise entitled under this Agreement and any Plan through Executive's Date of Termination.              (b)         Except as otherwise provided in Article 6 or a mutual agreement of the parties, if Executive's employment under this Agreement is terminated (i) by Executive's death, (ii) voluntarily by Executive, (iii) by Employer without Cause, or (iv) by mutual agreement of the parties, then Employer shall pay Executive the Base Salary through the Date of Termination, plus any amounts to which the Executive is entitled under any Plan (in accordance with the terms of such Plan).  Employer shall also pay any retirement benefits to which Executive is or becomes entitled under any Plan, except to the extent any such benefits are forfeited under the terms of such Plan.              (c)         Except in the case of a termination for Disability, if Employer terminates Executive's employment hereunder without Cause, and if Executive executes a written release in a form acceptable to Employer, then:              (i)         Employer shall continue to pay any amounts due to Executive for Base Salary in accordance with Section 3.1, at the annual rate in effect thereunder immediately prior to the Date of Termination (less any severance pay amounts due Executive under any written Plan generally applicable to management employees of Employer), in the same manner as if Executive had remained continuously employed, for a period of eleven (11) months after the Date of Termination; provided, however, that if no such release has been executed by Executive, Employer shall nevertheless pay any severance pay that may be due under any such Plan in the absence of any such release; and              (ii)         if Executive (or any individual eligible for group health Plan benefits through Executive) is eligible under the Plan or applicable law to continue participation in Employer's group health Plan during such eleven (11) month period, and does elect to continue such benefits, Employer shall continue to pay Employer's share of the cost of such benefits, as if Executive remained continuously employed with Employer throughout such eleven (11) month period, but only while Executive or such other individual continues to pay the balance of such cost.              Executive shall not be required to mitigate Employer's payment obligations under this Article 5, by making any efforts to secure other employment for which Executive is reasonably qualified by education, experience or background; and Executive's commencement of employment with another employer shall not reduce the obligations of Employer pursuant to this Article 5. ARTICLE 6 CHANGE IN CONTROL              6.1         Definitions Relating to a Change in Control.  The following terms shall have the meanings set forth below; unless the context clearly requires otherwise:              (a)         "1934 Act" shall mean the Securities Exchange Act of 1934, as amended (or any successor provision), and the regulations promulgated thereunder.              (b)         "Beneficial Ownership" by a person or group of persons shall be determined in accordance with Regulation 13D (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the 1934 Act.  Beneficial Ownership of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D report with the Securities and Exchange Commission reporting such ownership.              (c)         "Change of Control" means the occurrence of any of the following events:              (i)         any person or group of persons attains Beneficial Ownership (as defined below) of 30% or more of any equity security of Employer entitled to vote for the election of directors;              (ii)         a majority of the members of the Board is replaced within the period of less than two years by directors not nominated and approved by the Board; or              (iii)         the stockholders of Employer approve an agreement to merge or consolidate with or into another corporation, or an agreement to sell or otherwise dispose of all or substantially all of Employer's assets (including a plan of liquidation).              (iv)         "Continuing Directors" are (i) directors who were in office prior to the time any events described in paragraphs (c)(i), (a)(ii) or (a)(iii) of this Section 6.1 occurred, or any person publicly announced an intention to acquire 20% or more of any equity security of Employer; (ii) directors in office for a period of more than two years; and (iii) directors nominated and approved by the Continuing Directors.              (d)         "Change in Control Termination" shall mean that a Change in Control of Employer has occurred, and either of the following events also occurs within one (1) year after such Change in Control: (i) Employer terminates the Executive's employment or this Agreement for any reason other than for Cause, Executive's death or Executive's Disability; or (ii) Executive terminates Executive's employment for Good Reason.              (e)         "Good Reason" shall mean, with respect to a voluntary termination of employment by Executive after a Change in Control, any of the following:              (i)         an adverse involuntary change in Executive's status or position as an executive officer of Employer, including, without limitation, (A) any adverse change in Executive's status or position as a result of a material diminution in Executive's duties, responsibilities or authority as of the day before the Change in Control; (B) the assignment to Executive of any duties or responsibilities that, in Executive's reasonable judgment, are significantly inconsistent with Executive's status or position; or (C) any removal of Executive from, or any failure to reappoint or reelect Executive to, such position (except in connection with a termination of Executive's employment for Cause in accordance with Article 5, or as a result of Executive's Disability or death);              (ii)         a reduction by Employer in Executive's Base Salary as in effect the day before the Change in Control;              (iii)         the taking of any action by Employer that would materially and adversely affect the physical conditions existing, as of the day before the Change in Control, under which Executive performs employment duties for Employer;              (iv)         Employer's requiring Executive to be based anywhere other than where Executive's office is located as of the day before the Change in Control, except for required travel on Employer's business to an extent substantially consistent with business travel obligations that Executive undertook on behalf of Employer as of the day before the Change in Control;              (v)         any failure by Employer to obtain from any Successor an assumption of this Agreement as contemplated by Section 8.2; or              (vi)         any purported termination by Employer of this Agreement or the employment of the Executive at any time after a Change in Control, that is not expressly authorized by this Agreement; or any breach of this Agreement by Employer at any time after a Change in Control, other than an isolated, insubstantial and inadvertent failure that does not occur in bad faith and is remedied by Employer within a reasonable period after Employer's receipt of notice thereof from Executive.              6.2         Benefits Upon a Change in Control Termination.  If a Change in Control Termination occurs with respect to Executive, Executive shall be entitled to the following benefits; provided, however, that to the extent Executive has already received the same type of benefits under Article 5 as a result of Executive's Change in Control Termination, Executive's benefits under this Section 6.2 shall be offset by such other benefits, to the extent necessary to prevent duplication of benefits hereunder:              (a)         all of the payments and benefits that Executive would have been entitled to receive if the Change in Control Termination were described in Section 5.5(c); and              (b)         for a period of not less than six (6) months following Executive's Date of Termination, Employer will reimburse Executive for all reasonable expenses incurred by Executive (excluding any arrangement by which Executive prepays expenses for a period of greater than thirty (30) days) in seeking employment with another employer, including the fees of a reputable out placement organization selected by Employer, but not to exceed $12,000.00 in the aggregate;              Executive shall not be required to mitigate Employer's payment obligations under this Article 6 by making any efforts to secure other employment for which Executive is reasonably qualified by education, experience or background; and Executive's commencement of employment with another employer shall not reduce the obligations of Employer pursuant to this Article 6. ARTICLE 7 PROTECTION OF EMPLOYER              7.1         Confidential Information.  For purposes of this Article 7, "Confidential Information" means information that is proprietary to Employer or proprietary to others and entrusted to Employer; whether or not such information includes trade secrets.  Confidential Information includes, but is not limited to, information relating to Employer's business plans and to its business as conducted or anticipated to be conducted, and to its past or current or anticipated products and services.  Confidential Information also includes, without limitation, information concerning Employer's customer lists or routes, pricing, purchasing, inventory, business methods, training manuals or other materials developed for Employer's employee training, employee compensation, research, development, accounting, marketing and selling.  All information that Executive has a reasonable basis to consider as confidential shall be Confidential Information, whether or not originated by Executive and without regard to the manner in which Executive obtains access to this and any other proprietary information of Employer.              Executive shall not, during or after the termination of Executive's employment under this Agreement, (a) directly or indirectly use for Executive's own benefit; or (b) disclose any Confidential Information to, or otherwise permit access to Confidential Information by, any person or entity not employed by Employer or not authorized by Employer to receive such Confidential Information, without the prior written consent of Employer.  Executive will use reasonable and prudent care to safeguard and protect and prevent the unauthorized use and disclosure of Confidential Information.  Furthermore, except in the usual course of Executive's duties for Employer, Executive shall not at any time remove any Confidential Information from the offices of Employer, record or copy any Confidential Information or use for Executive's own benefit or disclose to any person or entity directly or indirectly competing with Employer any information, data or materials obtained from the files or customers of Employer, whether or not such information, data or materials are Confidential Information.              Upon any termination of Executive's employment, Executive shall collect and return to Employer (or its authorized representative) all original copies and all other copies of any Confidential Information acquired by Executive while employed by Employer.              The obligations contained in this Section 7.1 will survive for as long  as Employer in its sole judgment considers the information to be Confidential Information.  The obligations under this Section 7.1 will not apply to any Confidential Information that is now or becomes generally available to the public through no fault of Executive or to Executive's disclosure of any Confidential Information required by law or judicial or administrative process.              7.2         Non-Competition.  Executive agrees that, while employed by Employer and for a period of eighteen (18) months following the date of Executive's termination of employment for any reason, Executive shall not, directly or indirectly, alone or as an officer, director, shareholder, partner, member, employee or consultant of any other corporation or any partnership, limited liability company, firm or other business entity:              (a)         engage in, have any ownership interest in, financial participation in, or become employed by, any business or commercial activity in competition (i) with any part of Employer's business, as conducted anywhere within the geographic area in which Employer has conducted its business within the three (3) years before such date, or (ii) with any part of Employer's contemplated business with respect to which Executive has Confidential Information governed by Section 7.1.  For purposes of this paragraph, "ownership interest" shall not include beneficial ownership of less than one percent (1%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange or quoted on NASDAQ;              (b)         call upon, solicit or attempt to take away any customers or accounts of Employer;              (c)         solicit, induce or encourage any supplier of goods or services to Employer to cease its business relationship with Employer, or violate any term of any contract with Employer; or              (d)         solicit, induce or encourage any other employee of Employer to cease employment with Employer, or otherwise violate any term of such employee's contract of employment with Employer.              The restrictions set forth in this Section 7.2 shall survive any termination of this Agreement or other termination of Executive's employment with Employer, and shall remain effective and enforceable for such 18-month period; provided, however, that such period shall be automatically extended and shall remain in full force for an additional period equal to any period in which Executive is proven to have violated any such restriction.              7.3         Protection of Reputation. Executive shall, both during and after the termination of Executive's employment under this Agreement, refrain from communicating to any person, including without limitation any employee of Employer, any statements or opinions that are negative in any way about Employer or any of its past, present or future officials.  In return, whenever Employer sends or receives any Notice of Termination of Executive's employment under this Agreement, Employer shall advise the members of its operating committee and executive committee (or any successors to such committees), to refrain from negative communications about Executive to third parties.              7.4         Remedies.  The parties declare and agree that it is impossible to accurately measure in money the damages that will accrue to Employer by reason of Executive's  failure to perform any of Executive's obligations under this Article 7; and that any such breach will result in irreparable harm to Employer, for which any remedy at law would be inadequate.  Therefore, if Employer institutes any action or proceeding to enforce the provisions of this Article 7, Executive hereby waives the claim or defense that such party has an adequate remedy at law, Executive shall not assert in any such action or proceeding the claim or defense that such party has an adequate remedy at law, and Employer shall be entitled, in addition to all other remedies or damages at law or in equity, to temporary and permanent injunctions and orders to restrain any violations of this Article 7 by Executive and all persons or entities acting for or with Executive. ARTICLE 8 GENERAL PROVISIONS              8.1         Successors and Assigns; Beneficiary.              (a)         For purposes of this Agreement, "Successor" shall mean any corporation, individual, group, association, partnership, limited liability company, firm, venture or other entity or person that, subsequent to the Effective Date, succeeds to the actual or practical ability to control (either immediately or with the passage of time), or substantially all of Employer and/or Employer's business and/or assets, directly or indirectly, by merger, consolidation, recapitalization, purchase, liquidation, redemption, assignment, similar corporate transaction, operation of law or otherwise.              (b)         This Agreement shall be binding upon and inure to the benefit of any Successor of Employer and each Subsidiary, and any such Successor shall absolutely and unconditionally assume all of Employer's and any Subsidiary's obligations hereunder.  Upon Executive's written request, Employer shall seek to have any Successor, by agreement in form and substance satisfactory to Executive, assent to the fulfillment by Employer of their obligations under this Agreement.  Failure to obtain such assent prior to the time a person or entity becomes a Successor (or where Employer does not have advance notice that a person or, entity may become a Successor, within one (1) business day after having notice that such person or entity may become or has become a Successor) shall constitute Good Reason for termination of employment by Executive pursuant to Article 6.              (c)         This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees and any assignees permitted hereunder.  If Executive dies while any amounts would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's Beneficiary.  Executive may not assign this Agreement, in whole or in any part, without the prior written consent of Employer.              (d)         For purposes of this Section 8.2, "Beneficiary" means the person or persons designated by Executive (in writing to Employer) to receive benefits payable after Executive's death pursuant to Section 8(c).  In the absence of any such designation or in the event that all of the persons so designated predecease Executive, Beneficiary means the executor, administrator or personal representative of Executive's estate.              8.2         Litigation ExpenseLitigation Expense.  If any party is made or shall become a party to any litigation (including arbitration) commenced by or against the other party involving the enforcement of any of the rights or remedies of such party, or arising on account of a default of the other party in its performance of any of the other party’s obligations hereunder, then the prevailing party in such litigation shall receive from the other party all costs incurred by the prevailing party in such litigation, plus reasonable attorneys' fees to be fixed by the court or arbitrator (as applicable), with interest thereon from the date of judgment or arbitrator's decision at the rate of eight percent (8%) or, if less, the maximum rate permitted by law.              8.3         No Offsets.  In no event shall any amount payable to Executive pursuant to this Agreement be reduced for purposes of offsetting, either directly or indirectly, any indebtedness or liability of Executive to Employer.              8.4         Notices.  All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be personally delivered or mailed postage prepaid, registered or certified U. S. mail, to any party as its address set forth on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice hereunder shall be deemed effectively given and received: (a) if personally delivered, upon delivery; or (b) if mailed, on the registered date or the date stamped on the certified mail receipt.              8.5         Captions.  The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.  When used herein, the terms "Article" and  "Section" mean an Article or Section of this Agreement, except as otherwise stated.              8.6         Governing Law.  The validity, interpretation, construction, performance, enforcement and remedies of or relating to this Agreement, and the rights and obligations of the parties hereunder, shall be governed by the substantive laws of the State of Minnesota (without regard to the conflict of laws rules or statutes of any jurisdiction), and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose.              8.7         Construction.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.              8.8         Waiver.   No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law              8.9         Modification.  This Agreement may not be modified or amended except by written instrument signed by the parties hereto.              8.10         Entire Agreement.  This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon.  This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement.              8.11         Survival.  The parties expressly acknowledge and agree that the provisions of this Agreement which by their express or implied terms extend (a) beyond the termination of Executive's employment hereunder (including without limitation provisions relating to severance compensation and effects of a Change in Control); or (b) beyond the termination of this Agreement, including, without limitation Article 7 (relating to confidential information, non-competition and non-solicitation), shall continue in full force and effect notwithstanding Executive's termination of employment hereunder or the termination of this Agreement, respectively.              8.12         Voluntary Agreement.  Executive has entered into this Agreement voluntarily, after having the opportunity to consult with an advisor chosen freely by Executive.              IN WITNESS WHEREOF, the parties hereto have caused this Executive Employment Agreement to be duly executed and delivered on the day and year first above written, but effective retroactively as of the Effective Date. EMPLOYER: G&K SERVICES, INC.       By  /s/ Thomas Moberly   --------------------------------------------------------------------------------   Thomas R. Moberly Its Chief Executive Officer     EXECUTIVE:     -------------------------------------------------------------------------------- Printed Name:     Executive's Address:     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------       --------------------------------------------------------------------------------  

  EXHIBIT 10.14 PHILLIPS-VAN HEUSEN CORPORATION 2000 STOCK OPTION PLAN (As Amended Through March 7, 2001) 1. Purpose. The purposes of the 2000 Stock Option Plan (the "Plan") are to induce certain individuals to remain in the employ, or to continue to serve as directors of, or consultants or advisors to, Phillips-Van Heusen Corporation (the "Company") and its present and future subsidiary corporations (each a "Subsidiary"), as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), to attract new individuals to enter into such employment or service and to encourage such individuals to secure or increase on reasonable terms their stock ownership in the Company. The Board of Directors of the Company (the "Board") believes that the granting of stock options (the "Options") under the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are or may become primarily responsible for shaping and carrying out the long range plans of the Company and securing its continued growth and financial success. Options granted hereunder are intended to be either (i) "incentive stock options" (which term, when used herein, shall have the meaning ascribed thereto by the provisions of Section 422(b) of the Code) or (ii) options which are not incentive stock options ("non-qualified stock options") or (iii) a combination thereof, as determined by the Committee (the "Committee") referred to in Section 5 at the time of the grant thereof. 2. Effective Date of the Plan. The Plan became effective on April 27, 2000. 3. Stock Subject to Plan. 3,000,000 of the authorized but unissued shares of the common stock, $1.00 par value, of the Company (the "Common Stock") are hereby reserved for issue upon the exercise of Options granted under the Plan; provided, however, that the number of shares so reserved may from time to time be reduced to the extent that a corresponding number of issued and outstanding shares of the Common Stock are purchased by the Company and set aside for issue upon the exercise of Options. If any Options expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purposes of the Plan. 4. Administration. (a) Except as otherwise provided in Section 4(b), the Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have complete authority, in its discretion, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements or certificates (which need not be identical), to determine the individuals (each a "Participant") to whom and the times and the prices at which Options shall be granted, the periods during which each Option shall be exercisable, the number of shares of the Common Stock to be subject to each Option and whether such Option shall be an incentive stock option or a non- qualified stock option and to make all other determinations necessary or advisable for the administration of the Plan. In making such determinations, the Committee may 1   take into account the nature of the services rendered by the respective individuals, their present and potential contributions to the success of the Company and the Subsidiaries and such other factors as the Committee in its discretion shall deem relevant. The Committee's determination on the matters referred to in this Section 4 shall be conclusive. Any dispute or disagreement which may arise under or as a result of or with respect to any Option shall be determined by the Committee, in its sole discretion, and any interpretations by the Committee of the terms of any Option shall be final, binding and conclusive. (b) The Chairman of the Board or, if the Chairman is not an executive officer of the Company, the Chief Executive Officer of the Company or other executive officer of the Company designated by the Committee who is also a director (the Chairman, Chief Executive Officer or other designated executive officer being referred to as the "Designated Director") may administer the Plan with respect to employees of the Company or a Subsidiary (i) who are not officers of the Company subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) whose compensation is not subject to the provisions of Section 162(m) of the Code. The authority of the Designated Director and Options granted by the Designated Director shall be subject to such terms, conditions, restrictions and limitations as may be imposed by the Board, including, but not limited to, a limit on the aggregate number of shares of Common Stock subject to Options that may be granted in any one calendar year by the Designated Director to all such employees of the Company and its Subsidiaries and a maximum number of shares that may be subject to Options granted under the Plan in any one calendar year to any single employee by the Designated Director. Unless and until the Board shall take further action, the maximum number of shares of Common Stock that may be subject to Options granted under the Plan, the Company's 1997 Stock Option Plan and any other stock option plan then in effect in any one calendar year by the Designated Director shall be 100,000 in the aggregate and the maximum number of shares of Common Stock that may be subject to Options granted under the Plan, the Company's 1997 Stock Option Plan and any other stock option plan then in effect in any one calendar year by the Designated Director to any single employee shall be 5,000 in the aggregate. Any actions duly taken by the Designated Director with respect to the grant of Options to such employees shall be deemed to have been taken by the Committee for purposes of the Plan. 5. Committee. The Committee shall consist of two or more members of the Board. It is intended that all of the members of the Committee shall be "non-employee directors" within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act, and "outside directors" within the contemplation of Section 162(m)(4)(C)(i) of the Code. The Committee shall be appointed annually by the Board, which may at any time and from time to time remove any members of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held, except that the Committee may delegate to any one of its members the authority of the Committee with respect to the grant of Options to any person who shall not be an officer and/or director of the Company and who is not, and in the judgment of the Committee may not be reasonably expected to become, a "covered employee" within the meaning of Section 162(m)(3) of the Code. Any decision or determination of the Committee reduced to writing and signed by all of the members of the 2   Committee (or by the member(s) of the Committee to whom authority has been delegated) shall be fully as effective as if it had been made at a meeting duly called and held. 6. Eligibility. An Option may be granted only to a key employee of the Company or a Subsidiary or to a director of the Company or a Subsidiary who is not an employee of the Company or a Subsidiary or to an independent consultant or advisor who renders services to the Company or a Subsidiary. 7. Option Prices. (a) The initial per share option price of any Option shall be the price determined by the Committee, but not less than the fair market value of a share of the Common Stock on the date of grant; provided, however, that, in the case of a Participant who owns more than 10% of the total combined voting power of the Common Stock at the time an Option which is an incentive stock option is granted to him or her, the initial per share option price shall not be less than 110% of the fair market value of a share of the Common Stock on the date of grant. (b) For all purposes of the Plan, the fair market value of a share of the Common Stock on any date shall be equal to (i) the closing sale price of the Common Stock on the New York Stock Exchange on the business day preceding such date or (ii) if there is no sale of the Common Stock on such Exchange on such business day, the average of the bid and asked prices on such Exchange at the close of the market on such business day. 8. Option Term. Participants shall be granted Options for such term as the Committee shall determine, not in excess of 10 years from the date of the granting thereof; provided, however, that, in the case of a Participant who owns more than 10% of the total combined voting power of the Common Stock at the time an Option which is an incentive stock option is granted to him or her, the term with respect to such Option shall not be in excess of five years from the date of the granting thereof. 9. Limitations on Amount of Options Granted. (a) The aggregate fair market value of the shares of the Common Stock for which any Participant may be granted incentive stock options which are exercisable for the first time in any calendar year (whether under the terms of the Plan or any other stock option plan of the Company) shall not exceed $100,000. (b) No Participant shall, during any fiscal year of the Company, be granted Options under the Plan to purchase more than 500,000 shares of the Common Stock. 10. Exercise of Options. (a) Except as otherwise determined by the Committee at the time of grant, a Participant may not exercise an Option during the period commencing on the date of the grant of such Option to him or her and ending on the day immediately preceding the first anniversary of such date. Except as otherwise determined by the Committee at the time of grant, a Participant may (i) during the period commencing on the first anniversary of the date of the grant of an Option to him or her and ending on the day immediately preceding the second anniversary of 3   such date, exercise such Option with respect to one-quarter of the shares granted thereby, (ii) during the period commencing on the second anniversary of the date of such grant and ending on the day immediately preceding the third anniversary of the date of such grant, exercise such Option with respect to one-half of the shares granted thereby, (iii) during the period commencing on the third anniversary of the date of such grant and ending on the day immediately preceding the fourth anniversary of such date, exercise such Option with respect to three-quarters of the shares granted thereby and (iv) during the period commencing on the fourth anniversary of the date of such grant and ending at the time the Option expires pursuant to the terms hereof, exercise such Option with respect to all of the shares granted thereby. (b) Except as hereinbefore otherwise set forth, an Option may be exercised either in whole at any time or in part from time to time. (c) An Option may be exercised only by a written notice of intent to exercise such Option with respect to a specific number of shares of the Common Stock and payment to the Company of the amount of the option price for the number of shares of the Common Stock so specified; provided, however, that, if the Committee shall in its sole discretion so determine at the time of the grant of any Option, all or any portion of such payment may be made in kind by the delivery of shares of the Common Stock having a fair market value equal to the portion of the option price so paid; provided further, however, that no portion of such payment may be made by delivering shares of the Common Stock acquired upon the exercise of an Option if such shares shall not have been held by the Participant for at least six months; and provided further, however, that, subject to the requirements of Regulation T (as in effect from time to time) promulgated under the Exchange Act, the Committee may implement procedures to allow a broker chosen by a Participant to make payment of all or any portion of the option price payable upon the exercise of an Option and receive, on behalf of such Participant, all or any portion of the shares of the Common Stock issuable upon such exercise. (d) The Committee may, in its discretion, permit any Option to be exercised, in whole or in part, prior to the time when it would otherwise be exercisable. (e) (1) Notwithstanding the provisions of Section 10(a) or the last sentence of Section 13, in the event that a Change in Control shall occur, then, each Option theretofore granted to any Participant which shall not have theretofore expired or otherwise been cancelled or become unexercisable shall become immediately exercisable in full. For the purposes of this Section 10(e), a "Change in Control" shall be deemed to occur upon (i) the election of one or more individuals to the Board which election results in one- third of the directors of the Company consisting of individuals who have not been directors of the Company for at least two years, unless such individuals have been elected as directors or nominated for election by the stockholders as directors by at least three-fourths of the directors of the Company who have been directors of the Company for at least two years, (ii) the sale by the Company of all or substantially all of its assets to any Person, the consolidation of the Company with any Person, the merger of the Company with any Person as a result of which merger the Company is not the surviving entity as a publicly held corporation, (iii) the sale or transfer of shares of the Company by the Company and/or any one or more of its stockholders, in one or more transactions, related or unrelated, to one or more Persons under circumstances whereby any Person and its Affiliates shall own, after such sales and transfers, at least one-fourth, but less 4   than one-half, of the shares of the Company having voting power for the election of directors, unless such sale or transfer has been approved in advance by at least three-fourths of the directors of the Company who have been directors of the Company for at least two years, (iv) the sale or transfer of shares of the Company by the Company and/or any one or more of its stockholders, in one or more transactions, related or unrelated, to one or more Persons under circumstances whereby any Person and its Affiliates shall own, after such sales and transfers, at least one-half of the shares of the Company having voting power for the election of directors or (v) as defined in the Participant's employment agreement, if any, with the Company or a Subsidiary. For the purposes of this paragraph (1), (i) the term "Affiliate" shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, any other Person, (ii) the term "Person" shall mean any individual, partnership, firm, trust, corporation or other similar entity and (iii) when two or more Persons act as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of the Company, such partnership, limited partnership, syndicate or group shall be deemed a "Person." (2) In the event that a Change of Control shall occur, then, from and after the time of such event, neither the provisions of this Section 10(e) nor any of the rights of any Participant thereunder shall be modified or amended in any way. (f) Notwithstanding any other provision of the Plan to the contrary, including, but not limited to, the provisions of Section 10(d), if any Participant shall have effected a Hardship Withdrawal from a 401(k) Plan maintained by the Company and/or one or more of the Subsidiaries, then, during the period of one year commencing on the date of such Hardship Withdrawal, such Participant may not exercise any Option using cash. For the purpose of this Section 10(f), a "Hardship Withdrawal" shall mean a distribution to a Participant provided for in Reg. § 1.401(k)-1(d)(1)(ii) promulgated under Section 401(k)(2)(B)(i)(IV) of the Code or an analogous provision of the Puerto Rico Internal Revenue Code of 1994, as amended (the "Puerto Rico Code") and the regulations promulgated thereunder, and a "401(k) Plan" shall mean a plan which is a "qualified plan" within the contemplation of Section 401(a) of the Code or an analogous provision of the Puerto Rico Code which contains a "qualified cash or deferred arrangement" within the contemplation of Section 401(k)(2) of the Code or an analogous provision of the Puerto Rico Code. 11. Transferability. (a) Except as otherwise provided in Section 11(b), no Option shall be assignable or transferable except by will and/or by the laws of descent and distribution and, during the life of any Participant, each Option granted to such Participant may be exercised only by him or her. (b) A Participant may, with the prior approval of the Committee, transfer for no consideration an Option which is a non-qualified stock option to or for the benefit of the Participant's Immediate Family, a trust for the exclusive benefit of the Participant's Immediate Family or to a partnership or limited liability company for one or more members of the Participant's Immediate Family, subject to such limits as the Committee may establish, and the transferee shall remain subject to all the terms and conditions applicable to the Option prior to such transfer. The term "Immediate Family" shall mean the Participant's children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, former spouse, siblings, nieces, 5   nephews, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother- in-law, or sister-in-law, including adoptive relationships or any person sharing the Participant's household (other than a tenant or employee). 12. Termination of Employment or Service. In the event a Participant leaves the employ or service, or ceases to serve as a director, of the Company and the Subsidiaries, whether voluntarily or otherwise but other than by reason of his or her death or, in the case of Participant who shall be an employee or director, retirement, each Option theretofore granted to him or her which shall not have been exercisable prior to the date of the termination of his or her employment or service shall terminate immediately. Each other Option theretofore granted to him or her which shall not have theretofore expired or otherwise been cancelled shall, to the extent exercisable on the date of such termination of employment or service and not theretofore exercised, terminate upon the earlier to occur of the expiration of 30 days after the date of such Participant's termination of employment or cessation of service and the date of termination specified in such Option. Notwithstanding the foregoing, if a Participant is terminated for cause (as defined herein), each Option theretofore granted to him or her which shall not have theretofore expired or otherwise been cancelled shall, to the extent not theretofore exercised, terminate forthwith. In the event a Participant leaves the employ, or ceases to serve as a director, of the Company and the Subsidiaries by reason of his or her retirement, each Option theretofore granted to him or her which shall not have theretofore expired or otherwise been cancelled shall become immediately exercisable in full and shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of three years after the date of such retirement and the date of termination specified in such Option. In the event a Participant's employment or service with the Company and the Subsidiaries terminates by reason of his or her death, each Option theretofore granted to him or her which shall not have theretofore expired or otherwise been cancelled shall become immediately exercisable in full and shall, to the extent not theretofore exercised, terminate upon the earlier to occur of the expiration of three months after the date of the qualification of a representative of his or her estate and the date of termination specified in such Option. For purposes of the foregoing, (a) the term "cause" shall mean: (i) the commission by the Participant of any act or omission that would constitute a crime under federal, state or equivalent foreign law, (ii) the commission by the Participant of any act of moral turpitude, (iii) fraud, dishonesty or other acts or omissions that result in a breach of any fiduciary or other material duty to the Company and/or the Subsidiaries, (iv) continued substance abuse that renders the Participant incapable of performing his or her material duties to the satisfaction of the Company and/or the Subsidiaries, or (v) as defined in the Participant's employment agreement, if any, with the Company or a Subsidiary and (b) the term "retirement" shall mean (I) the termination of a Participant's employment with the Company and all of the Subsidiaries (x) other than for cause or by reason of his or her death and (y) on or after the earlier to occur of (1) the first day of the calendar month in which his or her 65th birthday shall occur and (2) the date on which he or she shall have both attained his or her 55th birthday and completed 10 years of employment with the Company and/or the Subsidiaries or (II) the termination of a Participant's service as a director with the Company and all of the Subsidiaries (x) other than for cause or by reason of his or her death and (y) on or after the first day of the calendar month in which his or her 65th birthday shall occur. 13. Adjustment of Number of Shares. In the event that a dividend shall be declared upon the Common Stock payable in shares of the Common Stock, the number of shares of the 6   Common Stock then subject to any Option and the number of shares of the Common Stock reserved for issuance in accordance with the provisions of the Plan but not yet covered by an Option and the number of shares set forth in Section 9(b) shall be adjusted by adding to each share the number of shares which would be distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of the Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation, then, there shall be substituted for each share of the Common Stock then subject to any Option and for each share of the Common Stock reserved for issuance in accordance with the provisions of the Plan but not yet covered by an Option and for each share of the Common Stock referred to in Section 9(b), the number and kind of shares of stock or other securities into which each outstanding share of the Common Stock shall be so changed or for which each such share shall be exchanged. In the event that there shall be any change, other than as specified in this Section 13, in the number or kind of outstanding shares of the Common Stock, or of any stock or other securities into which the Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in the number or kind of shares then subject to any Option and the number or kind of shares reserved for issuance in accordance with the provisions of the Plan but not yet covered by an Option and the number or kind of shares referred to in Section 9(b), such adjustment shall be made by the Committee and shall be effective and binding for all purposes of the Plan and of each stock option agreement or certificate entered into in accordance with the provisions of the Plan. In the case of any substitution or adjustment in accordance with the provisions of this Section 13, the option price in each stock option agreement or certificate for each share covered thereby prior to such substitution or adjustment shall be the option price for all shares of stock or other securities which shall have been substituted for such share or to which such share shall have been adjusted in accordance with the provisions of this Section 13. No adjustment or substitution provided for in this Section 13 shall require the Company to sell a fractional share under any stock option agreement or certificate. In the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, then, except as otherwise provided in Section 10(e) and the second sentence of this Section 13, each Option, to the extent not theretofore exercised, shall terminate forthwith. 14. Purchase for Investment, Withholding and Waivers. Unless the shares to be issued upon the exercise of an Option by a Participant shall be registered prior to the issuance thereof under the Securities Act of 1933, as amended, such Participant will, as a condition of the Company's obligation to issue such shares, be required to give a representation in writing that he or she is acquiring such shares for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution of any thereof. In the event of the death of a Participant, a condition of exercising any Option shall be the delivery to the Company of such tax waivers and other documents as the Committee shall determine. In the case of each non-qualified stock option, a condition of exercising the same shall be the entry by the person exercising the same into such arrangements with the Company with respect to withholding as the Committee may determine. 7   15. No Stockholder Status. Neither any Participant nor his or her legal representatives, legatees or distributees shall be or be deemed to be the holder of any share of the Common Stock covered by an Option unless and until a certificate for such share has been issued. Upon payment of the purchase price thereof, a share issued upon exercise of an Option shall be fully paid and non-assessable. 16. No Restrictions on Corporate Acts. Neither the existence of the Plan nor any Option shall in any way affect the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise. 17. No Employment Right. Neither the existence of the Plan nor the grant of any Option shall require the Company or any Subsidiary to continue any Participant in the employ or service of the Company or such Subsidiary. 18. Termination and Amendment of the Plan. The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable; provided, however, that the Board may not without further approval of the holders of a majority of the shares of the Common Stock present in person or by proxy at any special or annual meeting of the stockholders, increase the number of shares as to which Options may be granted under the Plan (as adjusted in accordance with the provisions of Section 13), or change the class of persons eligible to participate in the Plan, or change the manner of determining the option prices. Except as otherwise provided in Section 13, no termination or amendment of the Plan may, without the consent of the Participant to whom any Option shall theretofore have been granted, adversely affect the rights of such Participant under such Option. The Committee may not, without further approval of the holders of a majority of the shares of the Common Stock present in person or by proxy at any special or annual meeting of the stockholders, amend any outstanding Option to reduce the option price, or cancel any outstanding Option and contemporaneously award a new Option to the same optionee for substantially the same number of shares at a lower option price. 19. Expiration and Termination of the Plan. The Plan shall terminate on April 27, 2010 or at such earlier time as the Board may determine. Options may be granted under the Plan at any time and from time to time prior to its termination. Any Option outstanding under the Plan at the time of the termination of the Plan shall remain in effect until such Option shall have been exercised or shall have expired in accordance with its terms.   8 20. Options for Outside Directors. (a) A director of the Company who is not an employee of the Company or a Subsidiary (an "Outside Director") shall be eligible to receive, in addition to any other Option which he or she may receive pursuant to Section 6, an annual Option. Except as otherwise provided in this Section 20, each such Option shall be subject to all of the terms and conditions of the Plan. (b) (i) At the first meeting of the Board immediately following each Annual Meeting of the Stockholders of the Company, each Outside Director shall be granted an Option, which shall be a non-qualified stock option, to purchase 8,000 shares of the Common Stock. Notwithstanding the foregoing, an Outside Director may not receive a grant under this Section 20 for any year if and to the extent such Outside Director receives a grant of options to purchase Common Stock under any other Company stock option plan then in effect solely for his or her services as a director of the Company for such year and the aggregate number of shares of Common Stock issuable upon the exercise of all such options granted for such year would exceed 8,000. (ii) The initial per share option price of each Option granted to an Outside Director shall under this Section 20 be equal to the fair market value of a share of the Common Stock on the date of grant. (iii) The term of each Option granted to an Outside Director shall be ten years from the date of the granting thereof. (iv) All or any portion of the payment required upon the exercise of an Option granted to an Outside Director may be made in kind by the delivery of shares of the Common Stock having a fair market value equal to the portion of the option price so paid; provided, however, that no portion of such payment may be made by delivering shares of the Common Stock acquired upon the exercise of an Option if such shares shall not have been held by such Outside Director for at least six months; and provided further, however, that, subject to the requirements of Regulation T (as in effect from time to time) promulgated under the Exchange Act, the Committee may implement procedures to allow a broker chosen by such Outside Director to make payment of all or any portion of the option price payable upon the exercise of an Option and receive, on behalf of such Outside Director, all or any portion of the shares of the Common Stock issuable upon such exercise. (c) The provisions of this Section 20 may not be amended except by the vote of a majority of the members of the Board and by the vote of a majority of the members of the Board who are not Outside Directors.     9

NONQUALIFIED STOCK OPTION AGREEMENT         THIS AGREEMENT is entered into as of August 17, 2001 by and between New Horizons Worldwide, Inc., a Delaware corporation (the “Company”), and Martin G. Bean (the “Optionee”). WITNESSETH:         WHEREAS, the Company maintains the New Horizons Worldwide, Inc. Omnibus Equity Plan (the “Plan”) for the benefit of eligible participants therein; and         WHEREAS, the Board of Directors of the Company is currently charged with administering the Plan with respect to awards to members of the Board who are not employees of the Company; and         WHEREAS, the Board and its disinterested members have determined that the Optionee, as a person eligible to receive awards under the Plan, should be granted nonqualified stock options to acquire Shares under the Plan upon the terms and conditions set forth in this Agreement as part of Optionee’s compensation for services as a member of the Board during 2001.         NOW, THEREFORE, the Company and the Optionee hereby agree as follows:         1.      Definitions.         (a)     The following terms shall have the meanings set forth below whenever used in this instrument:         (i)     The word “Act” shall mean the federal Securities Act of 1933, as amended.         (ii)    The word “Agreement” shall mean this instrument as originally executed and as it may later be amended.         (iii)   The word “Company” shall mean New Horizons Worldwide, Inc., a Delaware corporation, and any successor thereto which shall maintain the Plan.         (iv)    The words “Fair Market Value” means, in respect of a Share, its fair market value as determined in the reasonable judgment of the Committee at any time.         (v)     The word “Option” shall mean the right and option to purchase Shares pursuant to the terms of this Agreement.         (vi)    The words “Option Exercise Date” shall mean the date the Optionee exercises the Option by performing the acts described in Section 7 hereof.         (vii)   The word “Optionee” shall mean the person to whom the Option has been granted pursuant to this Agreement.         (viii) The words “Personal Representative” shall mean, following the Optionee’s death, the person who shall have acquired, by will or by the laws of descent and distribution, the right to exercise the Option.         (ix)   The word “Plan” shall mean the New Horizons Worldwide, Inc. Omnibus Equity Plan, as it was originally adopted and as it may later be amended.         (x)     The word “Spread” shall mean, as of the Option Exercise Dare, an amount equal to the excess, if any, of the Fair Market Value of a Share in respect of which the Option is exercised over the Option Exercise Price.         (xi)   The word “Transferee” shall mean the person or entity to whom rights to acquire Shares pursuant to the exercise of the Option shall have been transferred pursuant to Section 9 hereof.         (b)     The following terms when used in the Agreement shall have the meanings given them in the Plan: “Affiliate;” “Board;” “Change in Control;” “Code;” “Committee;” “Consent;" “Family Members;” “Option Exercise Price;” “Shares.”         2.      Grant of Nonqualified Option. Effective as of the date of this Agreement, the Company grants to the Optionee, upon the terms and conditions set forth hereinafter, the right and option to purchase all or any lesser whole number of an aggregate of Six Thousand Two Hundred Fifty (6,250) Shares at an Option Exercise Price of $13.03 per Share. The Option shall for all purposes be a nonqualified stock option subject to the federal income tax treatment described in Section 1.83-7 of the Federal Income Tax Regulations. Both the Company and the Optionee shall, on their respective federal income tax returns, report any transaction relating to the Option in a manner consistent with the preceding sentence.         3.      Term of Option. Except as otherwise provided herein, the Optionee shall be entitled to exercise the Option at any time on or after the date hereof and on or before the close of business on December 31, 2005 at the Company’s principal executive office (currently located at 1231 East Dyer Road, Suite 140, Santa Ana, California 92705-5605).         4.      Cancellation of Option. If Optionee ceases to be a Director of the Company before or during the calendar year 2001 then the Option shall be cancelled with respect to a number of Shares equal to (A) multiplied by (B) below where:   (A) equals the number of Shares which are the subject of the Option; and     (B) equals a fraction, the numerator of which equals the number of full calendar months during the year 2001 during which the Optionee was not a Director and the denominator of which equals twelve; provided, however, that the Committee may in its absolute discretion determine (but shall not be under any obligation to determine) that such purchase rights shall be deemed to include additional Shares which are subject to the Option.         5.      Change in Control. Notwithstanding the provisions of Sections 3 and 4 hereof, in connection with a Change in Control, the Optionee shall have the immediate and nonforfeitable right to exercise the Option with respect to all Shares covered by the Option. The Optionee shall be entitled to exercise the Option as provided in the immediately preceding sentence regardless of whether the surviving corporation in any merger or consolidation shall adopt and maintain the Plan. In the event the Option becomes exercisable pursuant to this Section 5, the Company shall notify the Optionee of his right to exercise the Option. Upon a Change in Control described in Section 1.6(b)(iii) of the Plan, the Option, to the extent not exercised, shall terminate unless the surviving corporation assumes the Option. In the event of a Change in Control described in Section 1.6(b)(iv) of the Plan, the Option, to the extent not exercised, shall terminate upon consummation of the Change in Control.         6.      Adjustment Upon Changes in Capitalization. The number of Shares which may be purchased upon exercise of an Option and the Option Exercise Price shall be appropriately adjusted as the Committee may determine for any change after the date of the Agreement in the number of issued Shares resulting from the subdivision or combination of Shares or other capital adjustments, or the payment of a stock dividend, or other change in the Shares effected without receipt of consideration by the Company; provided, that any fractional Shares resulting from any such adjustment shall be eliminated. Adjustments under this Section 6 shall be made by the Committee, whose determination as to the adjustments to be made, and the extent thereof, shall be final, binding and conclusive.         7.      Exercise of Option. The Option may be exercised by delivering to the Chairman, Vice Chairman, President or Chief Financial Officer of the Company at the then principal office address of the recipient officer, a completed Notice of Exercise of Option (obtainable from the Chief Financial Officer of the Company) setting forth the number of Shares with respect to which the Option is being exercised. Such Notice shall be accompanied by payment in full for the Shares, unless other arrangements satisfactory to the Committee for prompt payment of such amount are made. Payment of the Option Exercise Price may be made in any manner permitted by the Plan, subject to the consent of the Committee as applicable. With the consent of the Committee, the Optionee may effect a cashless exercise of the Option as described in the Plan. With the consent of the Committee in its sole discretion, payment for Shares acquired upon exercise of the Option may be made by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Shares acquired upon exercise of the Option to pay for all or some of the Shares acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be made at the Optionee’s direction on the Option Exercise Date; provided, that the Committee may require the Optionee to furnish an opinion of counsel acceptable to the Committee to the effect that such delivery would not result in the Optionee incurring any liability under Section 16 of the Act and does not require any Consent.         8.      Issuance of Share Certificates. Subject to the last sentence of this Section 8, upon receipt by the Company prior to expiration of the Option of a duly completed Notice of Exercise of Option accompanied by payment for the Shares being purchased pursuant to such Notice (and, with respect to any Option exercised pursuant to Section 9 hereof by someone other than the Optionee, accompanied in addition by proof satisfactory to the Committee of the right of such person to exercise the Option), the Company shall deliver to the Optionee, within thirty (30) days of such receipt, a certificate for the number of Shares so purchased. The Optionee shall not have any of the rights of a stockholder with respect to the Shares which are subject to the Option unless and until a certificate representing such Shares is issued to the Optionee. The Company shall not be required to issue any certificates for Shares upon the exercise of the Option prior to (i) obtaining any Consents which the Committee shall, in its sole discretion, determine to be necessary or advisable, or (ii) the determination by the Committee, in its sole discretion, that no Consents need be obtained.         9.      Successors in Interest, Etc. This Agreement shall be binding upon and inure to the benefit of any successor of the Company and the heirs, estate, and Personal Representative of the Optionee. A deceased Optionee’s Personal Representative shall act in the place and stead of the deceased Optionee with respect to exercising an Option or taking any other action pursuant to this Agreement. The Option shall not be transferable other than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of the Optionee only by the Optionee; provided, that a guardian or other legal representative who has been duly appointed for such Optionee may exercise the Option on behalf of the Optionee. Notwithstanding the preceding sentence, with the consent of the Committee in its sole discretion, the Optionee may transfer the rights under the Option in respect of some or all of the Shares which are subject to the Option to a Family Member or a trust for the exclusive benefit of the Optionee and/or Family Members, or a partnership or other entity affiliated with the Optionee that may be approved by the Committee. All terms and conditions of any Option, including provisions relating to the termination of the Optionee’s employment with the Company and its Affiliates, shall continue to apply following a transfer made in accordance with this Section 10 and the Transferee shall have no greater right to exercise the Option than the Optionee would have in the absence of the transfer. The Option may be exercised by the Transferee only in accordance with the terms of this Agreement and the Transferee’s exercise of the Option shall be subject to the Transferee and/or the Optionee satisfying all of the conditions relating to the exercise of the Option including, without limitation, provisions concerning payment of the Option Exercise Price and tax withholding.       10.      Provisions of Plan Control. This Agreement is subject to all of the terms, conditions, and provisions of the Plan and to such rules, regulations, and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.       11.      No Liability Upon Distribution of Shares. The liability of the Company under this Agreement and any distribution of Shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on the Company or the Committee in favor of any person with respect to any loss, cost or expense which the person may incur in connection with or arising out of any transaction in connection with this Agreement.       12.      No Right to Be a Director, Etc. Nothing in this Agreement shall confer upon the Optionee any right to continue as a Director of or other advisor to the Company.       13.      Resale Limitations. The Optionee acknowledges and agrees that (a) the Shares he may acquire upon exercise of the Option may not be transferred unless they become registered under the Act or unless the holder thereof establishes to the satisfaction of the Company that an exemption from such registration is available, (b) the Company will have no obligation to provide any such registration or take such steps as are necessary to permit sale of such Shares without registration pursuant to Rule 144 under the Act or otherwise, (c) at such time as such Shares may be disposed of in routine sales without registration in reliance on Rule 144 under the Act, such disposition may be made only in limited amounts in accordance with all of the terms and conditions of Rule 144 and (d) if the Rule 144 exemption is not available, compliance with some other exemption from registration will be required.       14.     Withholding Taxes.         (a)      Whenever Shares are to be delivered pursuant to the exercise of the Option, the Committee may require as a condition of delivery that the Optionee remit an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto. The Company may, as a condition of the exercise of the Option, deduct from any salary or other payments due to the Optionee, an amount sufficient to satisfy all federal, state and other governmental withholding tax requirements related thereto or to the delivery of any Shares under the Plan.         (b)      With the consent of the Committee in its sole discretion, (i) the Optionee may satisfy all or part of any withholding requirements by delivery of unrestricted Shares owned by the Optionee for at least one year (or such other period as the Committee may determine) having a Fair Market Value (determined as of the date of such delivery) equal to all or part of the amount to be withheld; provided, that the Committee may require the Optionee to furnish an opinion of counsel or other evidence acceptable to the Committee to the effect that such delivery would not result in the Optionee incurring any liability under Section 16 of the Act and does not require any Consent and/or (ii) the Optionee may direct that Shares to be issued pursuant to the exercise of the Option be used to satisfy any withholding obligation; provided, that for purposes of satisfying any such obligation the value of a Share shall be equal to the Spread.       15.      Construction. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. The use of the singular or plural herein shall not be restrictive as to number and shall be interpreted in all cases as the context shall require. The use of the feminine, masculine or neuter pronoun shall not be restrictive as to gender and shall be interpreted in all cases as the context may require.       16.      Time Periods, Etc. Any action required to be taken under this Agreement within a certain number of days shall be taken within that number of calendar days; provided, however, that if the last day for taking such action falls on a weekend or a holiday, the period during such action may be taken shall be automatically extended to the next business day. If the day for taking any action, or on which any action may be taken, under this Agreement falls on a weekend or a holiday, such action may be taken on the next business day.       17.      Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and any applicable federal law.       18.      Notices. Except as otherwise expressly provided herein, all notices hereunder shall be in writing and delivered or mailed by registered or certified mail, return receipt requested, or by private, overnight delivery services (such as Federal Express) as follows:             If to the Company:             New Horizons Worldwide, Inc.             1231 East Dyer Road, Suite 140             Santa Ana, California 92705-5605             Attention: Chief Financial Officer             If to the Optionee:             Last address set forth on the records             of the Company or its Affiliates or at such other address as either party may hereafter designate by giving notice to the other party as set forth above.       19.      Further Assurances. From time to time after the exercise of an Option, either party, upon request of the other and without further consideration, shall execute and deliver to the requesting party any document or instrument, and shall take any other action as may be reasonably requested, to give effect to the exercise of the Option and the terms of this Agreement.         IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the day and year first above written. NEW HORIZONS WORLDWIDE, INC. (the “Company”) By:__________________________________ Its: __________________________________ _____________________________________ (the “Optionee”)

11/98(R062700) MASTER LEASE AGREEMENT (Quasi) dated as of May 10, 2001 ("Agreement")                THIS AGREEMENT is between General Electric Capital Corporation (together with its successors and assigns, if any, "Lessor") and  Variagenics, Inc. ("Lessee").  Lessor has an office at 401 Merritt 7  2nd Floor, Norwalk, CT 06856.  Lessee is a corporation organized and existing under the laws of the state of DE.  Lessee's mailing address and chief place of business is 60 Hamphire Street, Cambridge, MA 02139. This Agreement contains the general terms that apply to the leasing of Equipment from Lessor to Lessee.  Additional terms that apply to the Equipment (term, rent, options, etc.) shall be contained on a schedule ("Schedule"). 1.          LEASING:              (a)         Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment") described in any Schedule signed by both parties.              (b)        Lessor shall purchase Equipment from the manufacturer or supplier ("Supplier") and lease it to Lessee if on or before the Last Delivery Date (specified in the Schedule) Lessor receives (i) a Schedule for the Equipment, (ii) evidence of insurance which complies with the requirements of Section 8, and (iii) such other documents as Lessor may reasonably request.  Each of the documents required above must be in form and substance satisfactory to Lessor.  Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier.  Once the Schedule is signed, the Lessee may not cancel the Schedule. 2.          TERM, RENT AND PAYMENT:              (a)         The rent payable for the Equipment and Lessee's right to use the Equipment shall begin on the earlier of (i) the date when the Lessee signs the Schedule and accepts the Equipment or (ii) when Lessee has accepted the Equipment under a Certificate of Acceptance ("Lease Commencement Date").  The term of this Agreement shall be the period specified in the applicable Schedule.  The word "term" shall include all basic and any renewal terms.              (b)        Lessee shall pay rent to Lessor at its address stated above, except as otherwise directed by Lessor.  Rent payments shall be in the amount set forth in, and due as stated in the applicable Schedule.  If any Advance Rent (as stated in the Schedule) is payable, it shall be due when the Lessee signs the Schedule.  Advance Rent shall be applied to the first rent payment and the balance, if any, to the final rent payment(s) under such Schedule.  In no event shall any Advance Rent or any other rent payments be refunded to Lessee.  If rent is not paid within ten (10) days of its due date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any.              (c)         Lessor shall not disturb Lessee's quiet enjoyment of the Equipment during the term of the Agreement unless a default has occurred and is continuing under this Agreement.  3.         TAXES:              (a)         If permitted by law, Lessee shall report and pay promptly all taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rents or receipts hereunder), any Schedule, Lessor or Lessee by any governmental entity or taxing authority during or related to the term of this Agreement,  including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (collectively "Taxes"). Lessee shall have no liability for Taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor.  Lessee shall promptly reimburse Lessor (on an after tax basis) for any Taxes charged to or assessed against Lessor.  Lessee shall send Lessor a copy of each report or return and evidence of Lessees payment of Taxes upon request.              (b)        Lessee's obligations, and Lessor's rights and priviledges, contained in this Section 3 shall survive the expiration or other termination of this Agreement. 4.          REPORTS:              (a) If any tax or other lien shall attach to any Equipment, Lessee will notify Lessor in writing, within ten (10) days after Lessee becomes aware of the tax or lien.  The notice shall include the full particulars of the tax or lien and the location of such Equipment on the date of the notice.              (b) Lessee will deliver to Lessor Lessees complete financial statements, certified by a recognized firm of certified public accountants, within ninety (90) days of the close of each fiscal year of Lessee.  If Lessor requests, Lessee will deliver to Lessor copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee, within ninety (90) days of the close of each fiscal quarter of Lessee.  Lessee will deliver to Lessor all Forms 10-K and 10Q, if any, filed with the Securities and Exchange Commission within thirty (30) days after the date on which they are filed.              (c)         Lessor may inspect any Equipment during normal business hours after giving Lessee reasonable prior notice.              (d)        Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will give Lessor prior written notice of any relocation of Equipment.  If Lessor requests, Lessee will promptly notify Lessor  in writing of the location of any Equipment.              (e)         If any Equipment is lost or damaged (where the estimated repair costs would exceed the greater of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000)), or is otherwise involved in an accident causing personal injury or property damage, Lessee will promptly and fully report the event to Lessor in writing.              (f)         Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default or event which with notice or lapse of time (or both) would become such a default within thirty (30)  days after any request by Lessor. 5.          DELIVERY, USE AND OPERATION:              (a)         All Equipment shall be shipped directly from the Supplier to Lessee.              (b)        Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable laws, regulations and insurance policies, and Lessee shall not discontinue use of the Equipment              (c)         Lessee will not move any equipment from the location specified on the Schedule, without the prior written consent of Lessor.              (d)        Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor.              (e)         Lessor shall not disturb Lessees quiet enjoyment of the Equipment during the term of the Agreement unless a default has occurred and is continuing under this Agreement. 6.          MAINTENANCE:              (a)         Lessee will, at its sole expense, maintain each unit of Equipment in good operating order and repair, normal wear and tear excepted.  The Lessee shall also maintain the Equipment in accordance with manufacturers recommendations.  Lessee shall make all alterations or modifications required to comply with any applicable law, rule or regulation during the term of this Agreement.   If Lessor requests, Lessee shall affix plates, tags or other identifying labels showing ownership thereof by Lessee and Lessor's security interest therein.  The tags or labels shall be placed in a prominent position on each unit of Equipment.              (b)        Lessee will not attach or install anything on the Equipment that will impair the originally intended function or use of such Equipment without the prior written consent of Lessor.  All additions, parts, supplies, accessories, and equipment ("Additions") furnished or attached to any Equipment that are not readily removable shall become subject to the lien of Lessor.  All Additions shall be made only in compliance with applicable law.  Lessee will not attach or install any Equipment to or in any other personal or real property without the prior written consent of Lessor. 7.          STIPULATED LOSS VALUE:  If for any reason any unit of Equipment becomes worn out, lost, stolen, destroyed, irreparably damaged or unusable ("Casualty Occurrences") Lessee shall promptly and fully notify Lessor in writing.  Lessee shall pay Lessor the sum of (i) the Stipulated Loss Value (see Schedule) of the affected unit determined as of the rent payment date prior to the Casualty Occurrence; and (ii) all rent and other amounts which are then due under this Agreement on the Payment Date (defined below) for the affected unit.   The Payment Date shall be the next rent payment date after the Casualty Occurrence.  Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate. 8.          INSURANCE:              (a)         Lessee shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever from the time the Equipment is shipped to Lessee.              (b)        Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may reasonably require.  All such policies shall be with companies, and on terms, reasonably satisfactory to Lessor.  The insurance shall include coverage for damage to or loss of the Equipment, liability for personal injuries, death or property damage.  Lessor shall be named as additional insured with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee.  The insurance shall provide for liability coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00) total liability per occurrence, unless otherwise stated in any Schedule.  The casualty/property damage coverage shall be in an amount equal to the higher of the Stipulated Loss value or the full replacement cost of the Equipment.  No insurance shall be subject to any co-insurance clause.  The insurance policies shall provide that the insurance may not be altered or canceled by the insurer until after thirty (30) days written notice to Lessor.  Lessee agrees to deliver to Lessor evidence of insurance reasonably satisfactory to Lessor.              (c)         Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments.  Lessor shall not act as Lessees attorney-in-fact unless Lessee is in default.  Lessee shall pay any reasonable expenses of Lessor in adjusting or collecting insurance.  Lessee will not make adjustments with insurers except with respect to claims for damage to any unit of Equipment where the repair costs are less than the lesser of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000).  Lessor may, at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor under this Agreement. 9.          RETURN OF EQUIPMENT:              (a)         At the expiration or termination of this Agreement or any Schedule, Lessee shall perform any testing and repairs required to place the units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for the original intended purpose of the Equipment.  If required the units of Equipment shall be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is reasonably satisfactory to Lessor.  Lessee shall remove installed markings that are not necessary for the operation, maintenance or repair of the Equipment.  All Equipment will be cleaned, cosmetically acceptable, and in such condition as to be immediately installed into use in a similar environment for which the Equipment was originally intended to be used.  All waste material and fluid must be removed from the Equipment and disposed of in accordance with then current waste disposal laws.  Lessee shall return the units of Equipment to a location within the continental United States as Lessor shall direct.  Lessee shall obtain and pay for a policy of transit insurance for the redelivery period in an amount equal to the replacement value of the Equipment.  The transit insurance must name Lessor as the loss payee.  The Lessee shall pay for all costs to comply with this section (a).              (b)        Until Lessee has fully complied with the requirements of Section 9(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term.  Lessor may terminate  the Lessee's right to use the Equipment upon ten (10) days notice to Lessee.              (c)         Lessee shall provide to Lessor a detailed inventory of all components of the Equipment including model and serial numbers.  Lessee shall also provide an up-to-date copy of all other documentation pertaining to the Equipment.  All service manuals, blue prints, process flow diagrams, operating manuals, inventory and maintenance records shall be given to Lessor at least ninety (90) days and not more than one hundred twenty (120) days prior to lease termination.              (d)        Lessee shall make the Equipment available for on-site operational inspections by potential purchasers at least one hundred twenty (120) days prior to and continuing up to lease termination.  Lessor shall provide Lessee with reasonable notice prior to any inspection.  Lessee shall provide personnel, power and other requirements necessary to demonstrate electrical, hydraulic and mechanical systems for each item of Equipment. 10.        DEFAULT AND REMEDIES:              (a)         Lessor may in writing declare this Agreement in default if: (i) Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; (ii) Lessee breaches any of its insurance obligations under Section 8; (iii) Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice from Lessor; (iv) any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; (v) Lessee or any guarantor or other obligor for the Lessee's obligations hereunder ("Guarantor") becomes insolvent or ceases to do business as a going concern; (vi) any Equipment is illegally used; (vii) if Lessee or any Guarantor is a natural person, any death or incompetency of Lessee or such Guarantor; or (viii) a petition is filed by or against Lessee or any Guarantor under any bankruptcy or insolvency laws and in the event of an involuntary petition, the petition is not dismissed within forty-five (45) days of the filing date.  The default declaration shall apply to all Schedules unless specifically excepted by Lessor.              (b)        After a default, at the request of Lessor, Lessee shall comply with the provisions of Section 9(a).  Lessee hereby authorizes Lessor to peacefully enter any premises where any Equipment may be and take possession of the Equipment.  Lessee shall immediately pay to Lessor without further demand as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rent payment date prior to the declaration of default), and all rents and other sums then due under this Agreement and all Schedules.  Lessor may terminate this Agreement as to any or all of the Equipment.  A termination shall occur only upon written notice by Lessor to Lessee and only as to the units of Equipment specified in any such notice.  Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale.  Lessor may also, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment.  Lessor may use Lessee's premises for a reasonable period of time for any or all of the purposes stated above without liability for rent, costs, damages or otherwise.  The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities:  (i) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee under this Agreement; then (iii) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and then (iv) to Lessee, if there exists any surplus.  Lessee shall immediately pay any deficiency in (i) and (ii) above.              (c)         The foregoing remedies are cumulative, and any or all thereof may be exercised instead of or in addition to each other or any remedies at law, in equity, or under statute.  Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising.  Lessee shall pay Lessor's actual attorney's fees incurred in connection with the enforcement, assertion, defense or preservation of Lessor's rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted.  Waiver of any default shall not be a waiver of any other or subsequent default.              (d)        Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. 11.        ASSIGNMENT:  LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR SUBLET ANY EQUIPMENT OR THE INTEREST OF LESSEE IN THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.  Lessor may, without the consent of Lessee, assign this Agreement, any Schedule or the right to enter into a Schedule.  Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Schedule to such assignee or as instructed by Lessor.  Lessee also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee.  Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. 12.        NET LEASE:  Lessee is unconditionally obligated to pay all rent and other amounts due for the entire lease term no matter what happens, even if the Equipment is damaged or destroyed, if it is defective or if Lessee no longer can use it.  Lessee is  not entitled to reduce or set-off against rent or other amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any Schedule whether Lessees claim arises out of this Agreement, any Schedule, any statement by Lessor, Lessors liability or any manufacturers liability, strict liability, negligence or otherwise. 13.        INDEMNIFICATION:              (a)         Lessee hereby agrees to indemnify Lessor, its agents, employees, successors and assigns (on an after tax basis) from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature arising out of or relating to the Equipment or this Agreement, except to the extent the losses, damages, penalties, injuries, claims, actions, suits or expenses result from Lessors gross negligence or willful misconduct ("Claims").   This indemnity shall include, but is not limited to, Lessor's strict liability in tort and Claims, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement or environmental damage) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employees of Lessee.  Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing.              (b)        All of Lessor's rights, privileges and indemnities contained in this Section 13 shall survive the expiration or other termination of this Agreement. The rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. 14.        DISCLAIMER:  LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES.  LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.  All such risks, as between Lessor and Lessee, are to be borne by Lessee.  Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following: (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) of the Equipment, or any other circumstance in connection with the Equipment; (ii) the use, operation or performance of any Equipment or any risks relating to it; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment.  If, and so long as, no default exists under this Agreement, Lessee shall be, and hereby is, authorized during the term of this Agreement to assert and enforce, whatever claims and rights Lessor may have against any Supplier of the Equipment at Lessee's sole cost and expense, in the name of and for the account of Lessor and/or Lessee, as their interests may appear. 15.        REPRESENTATIONS AND WARRANTIES OF LESSEE:  Lessee makes each of the following representations and warranties to Lessor on the date hereof and on the date of execution of each Schedule:              (a)         Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "Documents").  Lessee is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located.              (b)        The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws.              (c)         No approval, consent or withholding of objections is required from any governmental authority or entity with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained.              (d)        The entry into and performance by Lessee of the Documents will not:  (i)  violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or bylaws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party.              (e)         There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which if decided against Lessee will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement.              (f)         The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property.              (g)        Each financial statement delivered to Lessor has been prepared in accordance with generally accepted accounting principles consistently applied.  Since the date of the most recent financial statement, there has been no material adverse change.              (h)        Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement).              (i)          The Equipment will at all times be used for commercial or business purposes. 16. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS:              (a)         For income tax purposes, the parties hereto agree that it is their mutual intention that Lessee shall be considered the owner of the Equipment.  Accordingly, Lessor agrees (i) to treat Lessee as the owner of the Equipment on its federal income tax return, (ii) not to take actions or positions inconsistent with such treatment on or with respect to its federal income tax return, and (iii) not to claim any tax benefits available to an owner of the Equipment on or with respect to its federal income tax return.  The foregoing undertakings by Lessor shall not be violated by Lessor's taking a tax position inconsistent with the foregoing sentence to the extent such a position is required by law or is taken through inadvertence so long as such inadvertent tax position is reversed by Lessor promptly upon its discovery.  Lessor shall in no event be liable to Lessee if Lessee fails to secure any of the tax benefits available to the owner of the Equipment.              (b)        Lessee hereby grants to Lessor a first security interest in the Equipment, together with all additions, attachments, accessions, accessories and accessions thereto whether or not furnished by the Supplier of the Equipment and any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds of the property in and against which a security interest is granted hereunder.  Notwithstanding anything to the contrary contained elsewhere in this Agreement, to the extent that Lessor asserts a purchase money security interest in any items of Equipment ("PMSI Equipment"): (i) the PMSI Equipment shall secure only those sums which have been advanced by Lessor for the purchase of the PMSI Equipment, or the acquisition of rights therein, or the use thereof (the "PMSI Indebtedness"), and (ii) no other Equipment shall secure the PMSI Indebtedness.              (c)         It is the intention of the parties hereto to comply with any applicable usury laws to the extent that any Schedule is determined to be subject to such laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in any Schedule or this Agreement, in no event shall any Schedule require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law.  If any such excess interest is contracted for, charged or received under any Schedule or this Agreement, or in the event that all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under any Schedule or this Agreement shall exceed the maximum amount of interest permitted by applicable law, then in such event  (i) the provisions of this paragraph shall govern and control, (ii) neither Lessee nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law,  (iii) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Lessee, at the option of the Lessor, and  (iv) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under any Schedule or this Agreement which are made for the  purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Lessee or otherwise by Lessor in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Lessor to receive a greater interest per annum rate than is presently allowed, the Lessee agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. 17.        EARLY TERMINATION:              (a)         On or after the First Termination Date (specified in the applicable Schedule), Lessee may, so long as no default exists hereunder, terminate this Agreement as to all (but not less than all) of the Equipment on such Schedule as of a rent payment date ("Termination Date").  Lessee must give Lessor at least ninety (90) days prior written notice of the termination.              (b)        Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or implied ("AS IS BASIS").  Prior to the Termination Date, Lessee shall (i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the Termination Value (calculated as of the rent due on the Termination Date) for the Equipment, and (B) all rent and other sums due and unpaid as of the Termination Date.              (c)         If all amounts due hereunder have been paid on the Termination Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of such sale (net of any related expenses) to Lessee up to the amount of the Termination Value.  If such sale is not consummated, no termination shall occur and Lessor shall refund the Termination Value (less any expenses incurred by Lessor) to Lessee.              (d)        Notwithstanding the foregoing, Lessor may elect by written notice, at any time prior to the Termination Date, not to sell the Equipment.  In that event, on the Termination Date Lessee shall (i) return the Equipment (in accordance with Section 9) and (ii) pay to Lessor all amounts required under Section 17(b) less the amount of the highest bid certified by Lessee to Lessor. 18.        EARLY PURCHASE OPTION:              (a)         Lessee may purchase on an AS IS BASIS all (but not less than all) of the Equipment on any Schedule on any Rent Payment Date after the First Termination Date specified in the applicable Schedule but prior to the last Rent Payment Date of such Schedule (the "Early Purchase Date"), for a price equal to (i) the Termination Value (calculated as of the Early Purchase Date) for the Equipment, and (ii) all rent and other sums due and unpaid as of the Early Purchase Date (the "Early Option Price"), plus all applicable sales taxes.  Lessee must notify Lessor of its intent to purchase the Equipment in writing at least thirty (30) days, but not more than two hundred seventy (270) days, prior to the Early Purchase Date.  If Lessee is in default or if the Schedule or this Agreement has already been terminated, Lessee may not purchase the Equipment.  (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option").              (b)        If Lessee exercises its Early Purchase Option, then on the Early Purchase Date, Lessee shall pay to Lessor any rent and other sums due and unpaid on the Early Purchase Date and Lessee shall pay the Early Option Price, plus all applicable sales taxes, to Lessor in cash. 19.        END OF LEASE PURCHASE OPTION:  Lessee may, at lease expiration, purchase all (but not less than all) of the Equipment on any Schedule on an AS IS BASIS for cash equal to the amount indicated on such Schedule (the "Option Payment"), plus all applicable sales taxes.  The Option Payment,  plus all applicable sales taxes, shall be due and payable in immediately available funds on the expiration date of such Schedule.  Lessee must notify Lessor of its intent to purchase the Equipment in writing at least one hundred eighty (180) days prior to the expiration date of the Schedule.  If Lessee is in default, or if the Schedule or this Agreement has already been terminated, Lessee may not purchase the Equipment. 20.        MISCELLANEOUS:              (a)         LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT.  THIS WAIVER IS IRREVOCABLE.  THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING.  THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.  THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.              (b)        Any cancellation or termination by Lessor of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder shall not release Lessee from any then outstanding obligations to Lessor hereunder.  All Equipment shall at all times remain personal property even though it may be attached to real property.  The Equipment shall not become part of any other property by reason of any installation in, or attachment to, other real or personal property.              (c)         Time is of the essence of this Agreement.  Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right at any other time to demand strict compliance with this Agreement.  Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor.   All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have specified in writing.  This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof.  NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.              (d)        If Lessee does not comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated, to effect such compliance, in whole or in part.  All reasonable amounts spent and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor.  Lessee shall pay the additional rent within five days after the date Lessor sends notice to Lessee requesting payment.  Lessor's effecting such compliance shall not be a waiver of Lessee's default.              (e)         Any rent or other amount not paid to Lessor when due shall bear interest, from the due date until paid, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law.  Any provisions in this Agreement and any Schedule that are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.              (f)         Lessee hereby irrevocably authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more than ten percent [10%] within each Schedule to account for equipment change orders, equipment returns, invoicing errors, and similar matters.  Lessee acknowledges and agrees that the rent shall be adjusted as a result of the change in the Capitalized Lessor's Cost.  Lessor shall send Lessee a written notice stating the final Capitalized Lessor's Cost, if it has changed.              (g)        THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.              (h)        Any cancellation or termination by Lessor, pursuant to the provisions of this Agreement, any Schedule, supplement or amendment hereto, of the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder.              (i)          To the extent that any Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest therein may be created through the transfer or possession of this Agreement in and of itself without the transfer or possession of the original of a Schedule executed pursuant to this Agreement and incorporating this Agreement by reference; and no security interest in this Agreement and a Schedule may be created by the transfer or possession of any counterpart of the Schedule other than the original thereof, which shall be identified as the document marked Original and all other counterparts shall be marked Duplicate. IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE:             General Electric Capital Corporation Variagenics, Inc.             By: /s/   Thomas G. Annino By: /s/   Richard P. Shea     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:   Thomas G. Annino Name:   Richard P. Shea     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:   VP, Sr. Risk Mgr. Title   Chief Financial Officer     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- 3010 (3/91) CROSS-COLLATERAL AND CROSS-DEFAULT AGREEMENT General Electric Capital Corporation 401 Merritt 7 2nd Floor Norwalk, CT 06856   Gentlemen:              You (and/or your successors or assigns, "you") have entered into or purchased one or more conditional sale contracts, lease agreements, chattel mortgages, security agreements, notes and other choses in action (herein designated "Accounts") arising from the bona fide sale or lease to us, by various vendors or lessors, of equipment and inventory (herein designated "Collateral") and/or you have made direct loans to or otherwise extended credit to us evidenced by Accounts creating security interests in Collateral.              In order to induce you to extend our time of payment on one or more Accounts and/or to make additional loans to us and/or to purchase additional Accounts and/or to lease us additional equipment, and in consideration of you so doing, and for other good and valuable consideration, the receipt of which we hereby acknowledge, we agree as follows:              All presently existing and hereafter acquired Collateral in which you have or shall have a security interest shall secure the payment and performance of all of our liabilities and obligations to you of every kind and character, whether joint or several, direct or indirect, absolute or contingent, due or to become due, and whether under presently existing or hereafter created Accounts or agreements, or otherwise.              We further agree that your security interest in the property covered by any Account now held or hereafter acquired by you shall not be terminated in whole or in part until and unless all indebtedness of every kind, due or to become due, owed by us to you is  fully paid and satisfied and the terms of every Account have been fully performed by us.  It is further agreed that you are to retain your security interest in all property covered by all Accounts held or acquired by you, as security for payment and performance under each such Account, notwithstanding the fact that one or more of such Accounts may become fully paid.              This instrument is intended to create cross-default and cross-security between and among all the within described Accounts now owned or hereafter acquired by you.              A default under any Account or agreement shall be deemed to be a default under all other Accounts and agreements.  A default shall result if we fail to pay any sum when due on any Account or agreement, or if we breach any of the other terms and conditions thereof, or if we become insolvent, cease to do business as a going concern, make an assignment for the benefit of creditors, or if a petition for a receiver or in bankruptcy is filed by or against us, or if any of our property is seized, attached or levied upon.  Upon our default any or all Accounts and agreements shall, at your option, become immediately due and payable without notice or demand to us or any other party obligated thereon, and you shall have and may exercise any and all rights and remedies of a secured party under the Uniform Commercial Code as enacted in the applicable jurisdiction and as otherwise granted to you under any Account or other agreement.  We hereby waive, to the maximum extent permitted by law, notices of default, notices of repossession and sale or other disposition of collateral, and all other notices, and in the event any such notice cannot be waived, we agree that if such notice is mailed to us postage prepaid at the address shown below at least five (5) days prior to the exercise by you of any of your rights or remedies, such notice shall be deemed to be reasonable and shall fully satisfy any requirement for giving notice.              All rights granted to you hereunder shall be cumulative and not alternative, shall be in addition to and shall in no manner impair or affect your rights and remedies under any existing Account, agreement, statute or rule of law.              This agreement may not be varied or altered nor its provisions waived except by your duly executed written agreement.  This agreement shall inure to the benefit of your successors and assigns and shall be binding upon our heirs, administrators, executors, legal representatives, successors and assigns.              IN WITNESS WHEREOF, this agreement is executed this __11th_ day of _May___, _2001______.   Variagenics, Inc.       (Name of Proprietorship, Partnership or Corporation, as applicable)       By:  /s/ Richard P. Shea              --------------------------------------------------------------------------------     (Signature)         Title:  Chief Financial Officer     --------------------------------------------------------------------------------   (Owner, Partner or Officer, as applicable)       Address:    60 Hamphire Street, Cambridge, MA 02139   11/98   4116820001 EQUIPMENT SCHEDULE (Quasi Lease - Fixed Rate) SCHEDULE NO. 001 DATED THIS __June 1, 2001_ TO MASTER LEASE AGREEMENT DATED AS OF May 10, 2001 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital Corporation Variagenics, Inc. 401 Merritt 7 2nd Floor 60 Hamphire Street Norwalk, CT 06856 Cambridge, MA 02139   This Schedule is executed pursuant to, and incorporates by reference the terms and conditions of, and capitalized terms not defined herein shall have the meanings assigned to them in, the Master Lease Agreement identified above ("Agreement", said Agreement and this Schedule being collectively referred to as "Lease").  This Schedule, incorporating by reference the Agreement, constitutes a separate instrument of lease. A.         Equipment:  Subject to the terms and conditions of the Lease, Lessor agrees to lease to Lessee the Equipment described below (the "Equipment"). -------------------------------------------------------------------------------- Number Capitalized       of Units Lessor's Cost Manufacturer Serial Numbers Year/Model and Type of Equipment --------------------------------------------------------------------------------           SEE EXHIBIT A ATTCHED HERETO AND MADE APART HEREOF. B.         Financial Terms   1. Advance Rent (if any):  $13,962.63. 6. Lessee Federal Tax ID No.: 04-3182077.             2. Capitalized Lessor's Cost:  $569,698.40. 7. Last Delivery Date:  June 1, 2001.             3. Basic Term (No. of Months):  48  Months. 8. Daily Lease Rate Factor:  .082.             4. Basic Term Lease Rate Factor:  2.450881. 9. Interest Rate: 8.59% per annum.             5. Basic Term Commencement Date:  June 1, 2001 . 10. Option Payment:  $1.00     11. First Termination Date:  forty eight (48) months after the Basic Term Commencement Date.         12. Interim Rent:  For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim  Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, the product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period.  Interim Rent shall be due on N/A.         13. Basic Term Rent.  Commencing on June 1, 2001 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule.         14. Lessee agrees and acknowledges that the Capitalized Lessor's Cost of the Equipment as stated on the Schedule is equal to the fair market value of the Equipment on the date hereof.   C.         Interest Rate:  Interest shall accrue from the Lease Commencement Date through and including the date of termination of the Lease. D.         Property Tax PROPERTY TAX NOT APPLICABLE ON EQUIPMENT LOCATED IN CAMBRIDGE, MA. Lessor may notify Lessee (and Lessee agrees to follow such notification) regarding any changes in property tax reporting and payment responsibilities. E.          Article 2A Notice IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES THE FOLLOWING DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A) THE PERSON(S) SUPPLYING THE EQUIPMENT IS SEE EXHIBIT A FOR LISTING OF SUPPLIERS (THE "SUPPLIER(S)"), (B) LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO THE LESSOR BY SUPPLIER(S), WHICH IS SUPPLYING THE EQUIPMENT IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT AND (C) WITH RESPECT TO SUCH EQUIPMENT, LESSEE MAY COMMUNICATE WITH SUPPLIER(S) AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF SUCH PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN ARTICLE 2A AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES UNDER THE DEFAULT AND REMEDIES SECTION OF THE AGREEMENT. F.          Stipulated Loss and Termination Value Table*     Rental Basic   Termination Value Percentage   Stipulated Loss Value Percentage   Rental   Termination Value Percentage   Stipulated Loss Percentage                               1   100.549   104.547   25   54.811   57.340     2   98.795   102.732   26   52.731   55.198     3   97.029   100.905   27   50.635   53.041     4   95.250   99.064   28   48.525   50.870     5   93.458   97.212   29   46.399   48.683     6   91.654   95.346   30   44.258   46.481     7   89.837   93.467   31   42.102   44.264     8   88.006   91.576   32   39.931   42.031     9   86.163   89.671   33   37.744   39.783     10   84.306   87.753   34   35.541   37.519     11   82.437   85.822   35   33.323   35.239     12   80.553   83.878   36   31.089   32.944     13   78.657   81.920   37   28.839   30.633     14   76.746   79.948   38   26.572   28.305     15   74.823   77.963   39   24.290   25.961     16   72.885   75.965   40   21.991   23.601     17   70.933   73.952   41   19.676   21.225     18   68.968   71.925   42   17.344   18.832     19   66.989   69.885   43   14.996   16.423     20   64.995   67.830   44   12.631   13.996     21   62.987   65.761   45   10.249   11.553     22   60.965   63.677   46   7.850   9.093     23   58.928   61.579   47   5.433   6.615     24   56.877   59.467   48   3.000   4.120   -------------------------------------------------------------------------------- *The Stipulated Loss Value or Termination Value for any unit of Equipment shall be the Capitalized Lessor's Cost of such unit multiplied by the appropriate percentage derived from the above table.  In the event that the Lease is for any reason extended, then the last percentage figure shown above shall control throughout any such extended term. G.         Payment Authorization You are hereby irrevocably authorized and directed to deliver and apply the proceeds due under this Schedule as follows:   Company Name Address Amount   --------------------------------------------------------------------------------   Variagenics, Inc. 60 Hampshire Street, Cambridge, MA $ 569,698.40                This authorization and direction is given pursuant to the same authority authorizing the above-mentioned financing. Pursuant to the provisions of the lease, as it relates to this Schedule, Lessee hereby certifies and warrants that (i) all Equipment listed above is in good condition and appearance, has been delivered and installed (if applicable) as of the date stated above and in working order; (ii) Lessee has inspected the Equipment, and all such testing as it deems necessary has been performed by Lessee, Supplier or the manufacturer; and (iii) Lessee accepts the Equipment for all purposes of the Lease and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; and (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof.                Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect.  This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively.              IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written.   LESSOR: LESSEE:   General Electric Capital Corporation Variagenics, Inc.         By:  /s/ Thomas Annino By:  /s/ Richard P. Shea   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Name:    THOMAS ANNINO Name:  Richard P. Shea   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Title:  VP., Sr. Risk Mgr Title:  Chief Financial Officer   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   Tax ID # 04-3182077 Exhibit A Schedule 01   Company Name Variagenics, Inc. Equipment Location: 60 Hampshire st   Cambridge, MA  02139                                                                     Equip               Unit   Ext.   Invoice   Vendor                     Item#   Supplier   Code   Description   QTY   Serial  #   Price   Price   Total   Total   PO #   Invoice #   Inv Date   Ck #   Ck Amt --------------------------------------------------------------------------------                                                           1   Axon Instruments   LAB   GenePix 4000A Microarray scanner   1   54819   50,000.00   50,000.00           5909   39763   8/25/00   11439   50,106.46         LAB   Shipping   1       106.46   106.46   $50,106.46   $50,106.46                                                                               2   Bruker Daltonics   LAB   Mass Spectrometer BIFLEX III W/Scout 384   1       139,650.00   139,650.00   $27,930.00       6058   002526   7/12/00   10955   27,930.00                                 $83,790.00           002566   7/31/00   11221   111,720.00                                 $27,930.00   $139,650.00       002592   8/21/00   11221   111,720.00                                                           3   Bluesteins   FURN   FILE, LAT, LTR/LGL, INSUL,4d   1   FIR 43822CPA   2,175.00   2,175.00           6296   62510-0   9/13/00   11567   4,024.84         FURN   File, LAT, 4DRW,42" -W/Lock   1       489.99   489.99                                     FURN   Tax   1       133.25   133.25   $2,798.24   $2,798.24                                                                               4   CDW Computer Center   COMP   Simple 32MB I BM TP 390X SE   1   STM0253/32   71.99   71.99           6221   CH67265   8/15/00   11795   3,120.84         COMP   IBM TP 570E   1   78-BD182   2,991.99   2,991.99                                     COMP   Shipping   1       56.86   56.86   $3,120.84                                 FURN   APC Netshelter 42U EXP Cabinet   1   AR1001A   1,126.40   1,126.40           6196   CYH63941   8/15/00   11336   3,090.01         FURN   Shipping   1       36.60   36.60   $1,163.00   $4,283.84                                                                               5   Datacom Warehouse   COMP   Power Mac G4/400   3   XA02400HHSE, XA02400UHSE, XA02400EHSE,   1,325.00   3,975.00           6190   P47024120001   8/9/00   11276   6,064.76         COMP   Apple Monitors 17" Studio Display   3   CY0222X8GZC, CY0222X3GZC, CY0222X6GZC,   339.00   1,017.00                                     COMP   Memory 64MB PC100 SDRAM   3       107.00   321.00                                     COMP   Shipping   1       141.91   141.91   $5,454.91   $5,454.91                                                                                                                                                                                                   7   Micro warehouse   COMP   Laptop 570E P3/500   1   78-LP550   1,999.00   1,999.00           6418   P52095230001   10/9/00   11854   11,289.68         COMP   RealPort Ethernet 10/100 PC Card   1       132.00   132.00                                     COMP   MEM Puser 64MB PC100 SDRAM   1       125.00   125.00                                     COMP   Shipping   1       19.22   19.22   2,275.22                                 COMP   Power Mac 400Mhz   1   XA024017HSE   1,325.00   1,325.00           6214   P47372830101   8/14/00   11351   3,654.31         COMP   Monitor Apple 17 Studio Display   1   CY022STPGZC   339.00   339.00                                     COMP   MEM Puser 64MB PC100 SDRAM   1       107.00   107.00                                     COMP   Shipping   1       57.81   57.81   1,828.81                                 COMP   Power Mac 400Mhz   1   XB0251PAJSC   1,325.00   1,325.00           6217   P47598330001   8/16/00   11351   3,654.31         COMP   HDD QTM Fireball LCT 20.4GB Ultra ATA   2       114.95   229.90                                     COMP   MEM Puser 64MB PC100 SDRAM   1       107.00   107.00                                     COMP   Shipping   1       53.09   53.09   1,714.99                                 COMP   Lap TP 570 p2/333 4.0/64 56k 13.3 XGA   2   78-FA299, 78-FA165   1,749.00   3,498.00           6096   P44946740001   7/14/00   11141   3,731.08         COMP   MEM Puser 64MB SDRAM F/IBM   2       94.00   188.00                                     COMP   Shipping   1       45.08   45.08   3,731.08                                 COMP   Lap TP 570 p2/333 4.0/64 56k 13.3 XGA   2   78-FA309, 78-FA282   1,749.00   3,498.00           6117   P45532120001   7/21/00   11193   4,675.11         COMP   MEM Puser 64MB SDRAM F/IBM   2       94.00   188.00                                     COMP   IBM LI-ION Battery   4       199.00   796.00                                     COMP   Shipping   1       44.15   44.15   4,526.15                                 COMP   Lap TP 1250 C/500 6/64/24x/56k   1   AAFTBVO   1,499.00   1,499.00                                     COMP   MEM Puser 64MB PC100 SDRAM   1       109.00   109.00                                     COMP   Shipping   1       19.22   19.22   1,627.22       6227   P47664590001   8/16/00   11400   1,627.22         COMP   Tape D DLT8000 ADIC WIDE SCSI RACKMT   1   10320928   8,153.00   8,153.00           6378   P51461840001   10/12/00   11854   11,289.68         COMP   Shipping   1       47.61   47.61   8,200.61                                 COMP   Lap TP 570 P3/450 6/64/56k 13.3 XGA TFT   1   78-KZ285   1,849.00   1,849.00           6510   P54109330001   11/2/00   12030   12,280.37         COMP   MEM Puser 64MB PC100 SDRAM   1       125.00   125.00                                     COMP   RealPort Ethernet 10/100 PC Card   1       123.00   123.00                                     COMP   Shipping   1       18.82   18.82   2,115.82                                 COMP   Lap TP 570 P3/450 6/64/56k 13.3 XGA TFT   1   78-KZ296   1,849.00   1,849.00           6510   P54108770001   11/2/00   12030   12,280.37         COMP   MEM Puser 64MB PC100 SDRAM   1       125.00   125.00                                     COMP   RealPort Ethernet 10/100 PC Card   1       123.00   123.00                                     COMP   Shipping   1       18.82   18.82   2,115.82                                 COMP   Lap TP 570 P3/450 6/64/56k 13.3 XGA TFT   1   78-KZ222   1,849.00   1,849.00           6510   P54109550001   11/2/00   12030   12,280.37         COMP   MEM Puser 64MB PC100 SDRAM   1       125.00   125.00                                     COMP   RealPort Ethernet 10/100 PC Card   1       123.00   123.00                                     COMP   Shipping   1       18.82   18.82   2,115.82                                 COMP   Lap TP 570 P3/450 6/64/56k 13.3 XGA TFT   2   78-KZ172, 78-KZ202   1,849.00   3,698.00           6996   P53804700001   10/30/00   12030   12,280.37         COMP   MEM Puser 64MB PC100 SDRAM   2       125.00   250.00                                     COMP   RealPort Ethernet 10/100 PC Card   2       123.00   246.00                                     COMP   Shipping   2       18.82   46.99   4,240.99   34,492.53                                                                               8   Stratagene   LAB   Stratalinker 2400 UV, 120 V   1   400075   1,695.00   1,695.00   1,695.00   1,695.00   6428   151279   10/17/00   11814   1,695.00                                                           9   Tomtec, Inc.   LAB   Ultrasonic Tip  Washing System   1   4099   2,250.00   2,250.00           6185   001644   8/15/00   11254   2,268.67         LAB   Shipping   1       18.67   18.67   2,268.67                                 LAB   Ultrasonic Tip  Washing System   1   4109   2,250.00   2,250.00           6484   2142   10/27/00   11982   2,268.05         LAB   Shipping   1       18.05   18.05   2,268.05   4,536.72                                                                               10   PricePc.Com   COMP   AMD Athlon 600 (k7) ABIT KA7-100   23       1,039.00   23,897.00           Credit card                         COMP   Intel epro 100   1       35.00   35.00                                     COMP   Shipping   23       19.00   437.00   24,369.00   24,369.00                                                                               11   VWR Scientific   LAB   Vacuum Pump   1       1,400.70   1,400.70   1,400.70   1,400.70   6219   5080381   9/19/00   11816   5,259.02                                                           12   BioRobotics   LAB   MicroGrid II TAS   1       125,000.00   115,000.00           5964   10010   10/25/00   12002   115,650.00         LAB   Shipping   1       650.00   650.00   115,650.00   115,650.00                                                                               13   Laboratory Systems Inc.   LAB   Laboratory Casework   1       12,670.00   12,670.00           6351   1715   11/16/00   12151   13,173.00         LAB   Sales Tax   1       503.00   503.00   13,173.00   13,173.00                                                                               14   MWG Biotech Inc.   LAB   Primus 96 PCR System   4       7,700.00   24,024.00           6547   10020877   11/14/00   12156   109,008.00         LAB   Shipping   4       200.00   200.00   24,224.00                                 LAB   Primus 96 PCR System   14       7,700.00   84,084.00                                     LAB   Shipping   14       700.00   700.00   84,784.00   109,008.00                                                                               15   Hamilton   LAB   Hamilton Microlab 4200   1   ML41AJ2154   63,000.00   63,000.00   63,000.00       6405   616323   11/3/00   12129   63,080.00         LAB   Shipping   1       80.00   80.00   80.00   63,080.00   6405   M94913   11/27/00   12129   63,080.00                                                                       FUNDING TOTAL                   $569,698.40   $569,698.40                         VARIAGENICS, INC.   By /s/ Richard P. Shea   --------------------------------------------------------------------------------   Title: CFO   -------------------------------------------------------------------------------- 4116820001 RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT                RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT (this "Rider") to Schedule No.001 (the "Schedule") and the related Master Lease Agreement No. 4116820 datedMay 10, 2001(the "Master Lease", and together with the Schedule, the "Lease"), between Variagenics, Inc., (the "Lessee") and General Electric Capital Corporation, (the "Lessor").  This Rider is entered into pursuant to and incorporates by this reference all of the terms and provisions of this Lease.  By its execution and delivery of this Rider, Lessee hereby reaffirms all of the representations, warranties, and covenants contained in the Lease as of the date hereof, and further represents and warrants to Lessor that no default has occurred and is continuing as of the date hereof.   1. Purpose.  This Rider amends and restates the terms of the payments set forth in the Schedule.         2. Definitions. The following terms shall have the following meanings herein:           (a) "Adjustment Date" shall mean the date Lessor receives Lessee's executed Acceptance Certificate in Lessor's standard form (following delivery) evidencing Lessee's acceptance of the Equipment described in the Lease.           (b) "Final T-Note Average" shall mean the average of the yields on the U. S. Treasury Notes maturing in 4year, as published by the Dow Jones Telerate Access Service, Page 19901, for the close of business on each business day of the two full calendar weeks immediately preceding the week containing the Adjustment Date.           (c)"Preliminary Payments" shall mean the payments set forth in the Schedule, consisting of $13,962.63 due upon execution (the "Advance Payment") followed by Forty Seven  (47) consecutive monthly payments.           (d) "Preliminary T-Note Average" shall mean 4.59%.         3. Adjustment of Payments.  The Preliminary Payments were calculated based on a spread over the Preliminary T-Note Average.  Should the Final T-Note Average differ from the Preliminary T-Note Average, then the Preliminary Payments shall be revised.  For each increase of one (1) basis point (i.e., 1/100 of 1%) in the Final T-Note Average above or below the Preliminary T-Note Average, the Preliminary Payments shall be revised as follows (complete below as applicable):           The Advance Payment, due upon execution of the Schedule, shall remain unchanged.           Each of the monthly payments initially scheduled in the amount of $13,962.63 shall increase by $2.55.           THE CALCULATION OF THE CONTRACT PAYMENTS UNDER THIS RIDER WILL SUPERSEDE ANY PRIOR PROPOSAL OR QUOTATION.  LESSEE HEREBY ACKNOWLEDGES AND AGREES TO THE CALCULATION OF THE PAYMENT SCHEDULE SET FORTH HEREIN.         4. Lessor's Requirements. The commencement of the Lease is subject to satisfaction of all documentation and credit requirements of the Lessor.  If such requirements are not satisfied by the Adjustment Date, then the Lessor may, at its sole option, declare that the Adjustment Date shall be the date when such requirements are satisfied.   General Electric Capital Corporation       Variagenics, Inc.               By: /s/ Thomas Annino   By /s/ Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Name:   THOMAS ANNINO   Name:   Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Title   VP, Sr. Risk Mgr.   Title:   Chief Financial Officer     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------     10/94(R010699) FINANCIAL COVENANTS ADDENDUM NO. 001 TO MASTER LEASE AGREEMENT DATED AS OF May 10, 2001 THIS ADDENDUM (this "Addendum") amends and supplements the above referenced agreement (the "Agreement"), between General Electric Capital Corporation (together with its successors and assigns, if any, "Lessor") and Variagenics, Inc. ("Lessee") and is hereby incorporated into the Agreement as though fully set forth therein.  Capitalized terms not otherwise defined herein shall have the meanings set forth in the Lease. The Agreement is hereby amended by adding the following:              FINANCIAL COVENANTS.   (a) Lessee shall, at all times during the term of the Agreement, comply with the following:           Lessee (Variagenics, Inc.) shall, at all times during the term of the Agreement, comply with the following:         Maintain minimum Unrestricted Cash, as defined below, at the greater of $25,000,000.00 or twelve (12) months cash needs (defined as the cash burn for the 3 months just completed, multiplied by a factor of 4, excluding cash paid by Lessee for the partial or full ownership of another company). If this covenant is violated, Lessee will provide Lessor within ten (10) days of such occurrence with a continuing irrevocable letter of credit, acceptable to Lessor (the "Collateral"), from a financial institution acceptable to Lessor, in an amount equal to 50% of the original aggregate Equipment Cost.       Unrestricted Cash shall be defined as cash on hand and cash equivalents, including investments in marketable securities with maturities of less than fourteen (14) months, less cash pledged to other parties.              (b)        COMPLIANCE REPORTS.  Lessee's Authorized Representative shall certify that Lessee is in compliance with the requirements of subsection (a) above.  Such notification and certification shall be provided within ninety (90) days after the end of each fiscal year (the "Compliance Date"), reflecting such information as of the end of such fiscal year.  If Lessee fails timely to provide such notification and compliance certificates, within fifteen (15) days after the Compliance Date, such failure shall automatically be deemed a default under the Agreement without notice or other act by Lessor.  The reports required under this section are in addition to and not a substitute for the reports required under the REPORTS Section of the Agreement. Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect.  This Addendum is not binding nor effective with respect to the Lease until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee. IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be executed by their duly authorized representatives as of the date first above written.           Lessor:   Lessee:       General Electric Capital Corporation   Variagenics, Inc.        By: /s/ Thomas Annino   By: /s/ Richard P. Shea --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Name:  THOMAS ANNINO   Name:  Richard P. Shea --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Title:  VP, Sr. Risk Mgr.   Title:  Chief Financial Officer     --------------------------------------------------------------------------------     Attest           By:            Name:________________________________ ANNEX B BILL OF SALE              FOR Five Hundred Sixty Nine Thousand Six Hundred Ninety Eight—40/00 ($569,698.40) AND OTHER VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, VARIAGENICS, INC. (the “Seller”) does hereby sell, transfer and deliver to General Electric Capital Corporation (the “Buyer”), its successors and assigns, all of Seller’s right, title and interest in and to the following equipment (the “Equipment”):              SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF              TO HAVE AND TO HOLD the same unto the Buyer, its successors and assigns, forever.              The Seller warrants and represents that it owns (and has good and marketable title to) the Equipment free and clear of all liens and encumbrances, and has full power, right and authority to convey title thereto to the Buyer.  The foregoing warranty of title shall inure to the benefit of any purchaser of the Equipment from the Buyer and to General Electric Capital Corporation which is financing the purchase of the Equipment by the Buyer.              Except for the foregoing warranty of title, the Equipment is sold, “AS-IS”, “WHERE-IS”, without warranty of merchantability or fitness.              IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be executed by a duly authorized officer this ____ day of __________, _______   VARIAGENICS, INC.     (Seller)         By:  / s/ Richard P. Shea   --------------------------------------------------------------------------------   Title:   Chief Financial Officer   --------------------------------------------------------------------------------   Ref:  g/docs/B-SALE1 11/98   4116820002 EQUIPMENT SCHEDULE (Quasi Lease - Fixed Rate) SCHEDULE NO. 002 DATED THIS __June 1, 2001_______ TO MASTER LEASE AGREEMENT DATED AS OF May 10, 2001 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital Corporation Variagenics, Inc. 401 Merritt 7 2nd Floor 60 Hamphire Street Norwalk, CT 06856 Cambridge, MA 02139   This Schedule is executed pursuant to, and incorporates by reference the terms and conditions of, and capitalized terms not defined herein shall have the meanings assigned to them in, the Master Lease Agreement identified above ("Agreement", said Agreement and this Schedule being collectively referred to as "Lease").  This Schedule, incorporating by reference the Agreement, constitutes a separate instrument of lease. A.         Equipment:  Subject to the terms and conditions of the Lease, Lessor agrees to lease to Lessee the Equipment described below (the "Equipment"). -------------------------------------------------------------------------------- Number Capitalized       of Units Lessor's Cost Manufacturer Serial Numbers Year/Model and Type of Equipment --------------------------------------------------------------------------------   SEE EXHIBIT A ATTACHED HERETO AND MADE APART HEREOF. B.         Financial Terms   1. Advance Rent (if any):  $ 29,539.69. 6.   Lessee Federal Tax ID No.: 04-3182077               2. Capitalized Lessor's Cost:  $ 1,205,268.33. 7.   Last Delivery Date:   June 1, 2001               3. Basic Term (No. of Months):  48 Months. 8.   Daily Lease Rate Factor:  .082.               4. Basic Term Lease Rate Factor:  2.450881. 9.   Interest Rate: 8.59% per annum.               5. Basic Term Commencement Date: June 1, 2001 10.   Option Payment:  $ 1.00 11.        First Termination Date:  forty eight (48) months after the Basic Term Commencement Date. 12.        Interim Rent:  For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim  Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, the product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period.  Interim Rent shall be due on __N/A_________. 13.        Basic Term Rent.  Commencing on _June 1, 2001_________ and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 14.        Lessee agrees and acknowledges that the Capitalized Lessor's Cost of the Equipment as stated on the Schedule is equal to the fair market value of the Equipment on the date hereof. C. Interest Rate:  Interest shall accrue from the Lease Commencement Date through and including the date of termination of the Lease.   D.         Property Tax PROPERTY TAX NOT APPLICABLE ON EQUIPMENT LOCATED IN CAMBRIDGE, MA. Lessor may notify Lessee (and Lessee agrees to follow such notification) regarding any changes in property tax reporting and payment responsibilities. E.          Article 2A Notice IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES THE FOLLOWING DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A) THE PERSON(S) SUPPLYING THE EQUIPMENT IS SEE EXHIBIT A FOR LISTING OF SUPPLIERS (THE "SUPPLIER(S)"), (B) LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO THE LESSOR BY SUPPLIER(S), WHICH IS SUPPLYING THE EQUIPMENT IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT AND (C) WITH RESPECT TO SUCH EQUIPMENT, LESSEE MAY COMMUNICATE WITH SUPPLIER(S) AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF SUCH PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN ARTICLE 2A AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES UNDER THE DEFAULT AND REMEDIES SECTION OF THE AGREEMENT. F.          Stipulated Loss and Termination Value Table*   Rental Basic   Termination Value Percentage   Stipulated Loss Value Percentage   Rental   Termination Value Percentage   Stipulated Loss Value Percentage                               1   100.549   104.547   25   54.811   57.340     2   98.795   102.732   26   52.731   55.198     3   97.029   100.905   27   50.635   53.041     4   95.250   99.064   28   48.525   50.870     5   93.458   97.212   29   46.399   48.683     6   91.654   95.346   30   44.258   46.481     7   89.837   93.467   31   42.102   44.264     8   88.006   91.576   32   39.931   42.031     9   86.163   89.671   33   37.744   39.783     10   84.306   87.753   34   35.541   37.519     11   82.437   85.822   35   33.323   35.239     12   80.553   83.878   36   31.089   32.944     13   78.657   81.920   37   28.839   30.633     14   76.746   79.948   38   26.572   28.305     15   74.823   77.963   39   24.290   25.961     16   72.885   75.965   40   21.991   23.601     17   70.933   73.952   41   19.676   21.225     18   68.968   71.925   42   17.344   18.832     19   66.989   69.885   43   14.996   16.423     20   64.995   67.830   44   12.631   13.996     21   62.987   65.761   45   10.249   11.553     22   60.965   63.677   46   7.850   9.093     23   58.928   61.579   47   5.433   6.615     24   56.877   59.467   48   3.000   4.120     -------------------------------------------------------------------------------- *The Stipulated Loss Value or Termination Value for any unit of Equipment shall be the Capitalized Lessor's Cost of such unit multiplied by the appropriate percentage derived from the above table.  In the event that the Lease is for any reason extended, then the last percentage figure shown above shall control throughout any such extended term. G.         Payment Authorization You are hereby irrevocably authorized and directed to deliver and apply the proceeds due under this Schedule as follows:   Company Name Address Amount   --------------------------------------------------------------------------------   Applied Biosystems P.O. Box 101446, Atlanta, GA  30392-1446 $1,085,268.33                   Variagenics, Inc. 60 Hampshire Street, Cambridge, MA  02139 $120,000.00                        This authorization and direction is given pursuant to the same authority authorizing the above-mentioned financing. Pursuant to the provisions of the lease, as it relates to this Schedule, Lessee hereby certifies and warrants that (i) all Equipment listed above is in good condition and appearance, has been delivered and installed (if applicable) as of the date stated above and in working order; (ii) Lessee has inspected the Equipment, and all such testing as it deems necessary has been performed by Lessee, Supplier or the manufacturer; and (iii) Lessee accepts the Equipment for all purposes of the Lease and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; and (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof.                Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect.  This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively.              IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSOR:   LESSEE:               General Electric Capital Corporation       Variagenics, Inc.               By: /s/ Thomas Annino   By /s/ Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Name:   THOMAS ANNINO   Name:   Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Title   VP, Sr. Risk Mgr.   Title:   Chief Financial Officer     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------   Tax ID # 04-3182077 Exhibit A Schedule 002 Company Name Variagenics, Inc. Equipment Location: 60 Hampshire st   Cambridge, MA  02139       Equip       Unit Ext. Invoice Vendor             Item#   Supplier   Code   Description   QTY   Serial  #   Price   Price   Total   Total   PO #   Invoice #   Inv Date   Ck #   Ck.Amt   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   1   Applied Biosystems   LAB   3700 DNA Analyzer Sequencing   4   100001776 100001773 100001774 100001803   300,000.00   1,200,000.00           MED2556   90961724   12/12/00                                                                                                                                           LAB   Shipping   4       5,268.33   5,268.33   $1,205,268.33   $1,205,268.33                                                                                               FUNDING TOTAL                   $1,205,268.33   $1,205,268.33                           VARIAGENICS, INC.       By /s/ Richard P. Shea       --------------------------------------------------------------------------------       Date:  5-11-01       --------------------------------------------------------------------------------       INITIAL:  RPS  _ 4116820002 RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT              RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT (this "Rider") to Schedule No.002 (the "Schedule") and the related Master Lease Agreement No. 4116820 datedMay 10, 2001(the "Master Lease", and together with the Schedule, the "Lease"), between Variagenics, Inc., (the "Lessee") and General Electric Capital Corporation, (the "Lessor").  This Rider is entered into pursuant to and incorporates by this reference all of the terms and provisions of this Lease.  By its execution and delivery of this Rider, Lessee hereby reaffirms all of the representations, warranties, and covenants contained in the Lease as of the date hereof, and further represents and warrants to Lessor that no default has occurred and is continuing as of the date hereof. 1.          Purpose.  This Rider amends and restates the terms of the payments set forth in the Schedule. 2.          Definitions. The following terms shall have the following meanings herein:   (a) "Adjustment Date" shall mean the date Lessor receives Lessee's executed Acceptance Certificate in Lessor's standard form (following delivery) evidencing Lessee's acceptance of the Equipment described in the Lease.       (b) "Final T-Note Average" shall mean the average of the yields on the U. S. Treasury Notes maturing in 4year, as published by the Dow Jones Telerate Access Service, Page 19901, for the close of business on each business day of the two full calendar weeks immediately preceding the week containing the Adjustment Date.       (c)"Preliminary Payments" shall mean the payments set forth in the Schedule, consisting of $29,539.69 due upon execution (the "Advance Payment") followed by Forty Seven  (47) consecutive monthly payments.       (d) "Preliminary T-Note Average" shall mean 4.59%.     3. Adjustment of Payments.  The Preliminary Payments were calculated based on a spread over the Preliminary T-Note Average.  Should the Final T-Note Average differ from the Preliminary T-Note Average, then the Preliminary Payments shall be revised.  For each increase of one (1) basis point (i.e., 1/100 of 1%) in the Final T-Note Average above or below the Preliminary T-Note Average, the Preliminary Payments shall be revised as follows (complete below as applicable):                The Advance Payment, due upon execution of the Schedule, shall remain unchanged.              Each of the monthly payments initially scheduled in the amount of $29,539.69 shall increase by $5.39.   THE CALCULATION OF THE CONTRACT PAYMENTS UNDER THIS RIDER WILL SUPERSEDE ANY PRIOR PROPOSAL OR QUOTATION.  LESSEE HEREBY ACKNOWLEDGES AND AGREES TO THE CALCULATION OF THE PAYMENT SCHEDULE SET FORTH HEREIN.       4. Lessor's Requirements. The commencement of the Lease is subject to satisfaction of all documentation and credit requirements of the Lessor.  If such requirements are not satisfied by the Adjustment Date, then the Lessor may, at its sole option, declare that the Adjustment Date shall be the date when such requirements are satisfied.                  General Electric Capital Corporation       Variagenics, Inc.               By: /s/ Thomas Annino   By /s/ Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Name:   THOMAS ANNINO   Name:   Richard P. Shea     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------               Title   VP, Sr. Risk Mgr.   Title:   Chief Financial Officer     --------------------------------------------------------------------------------       --------------------------------------------------------------------------------     ANNEX B BILL OF SALE              FOR One Million Two Hundred Five Thousand Two Hundred Sixty Eight—33/00 ($1,205,268.33) AND OTHER VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, VARIAGENICS, INC. (the “Seller”) does hereby sell, transfer and deliver to General Electric Capital Corporation (the “Buyer”), its successors and assigns, all of Seller’s right, title and interest in and to the following equipment (the “Equipment”):              SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF                TO HAVE AND TO HOLD the same unto the Buyer, its successors and assigns, forever.              The Seller warrants and represents that it owns (and has good and marketable title to) the Equipment free and clear of all liens and encumbrances, and has full power, right and authority to convey title thereto to the Buyer.  The foregoing warranty of title shall inure to the benefit of any purchaser of the Equipment from the Buyer and to General Electric Capital Corporation which is financing the purchase of the Equipment by the Buyer.              Except for the foregoing warranty of title, the Equipment is sold, “AS-IS”, “WHERE-IS”, without warranty of merchantability or fitness.              IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be executed by a duly authorized officer this ____ day of __________, _______   VARIAGENICS, INC.     --------------------------------------------------------------------------------         (Seller)               By: /s/ Richard P. Shea         --------------------------------------------------------------------------------     Title:   Chief Financial Officer         --------------------------------------------------------------------------------    

EXHIBIT 10.9 October 25, 2001 This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. ADE CORPORATION EMPLOYEE STOCK PURCHASE PLAN ARTICLE I PURPOSE 1.01   Purpose.  The ADE Corporation Employee Stock Purchase Plan (the "Plan") is intended to provide a method whereby eligible employees of ADE Corporation and its participating subsidiary corporations (hereinafter collectively referred to, unless the context otherwise requires, as "ADE" or the "Company") will have an opportunity to acquire or increase proprietary interest in the Company through the purchase of shares of the Common Stock of ADE. The Plan is designed to encourage eligible employees to remain in the employ of the Company. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that Section of the Code, and, except as specifically provided herein, all options granted to participants hereunder shall give the holders thereof the same rights and privileges. ARTICLE II DEFINITIONS 2.01   Committee.  "Committee" shall mean those individuals who shall, from time to time, constitute the Compensation Committee of the Board of Directors of ADE Corporation (the "Board of Directors"). 2.02   Common Stock.  "Common Stock" shall mean shares of the $.01 par value common stock of the Company and any other stock or securities resulting from the adjustment thereof or substitution thereof as described in Section 12.04. 2.03   Employee.  "Employee" means any person who is customarily employed by the Company and paid on the United States payroll on a full-time regular or part-time regular basis by the Company and is regularly scheduled to work more than 20 hours per week. 2.04   Offering.  "Offering" or "Offerings" shall have the meanings set forth in Section 4.01 below. 2.05   Offering Commencement Date.  "Offering Commencement Date" means January 1, April 1, July 1, and October 1, as the case may be, on which a particular Offering begins. 2.06   Offering Termination Date.  "Offering Termination Date" means March 31, June 30, September 30, or December 31, as the case may be, on which a particular Offering terminates. 2.07   Option Price.  "Option Price" means the price established under Section 6.02 below. 1 -------------------------------------------------------------------------------- 2.08   Pay.  "Pay" shall mean total earnings, including regular straight-time earnings and payments for overtime, shift premiums, bonuses and other special payments, commissions and other incentive payments. 2.09   Subsidiary Corporation.  "Subsidiary Corporation" shall mean any present or future corporation which (i) would be a "subsidiary corporation" of ADE Corporation, as that term is defined in Section 424 of the Code, and (ii) is designated as a participant in the Plan by the Committee. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01   Initial Eligibility.  Any Employee who shall have completed at least ninety (90) days' employment and shall be employed by the Company on the date his/her participation in the Plan is to become effective shall be eligible to participate in Offerings under the Plan which commence on or after such ninety day period has concluded. 3.02   Leave of Absence.  For purposes of participation in the Plan, a person on leave of absence shall be deemed to be an Employee for the first 90 days of such leave of absence and, subject to applicable Federal and State laws, such Employee's employment shall be deemed to have terminated at the close of business on the 90th day of such leave of absence unless such Employee shall have returned to regular full-time or regular part-time employment (as the case may be) prior to the close of business on such 90th day or unless otherwise agreed to by the Company and the Employee. Termination by the Company of any Employee's leave of absence, other than termination of such leave of absence on return to full-time or part-time employment, shall terminate such Employee's participation in the Plan and right to exercise any option. 3.03   Restrictions on Participation.  Notwithstanding any provisions of the Plan to the contrary, no Employee shall be granted an option to participate in the Plan: (a)if, immediately after the grant, such Employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of Section 424(d) of the Code shall apply in determining stock ownership of any Employee); or (b)which permits his/her rights to purchase stock under this Plan and all other employee stock purchase plans of the Company intended to qualify under Section 423 of the Code to accrue at a rate which exceeds $25,000 in fair market value of the stock (determined at the time such option is granted) for each calendar year in which such an option is outstanding. 3.04   Commencement of Participation.  An eligible Employee may become a participant by completing an authorization for a payroll deduction on the form provided by the Company and filing it with the office of the Treasurer of the Company on or before the next date set therefor by the Committee, which date shall be prior to the Offering Commencement Date for the next Offering. Payroll deductions for a participant shall commence on the applicable Offering Commencement Date when his/her authorization for a payroll deduction becomes effective and shall end on the Offering Termination Date of the Offering to which such authorization is applicable unless sooner terminated by the participant as provided in Article VIII. 2 -------------------------------------------------------------------------------- ARTICLE IV OFFERINGS 4.01   Quarterly Offerings.  A total of One Million (1,000,000) shares of the Company's Common Stock shall be offered under the Plan, over a period of ten (10) years; during the first five (5) years, the shares shall be offered in quarterly offerings of Fifty Thousand (50,000) shares each plus any shares not issued in any previous quarter and during the second five (5) years, the quarterly offerings shall consist of any shares not issued in any previous quarter, including during the first five (5) years (the "Offerings"). The Offerings will, commence on the first day of the first Offering Commencement Date after the Board of Director's approval and thereafter on the first day of each subsequent quarter within the duration of the Plan until the Plan expires. Any shares not issued in any Offering shall be available for issuance in subsequent Offerings. ARTICLE V PAYROLL DEDUCTIONS 5.01   Amount of Deduction.  At the time a participant files his/her authorization for payroll deduction, he/she shall elect to have deductions made from his/her Pay on each payday during the time he/she is a participant in an Offering at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of his/her Pay. 5.02   Participant's Account.  All payroll deductions made for a participant shall be credited to his/her account under the Plan. A participant may not make any separate cash payment into such account except when on a leave of absence and then only as provided in Section 5.04. 5.03   Changes in Payroll Deductions.  A participant may discontinue his/her participation in the Plan as provided in Article VIII, but no other change can be made during an Offering and, specifically, a participant may not alter the amount of his/her payroll deductions for that Offering. 5.04   Leave of Absence.  If a participant goes on a leave of absence, such participant shall have the right to elect: (a) to withdraw the cash balance in his/her account pursuant to Section 8.01; (b) to discontinue contributions to the Plan but remain a participant in the Plan; or (c) to remain a participant in the Plan during such leave of absence, authorizing deductions to be made from payments by the Company to the participant during such leave of absence and undertaking to make cash payments to the Plan at the end of each payroll period to the extent that amounts payable by the Company to such participant are insufficient to meet such participant's authorized Plan deductions. ARTICLE VI GRANTING OF OPTIONS 6.01   Number of Option Shares.  On the Offering Commencement Date of each Offering, each participating Employee shall be deemed to have been granted an option to purchase a maximum number of shares of Common Stock of the Company equal to an amount determined as follows: an amount equal to (i) that percentage of the Employee's Pay which he/she has elected to have withheld (but not in any case in excess of 10% of his/her Pay) multiplied by (ii) the Employee's Pay during the period of the Offering divided by (iii) the Option Price determined under Section 6.02 below. 3 -------------------------------------------------------------------------------- 6.02   Option Price.  The Option Price of stock purchased with payroll deductions made during each Offering for a participant therein shall be the lower of: (a)Ninety percent (90%) of the closing price of the stock on the Offering Commencement Date or the nearest prior business day on which trading occurred on the Nasdaq National Market System; or (b)Ninety percent (90%) of the closing price of the stock on the Offering Termination Date or the nearest prior business day on which trading occurred on the Nasdaq National Market System If the Common Stock of the Company is not admitted to trading on any of the aforesaid dates for which closing prices of the stock are to be determined, then reference shall be made to the fair market value of the stock on that date, as determined on such basis as shall be established or specified for the purpose by the Committee. ARTICLE VII EXERCISE OF OPTION 7.01   Automatic Exercise.  A participant who elects to participate in an Offering shall be deemed to have exercised his/her option to purchase stock with payroll deductions for the purchase of the number of full or partial shares of stock which the accumulated payroll deductions in his/her account at the Offering Termination Date will purchase at the applicable Option Price. 7.02   Fractional Shares.  Fractional shares will be purchased under the Plan and held in the Employee's account for the next subsequent Offering or, if the Employee ceases to participate in the Plan, shall be returned to the Employee in cash promptly following the termination of an Offering, without interest. 7.03   Transferability of Option.  During a participant's lifetime, options held by such participant shall be exercisable only by that participant and shall not be transferable. 7.04   Delivery of Stock.  As promptly as practicable after the Offering Termination Date of each Offering, the Company will either, at the Company's discretion: (i) deliver to each participant, as appropriate, a certificate representing the number of shares of Common Stock purchased upon exercise of his/her option; or (ii) deliver (a) to any brokerage firm then retained by the Company to administer the Plan the total number of shares purchased by all participants in the Plan for allocation among the various accounts of such participants and (b) to each participant after the end of each Offering a statement which shall indicate the number of shares of Common Stock purchased upon exercise of his/her option and the aggregate number of shares of Common Stock held on behalf of each such participant under the Plan. ARTICLE VIII WITHDRAWAL 8.01   In General.  Upon at least ten (10) days prior written notice, an Employee may direct the discontinuance of future payroll deductions. All of the participant's payroll deductions previously credited to his/her account shall be used to purchase stock for his/her account on the next Offering Termination Date, and no further payroll deductions will be made from his/her Pay during such Offering or during any future Offering unless the Employee shall elect to participate in any future Offering. 4 -------------------------------------------------------------------------------- 8.02   Effect on Subsequent Participation.  Subject to applicable Federal and State securities laws and tax laws, a participant's withdrawal from any Offering will not have any effect upon his/her eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company. 8.03   Termination of Employment.  Upon termination of the participant's employment for any reason, including retirement or pursuant to Section 3.02 herein (but excluding death while in the employ of the Company), the payroll deductions credited to his/her account will be returned in cash to him/her, or, in the case of his/her death subsequent to the termination of his/her employment, to the person or persons entitled thereto under Section 12.01. No interest is paid on such payments. 8.04   Termination of Employment Due to Death.  Upon termination of the participant's employment because of his/her death, his/her beneficiary (as defined in Section 12.01) shall have the right to elect, by written notice given to the office of the Treasurer of the Company prior to earliest of the next Offering Termination Date or the expiration of a period of sixty (60) days commencing with the date of the death of the participant, either: (a)to withdraw in cash all of the payroll deductions credited to the participant's account under the Plan during the Offering outstanding at the time of death; or (b)to exercise the participant's option for the purchase of stock on the Offering Termination Date next following the date of the participant's death for the purchase of the number of full shares of stock which the accumulated payroll deductions in the participant's account at the date of the participant's death will purchase at the applicable Option Price, and any excess in such account will be returned in cash to said beneficiary, without interest. In the event that no such written notice of election shall be duly received by the office of the Treasurer of the Company, the beneficiary shall automatically be deemed to have elected, pursuant to paragraph (b), to exercise the participant's option. ARTICLE IX INTEREST 9.01   Payment of Interest.  No interest will be paid or allowed on any money paid into the Plan or credited to the account of any participant Employee. ARTICLE X STOCK 10.01   Maximum Shares.  The maximum number of shares which shall be issued under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Section 12.04, shall be 50,000 shares in each Offering plus in each Offering all unissued shares from prior Offerings not to exceed 1,000,000 shares for all Offerings. If the total number of shares for which options are exercised on any Offering Termination Date in accordance with Article VI exceeds the maximum number of shares for the applicable Offering, the Company shall make a pro rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each participant under the Plan shall be returned to him/her as promptly as possible, without interest. 5 --------------------------------------------------------------------------------     Further, in accordance with Article III, no Employee shall be granted an option which permits the Employee's right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company, to accrue at a rate which exceeds $25,000 of market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant's accumulated payroll deductions on the Offering Termination Date of the last Offering of the calendar year would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest. 10.02   Participant's Interest in Option Stock.  The participant will have no interest in stock covered by his/her option until the Offering Termination Date on which the participant purchases such stock. 10.03   Registration of Stock.  Stock to be delivered to or held by a brokerage firm for a participant under the Plan will be registered in the name of the participant or, if the participant so directs by written notice to the Treasurer of the Company prior to the Offering Termination Date applicable thereto, in the names of the participant and one such other person as may be designated by the participant as joint tenants with rights of survivorship or as tenants by the entireties, to the extent permitted by applicable law. 10.04   Restrictions on Exercise.  The Board of Directors may, in its discretion, require as conditions to the exercise of any option that the shares of Common Stock reserved for issuance upon the exercise of the option shall have been duly listed, upon official notice of issuance, upon a stock exchange, and that either: (a)a Registration Statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective; or (b)the participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is his/her intention to purchase the shares for investment and not for resale or distribution. 10.05   Limits on Sale of Stock Purchased Under the Plan.  The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any Employee in the conduct of his/her own affairs. An Employee may, therefore, sell stock purchased under the Plan at any time the Employee chooses, subject to compliance with any applicable federal or state securities laws and tax laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK. 10.06   Notice to Company of Disqualifying Disposition.  By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the Offering Commencement Date of the Offering in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company in order to assist it in complying with the tax laws. Such dispositions are generally treated as "disqualifying dispositions" under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company. 6 -------------------------------------------------------------------------------- ARTICLE XI ADMINISTRATION 11.01   Appointment of Committee.  The Committee which shall administer the Plan shall be the Compensation Committee appointed from time to time by the Board of Directors. No member of the Committee shall be eligible to purchase stock under the Plan. 11.02   Authority of Committee.  Subject to the express provisions of the Plan, the Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, to designate certain administrative functions under the Plan regarding the custody and distribution of stock to an outside brokerage firm and to make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination on the foregoing matters shall be conclusive. ARTICLE XII MISCELLANEOUS 12.01   Designation of Beneficiary.  A participant may file a written designation of a beneficiary who is to receive any stock and/or cash. Such designation of beneficiary may be changed by the participant at any time by written notice to the office of the Treasurer of the Company. Upon the death of a participant and upon receipt by the Company of proof of identity and existence at the participant's death of a beneficiary validly designated by him/her under the Plan, the Company, or any brokerage firm with custody of such stock, shall deliver such stock and/or cash to such beneficiary. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, such stock and/or cash shall be delivered to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), to the spouse or to any one or more dependents of the participant as the Company may designate. No beneficiary shall, prior to the death of the participant by whom he/she has been designated, acquire any interest in the stock or cash credited to the participant under the Plan. 12.02   Transferability.  Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 8.01. Option rights granted under the Plan are exercisable during a participant's lifetime only by the participant. 12.03   Use of Funds.  All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions. 12.04   Effect on Certain Transactions.  The number of shares of Common Stock reserved for the Plan pursuant to Section 4.01, the maximum number of shares of Common Stock offered pursuant to Section 4.01, and the determination under Section 6.02 of the purchase price per share of the shares of Common Stock offered to participants pursuant to an Offering shall be appropriately adjusted to reflect any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, a consolidation of shares, the payment of a stock dividend, or any other capital adjustment affecting the number of issued shares of the Common Stock of the Company. 7 --------------------------------------------------------------------------------     In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or another corporation, whether through reorganization, recapitalization, merger, consolidation, or otherwise, then there shall be substituted for each share of Common Stock reserved for issuance under the Plan but not yet purchased by participants, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged. Notwithstanding the foregoing, a dissolution or liquidation of the Company shall cause the Plan and any Offering hereunder to terminate and any payroll deductions credited to a participant's account under the Plan during the Offering outstanding at the time of dissolution or liquidation shall be refunded to the participant without interest. 12.05   Amendment and Termination. (a)Amendment of Plan.  The Company expressly reserves the right, at any time and from time to time, to amend in whole or in part any of the terms and provisions of the Plan; provided, however, no amendment may without the approval of the shareholders of the Company (i) increase the number of shares of Common Stock reserved under the Plan, (ii) change the method of determining the purchase price for shares of Common Stock, (iii) materially increase the benefits accruing to participants, or (iv) materially change the eligibility requirements for participation in the Plan. (b)Termination of Plan.  The Company expressly reserves the right, at any time and for whatever reason it may deem appropriate, to terminate the Plan. If not sooner terminated pursuant to the preceding sentence, the Plan shall continue in effect through September 30, 2006. Upon any termination of the Plan, the entire amount credited to the account of each participant shall be distributed to each such participant, without interest. (c)Procedure for Amendment or Termination.  Any amendment to the Plan or termination of the Plan may be retroactive to the extent not prohibited by applicable law. Any amendment to the Plan or termination of the Plan shall be made by the Company by resolution of the Board of Directors (subject to Section 12.05(a)) and shall not require the approval or consent of any participant in order to be effective. 12.06   Effective Date.  The Plan shall become effective as of July 1, 1996 subject to approval and ratification on or before February 28, 1997 by the stockholders of the Company. In the event the Plan is not so approved, all amounts deducted from the Pay of each participant and credited to his/her account shall be refunded to each such participant without interest as soon as administratively practicable and the Plan shall be terminated. 12.07   No Employment Rights.  Participation in the Plan does not, directly or indirectly, create in any Employee or class of Employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an Employee's employment at any time. 12.08   Effect of Plan.  The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Employee participating in the Plan, including, without limitation, such Employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Employee. 8 -------------------------------------------------------------------------------- 12.09   Governmental Regulations.  The Company's obligation to sell and deliver or retain shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to Employees and former Employees who transfer title to such shares. 12.10   Construction.  Article, Section and paragraph headings have been inserted in the Plan for convenience of reference only and are to be ignored in any construction of the provisions hereof. If any provision of the Plan shall be invalid or unenforceable, the remaining provisions shall nevertheless be valid, enforceable, and fully effective. It is the intent that the Plan shall at all times constitute an "employee stock purchase plan" within the meaning of Section 423(b) of the Code, and the Plan shall be construed, and interpreted to remain such. The Plan shall be construed, administered, regulated, and governed by the laws of the United States to the extent applicable, and to the extent such laws are not applicable, by the laws of the Commonwealth of Massachusetts. 9 --------------------------------------------------------------------------------

QuickLinks -- Click here to rapidly navigate through this document Exhibit 10q-10 AMENDMENT TO THE BELLSOUTH PERSONAL RETIREMENT ACCOUNT PENSION PLAN     WHEREAS, BellSouth Corporation (the "Company") sponsors the BellSouth Personal Retirement Account Pension Plan (the "Plan"), which was amended and restated effective January 1, 1998, and subsequently amended from time to time; and     WHEREAS, the Executive Nominating Compensation and Human Resources Committee (the "Committee") of the Board of Directors of BellSouth Corporation, at its February 28, 2000 meeting, adopted a resolution to amend the Plan to provide an additional credit for the 2000 Plan Year equal to 1% of each Plan participant's 2000 compensation; and     WHEREAS, the Committee authorized appropriate officers of the Company to do such further acts and to execute such documents as may be necessary or advisable to effectuate the purposes of such resolution; and     WHEREAS, the Company now desires to revise the Plan document to reflect such amendment;     NOW, THEREFORE, pursuant to the authority delegated by the Committee as referred to above, the undersigned officer approves the following to reflect such amendment of the Plan: 1.     Amend Section 3 of the Plan by adding the following sentence at the end of Subparagraph 3.05(a): "The Board has approved an additional credit for the 2000 Plan Year equal to the Participant's Compensation multiplied by one percent, and this additional credit shall be credited to each Participant's account as of the last day of such Plan Year." 2.     Any other provisions of the Plan not amended herein shall remain in full force and effect.     This Amendment shall be effective as of January 1, 2000. By: /s/ RICHARD D. SIBBERNSEN       --------------------------------------------------------------------------------     Richard D. Sibbernsen Vice President—Human Resources Date: December 15, 2000 -------------------------------------------------------------------------------- QuickLinks AMENDMENT TO THE BELLSOUTH PERSONAL RETIREMENT ACCOUNT PENSION PLAN 1. 2.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.1A -------------------------------------------------------------------------------- HENRY COMPANY KIMBERTON ENTERPRISES, INC. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT Dated: August   , 2001 $35,000,000 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FLEET CAPITAL CORPORATION Individually and as Agent for any Lender which is or becomes a Party hereto -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS         Page --------------------------------------------------------------------------------           Section 1.   CREDIT FACILITY   1 1.1   Loans   1 1.2   Letters of Credit; LC Guaranties   2 1.3   Capex Loans   3 Section 2.   INTEREST, FEES AND CHARGES   3 2.1   Interest   3 2.2   Computation of Interest and Fees   4 2.3   LIBOR Option   4 2.4   Closing Fee   5 2.5   Letter of Credit and LC Guaranty Fees   5 2.6   Unused Line Fee   6 2.7   Prepayment Fee   6 2.8   Capital Adequacy   6 2.9   Audit Fees   7 2.10   Reimbursement of Expenses   7 2.11   Bank Charges   7 2.12   Collateral Protection Expenses; Appraisals   8 2.13   Payment of Charges   8 2.14   No Deductions   8 Section 3.   LOAN ADMINISTRATION   8 3.1   Manner of Borrowing Revolving Credit Loans   8 3.2   Payments   10 3.3   Mandatory and Optional Prepayments   10 3.4   Application of Payments and Collections   12 3.5   All Loans to Constitute One Obligation   12 3.6   Loan Account   12 3.7   Statements of Account   12 3.8   Sharing of Payments, Etc   13 3.9   Joint and Several Liability   13 Section 4.   TERM AND TERMINATION   15 4.1   Term of Agreement   15 4.2   Termination   15 Section 5.   SECURITY INTERESTS   15 5.1   Security Interest in Collateral   15 5.2   Lien Perfection; Further Assurances   17 5.3   Lien on Realty   17 5.4   Commercial Tort Claims   17 5.5   All Property Acknowledgement   17 Section 6.   COLLATERAL ADMINISTRATION   18 6.1   General   18 6.2   Administration of Accounts   19 6.3   Records and Reports of Inventory   20 6.4   Administration of Equipment   20 Section 7.   REPRESENTATIONS AND WARRANTIES   20 7.1   General Representations and Warranties   20 7.2   Representation of Shareholder   27 7.3   Continuous Nature of Representations and Warranties   27 –i– -------------------------------------------------------------------------------- 7.4   Survival of Representations and Warranties   27 Section 8.   COVENANTS AND CONTINUING AGREEMENTS   28 8.1   Affirmative Covenants   28 8.2   Negative Covenants   30 8.3   Specific Financial Covenants   35 8.4   Covenants of Shareholders   35 Section 9.   CONDITIONS PRECEDENT   36 9.1   Documentation   36 9.2   No Default   36 9.3   Other Conditions   36 9.4   Availability   36 9.5   No Litigation   36 9.6   Material Adverse Effect   37 9.7   Capital Structure   37 9.8   Insurance   37 9.9   Opinions of Counsel   37 9.10   Cash Management   37 9.11   Verification of Key Accounts   37 9.12   Due Diligence   37 9.13   Waivers   37 9.14   Additional Information   37 9.15   No Increased Liability   38 9.16   Other Agreements   38 Section 10.   EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT   40 10.1   Events of Default   40 10.2   Acceleration of the Obligations   42 10.3   Other Remedies   42 10.4   Set Off and Sharing of Payments   43 10.5   Remedies Cumulative; No Waiver   44 Section 11.   THE AGENT   45 11.1   Authorization and Action   45 11.2   Agent's Reliance, Etc   45 11.3   Fleet and Affiliates   46 11.4   Lender Credit Decision   46 11.5   Indemnification   46 11.6   Rights and Remedies to be Exercised by Agent Only   47 11.7   Agency Provisions Relating to Collateral   47 11.8   Agent's Right to Purchase Commitments   47 11.9   Right of Sale, Assignment, Participations   47 11.10   Amendment   49 11.11   Resignation of Agent; Appointment of Successor   49 Section 12.   MISCELLANEOUS   50 12.1   Power of Attorney   50 12.2   Indemnity   50 12.3   Sale of Interest   51 12.4   Severability   51 12.5   Successors and Assigns   51 12.6   Cumulative Effect; Conflict of Terms   51 12.7   Execution in Counterparts   51 12.8   Notice   51 –ii– -------------------------------------------------------------------------------- 12.9   Consent   52 12.10   Credit Inquiries   52 12.11   Time of Essence   52 12.12   Entire Agreement   52 12.13   Interpretation   53 12.14   Confidentiality   53 12.15   GOVERNING LAW; CONSENT TO FORUM   53 12.16   WAIVERS BY BORROWERS   54 12.17   Revival and Reinstatement of Obligations   54 –iii– -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT     THIS SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (this "Agreement") is made as of this       day of August, 2001, by and among FLEET CAPITAL CORPORATION ("Fleet"), a Rhode Island corporation with an office at 15620 Ventura Blvd., Suite 400, Sherman Oaks, California, individually as a Lender and as Agent (in such capacity, "Agent") for itself, LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LaSalle") and any other financial institution which is or becomes a party hereto (each such financial institution, including Fleet and LaSalle, is referred to hereinafter individually as a "Lender" and collectively as "Lenders"), LENDERS and HENRY COMPANY (successor-in-interest to Monsey Products, Co. and Monsey Products of America LLC), a California corporation ("Henry"), with its chief executive office at 2911 Slauson Ave., Huntington Park, California, and KIMBERTON ENTERPRISES, INC., a Delaware corporation ("Kimberton"), with its chief executive office at 2911 Slauson Avenue, Huntington Park, California; (Henry, together with Kimberton, are referred to hereinafter each individually as a "Borrower" and collectively, jointly and severally, as "Borrowers"). Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A, General Definitions. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. SECTION 1. CREDIT FACILITY     WHEREAS, Borrowers and Bank of America, N.A. as successor-in-interest to Nationsbank, N.A. (the "Original Lender") are party to that certain Amended and Restated Financing and Security Agreement dated as of April 22, 1998 (the "New Bank Credit Facility");     WHEREAS, Borrowers and the Original Lender have agreed to restructure the New Bank Credit Facility;     WHEREAS, in connection with the restructure of the New Bank Credit Facility the Original Lender has assigned all of its right, title and interest in and to the New Bank Credit Facility to Lenders;     WHEREAS, to effectuate the restructuring the parties desire to amend and restate the New Bank Credit Facility in its entirety on the terms and conditions set forth herein;     WHEREAS, subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lenders shall continue to provide a Total Credit Facility of up to $35,000,000 available upon Borrower's request therefor, as follows: 1.1  Loans.     1.1.1  Revolving Credit Loans.  Each Lender agrees, severally and not jointly, for so long as no Default or Event of Default exists, to make Revolving Credit Loans to Borrowers from time to time during the period from the date hereof to but not including the last day of the Term, as requested by Borrowers in the manner set forth in subsection 3.1.1 hereof, up to a maximum amount equal to the lesser of (i) such Lender's Revolving Loan Commitment less the total amount of such Lender's Revolving Credit Loans then outstanding and (ii) the product of such Lender's Revolving Loan Percentage and Availability. Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent shall deem necessary or appropriate in its reasonable credit judgment, against the amount of Revolving Credit Loans which Borrowers may otherwise request under this subsection 1.1.1 with respect to (i) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrowers' business; (ii) shrinkage, spoilage and obsolescence of Borrowers' Inventory; (iii) slow moving Inventory; (iv) other sums chargeable (but not yet charged) against Borrowers' Loan Account as Revolving Credit Loans under any section of this Agreement; and (v) such other specific events, conditions or –1– -------------------------------------------------------------------------------- contingencies as to which Agent, in its reasonable credit judgment determines reserves should be established from time to time hereunder. As of the date hereof, Agent has established the Note Payment Reserve, the Test Count Variance Reserve and the Warranty Reserve against Availability and a reserve for Account dilution as determined in Agent's sole discretion. The Revolving Credit Loans shall be repayable in accordance with the terms of the Revolving Notes and shall be secured by all of the Collateral.     1.1.2  Overadvances.  Agent may for a period of 60 days, make Revolving Credit Loans of not more than $1,250,000, on behalf of Lenders, at a time when an Overadvance exists or would be caused by the making of such Revolving Credit Loans; provided, however, that such Overadvance is approved by the Majority Lenders. After the expiration of such 60 day period, no such Overadvance shall cause or constitute a waiver by any Lender of its right to refuse to make any further Revolving Credit Loans at any time that an Overadvance exists or would result therefrom. Agent may not (i) make Revolving Credit Loans on behalf of Lenders under this subsection 1.1.2 to the extent such Revolving Credit Loans would cause a Lender's share of the Revolving Credit Loans to exceed such Lender's Revolving Loan Commitment minus such Lender's Revolving Loan Percentage of the LC Amount; (ii) make Revolving Credit Loans on behalf of Lenders under this subsection 1.1.2 at any time within 30 days of the date on which any such Revolving Credit Loans pursuant to this subsection 1.1.2 have previously been made; (iii) make Revolving Credit Loans on behalf of Lenders under this subsection 1.1.2 at any time if such Loans would cause Revolving Credit Loans under this subsection 1.1.2 to be outstanding for more than 90 days out of any 180 consecutive days; or (iv) make Revolving Credit Loans after the end of the Term.     1.1.3  Use of Proceeds.  The Revolving Credit Loans shall be used solely for (i) the refinancing and restructuring of Indebtedness owed to Original Lender, (ii) for Borrowers' general operating and working capital needs in a manner consistent with the provisions of this Agreement and all applicable laws, and (iii) for other purposes permitted under this Agreement. 1.2  Letters of Credit; LC Guaranties.     Agent agrees, for so long as no Default or Event of Default exists and if requested by Borrowers, to (i) issue its, or cause to be issued by Bank or another Affiliate of Agent, on the date requested by Borrowers, Letters of Credit for the account of Borrowers or (ii) execute LC Guaranties by which Bank, or another Affiliate of Lender, on the date requested by Borrowers, shall guaranty the payment or performance by Borrowers of their reimbursement obligations with respect to letters of credit, provided that the LC Amount shall not exceed $2,000,000 at any time. No trade Letter of Credit or LC Guaranty of a trade letter of credit may have an expiration date that is more than 180 days after the date of issuance thereof; and no standby Letter of Credit or LC Guaranty of a standby letter of credit may have an expiration date that is more than one (1) year from the date of issuance thereof, which expiration date may be extended for additional periods of up to one (1) year, subject to the immediately following sentence. No Letter of Credit or LC Guaranty may have an expiration date that is after 30 days prior to the last day of the Term. Notwithstanding anything to the contrary contained herein, Borrowers, Agent and Lenders hereby agree that all LC Obligations and all obligations of Borrowers relating thereto shall be satisfied by the prompt issuance of one or more Revolving Credit Loans that are Base Rate Portions, which Borrowers hereby acknowledge are requested and Lenders hereby agree to fund. In the event that Revolving Credit Loans are not, for any reason, promptly made to satisfy all then existing LC Obligations, each Lender hereby agrees to pay to Agent, on demand, an amount equal to such LC Obligations multiplied by such Lender's Revolving Loan Percentage, and until so paid, such amount shall be secured by the Collateral and shall bear interest and be payable at the same rate and in the same manner as Base Rate Portions. Immediately upon the issuance of a Letter of Credit or an LC Guaranty under this Agreement, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from Agent, without recourse or warranty, an undivided –2– -------------------------------------------------------------------------------- interest and participation therein equal to such LC Obligations multiplied by such Lender's Revolving Loan Percentage. 1.3  Capex Loans.     1.3.1  Capex Loan A.  Each Lender, severally and not jointly, agrees to make a capital expenditure loan (the "Capex Loan A") to Borrowers on the Closing Date, in the aggregate principal amount of such Lender's Capex Loan A Percentage of $3,500,000, which shall be repayable in accordance with the terms of the Capex Loan A Notes and shall be secured by all of the Collateral. The proceeds of Capex Loan A shall be used solely for purposes specified in Section 1.1.3.     1.3.2  Capex Loan B.  Each Lender, severally and not jointly, upon ten (10) Business Days' prior written notice to Agent by Borrowers specifying the date, amount and purpose and for so long as no Default or Event of Default exists, agrees to make capital expenditure loans (collectively, the "Capex Loan B") to Borrowers, in the aggregate principal amount of the product of such Lender's Capex Loan B Percentage and the lesser of (i) $1,500,000 or (ii) an amount equal to thirty-five percent (35%) of the appraised value acceptable to Agent (less any environmental remediation costs) of the real Property owned by Borrowers; provided, that (a) all additional environmental reviews reasonably requested by Agent have been conducted with respect to such real Property, and the scope and results of such reviews are acceptable to Lenders in their sole discretion, (b) Agent has, for the ratable benefit of Lenders, a first-priority lien on such real Property and (c) the real Property is otherwise acceptable to Lenders in their sole discretion. Any real Property with remediation costs in excess of twenty percent (20%) of its appraised value shall be deemed ineligible for purposes of Capex Loan B. Capex Loan B shall be repayable in accordance with the terms of the Capex Loan B Notes and shall be secured by all of the Collateral. The proceeds of Capex Loan B shall be used solely for purposes specified in Section 1.1.3.     1.3.3  Capex Loan C.  Each Lender, severally and not jointly, may, in its sole and absolute discretion and upon ten (10) Business Days' prior written notice to Agent by Borrowers specifying the date, the amount, the purpose and a detailing listing of the Eligible Production Equipment to be purchased and for so long as no Default or Event of Default exists, make capital expenditure loans (collectively the "Capex Loan C") to Borrowers in the aggregate principal amount of the product of such Lender's Capex Loan C Percentage multiplied by an amount equal to seventy-five percent (75%) of the invoice price (net of all taxes, license and installation expense, transportation and shipping expenses, discounts, rebates or other credits) of Eligible Production Equipment; provided that (i) no further amounts are then available to be borrowed under the Capex Loan A and Capex Loan B, (ii) the Majority Lenders consent in writing to such borrowing, (iii) the proceeds of Capex Loan C borrowings are used only to purchase Eligible Production Equipment, (iv) the Capex Loan C borrowings shall not exceed $5,000,000 in the aggregate at any time, and (v) the Eligible Production Equipment shall be located at real Property owned by Borrowers or at premises leased by Borrowers and Agent has received a landlord waiver in form and substance acceptable to Agent for such leased premises and Agent shall have the right to inspect the Eligible Production Equipment at any time. All Capex Loan C borrowings shall be equal to at least $250,000 and in integral multiples of $50,000. Capex Loan C shall be repayable in accordance with the terms of the Capex Loan C Notes and shall be secured by all of the Collateral.     1.3.4  Amounts Borrowed.  Amounts borrowed under the Capex Loans and repaid may not be reborrowed. SECTION 2. INTEREST, FEES AND CHARGES 2.1  Interest. –3– --------------------------------------------------------------------------------     2.1.1  Rates of Interest.  Interest shall accrue on the Base Rate Revolving Portion and the Base Rate Capex Portions outstanding at the end of each day at a fluctuating rate per annum equal to then Applicable Margin then in effect plus the Base Rate. Said rate of interest shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any such change in the Base Rate occurs. If Borrowers properly exercise their LIBOR Option as provided in Section 2.3, interest shall accrue on the principal amount of the LIBOR Revolving Portions and the LIBOR Capex Portions outstanding at the end of each day at a rate per annum equal to the Applicable Margin then in effect plus the LIBOR Rate applicable to each LIBOR Portion for the corresponding LIBOR Period.     2.1.2  Default Rate of Interest.  At the option of Agent, upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of all Loans shall bear interest at a rate per annum equal to 2.0% plus the interest rate otherwise applicable thereto (the "Default Rate").     2.1.3  Maximum Interest.  In no event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Notes and charged or collected pursuant to the terms of this Agreement or pursuant to the Notes exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement or the Notes are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2  Computation of Interest and Fees.     Interest, Letter of Credit and LC Guaranty fees and Unused Line Fees hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. 2.3  LIBOR Option.     (i)    Upon the conditions that: (1) Agent shall have received a LIBOR Request from Borrowers at least 3 Business Days prior to the first day of the LIBOR Period requested, (2) the proposed borrowing shall be no less than $500,000 and in integral multiples of $100,000, (3) there shall have occurred no change in applicable law which would make it unlawful for Lenders to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market, (4) as of the date of the LIBOR Request and the first day of the LIBOR Period, there shall exist no Default or Event of Default, (5) Agent is able to determine the LIBOR Rate in respect of the requested LIBOR Period, (6) Agent or Agent's affiliate is able to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market in the applicable amounts and for the requested LIBOR Period, and (7) as of the first date of the LIBOR Period, there are no more than five (5) outstanding LIBOR Portions including the LIBOR Portion being requested; then interest on the LIBOR Portion requested during the LIBOR Period requested will be based on the applicable LIBOR Rate.     (ii)   Each LIBOR Request shall be irrevocable and binding on Borrower. Borrowers shall indemnify each Lender for any loss, penalty or expense incurred by such Lender due to failure on the part of Borrowers to fulfill, on or before the date specified in any LIBOR Request, the applicable conditions set forth in this Agreement or due to the prepayment of the applicable LIBOR Portion prior to the last day of the applicable LIBOR Period, including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by any Lender to fund or maintain the requested LIBOR Portion.     (iii)   If any Legal Requirement shall (1) make it unlawful for any Lender to fund through the purchase of U.S. dollar deposits any LIBOR Portion or otherwise give effect to its obligations as contemplated under this Section 2.3, or (2) shall impose on any Lender any costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of any Lender which includes deposits by reference to which the LIBOR Rate is determined –4– -------------------------------------------------------------------------------- as provided herein or a category of extensions of credit or other assets of any Lender which includes any LIBOR Portion or (3) shall impose on any Lender any restrictions (not already taken into account under Statutory Reserves) on the amount of such a category of liabilities or assets which any Lender may hold, then, in each such case, each affected Lender may (A) in the case of (1) and (3) above, by written notice thereof to Borrowers, describing the Legal Requirement in reasonable detail, terminate such Lender's obligation to make Loans available to Borrowers under the LIBOR Option and (B) in the case of (2) above by written notice thereof to Borrowers, describing the Legal Requirements in reasonable detail, require Borrowers to pay such Lender such additional amount or amounts as will compensate such Lender for such additional costs which are properly allocable to the applicable LIBOR Portion. Any LIBOR Portion subject thereto shall immediately bear interest thereafter at the rate and in the manner provided for the Base Rate Portion pursuant to subsection 2.1.1. Borrowers shall indemnify each Lender against any loss, penalty or expense incurred by such Lender due to liquidation or redeployment of deposits or other funds acquired by such Lender to fund or maintain any LIBOR Portion that is terminated under this paragraph.     (iv)   Each Lender shall receive payments of amounts of principal of and interest with respect to the LIBOR Portions free and clear of, and without deduction for, any Taxes. If (1) any Lender shall be subject to any Tax in respect of any LIBOR Portion or any part thereof or, (2) Borrowers shall be required to withhold or deduct any Tax from any such amount, such Lender shall provide written notice to Borrowers and Agent of the fact that it is subject to such Tax or the withholding or deduction requirements and the LIBOR Rate applicable to such LIBOR Portion shall be adjusted by Agent on behalf of the affected Lender to reflect all additional costs incurred by such Lender in connection with the payment by such Lender or the withholding by Borrowers of such Tax and Borrowers shall provide such Lender with a statement detailing the amount of any such Tax actually paid by such Borrowers. Determination by Agent on behalf of a Lender of the amount of such costs shall, in the absence of manifest error, be conclusive. If after any such adjustment any part of any Tax paid by any Lender is subsequently recovered by such Lender, such Lender shall reimburse Borrower to the extent of the amount so recovered. A certificate of an officer of any Lender setting forth the amount of such recovery and the basis therefor shall, in the absence of manifest error, be conclusive. In no event shall Borrowers be required to pay or reimburse Lenders under this subsection 2.3(iv) amounts which are duplicative of amounts paid or reimbursed by Borrowers to Lenders under subsection 2.3(iii).     (v)   In the event LIBOR Portions are unavailable to Borrowers for any of the reasons set forth in Section 2.3(iii) and such reason is not generally applicable to financial institutions or in the event Agent or any Lender is subject to any Tax in respect of any LIBOR Portion and such Tax is not generally applicable to financial institutions, Borrowers may prepay the Loans in full without paying the prepayment fee specified in Section 2.7; provided that (1) Agent receives an amount equal to all Obligations (other than the fee set forth in Section 2.7) in cash on or before the ninetieth (90th) day following Agent's notice under Section 2.3(iii) or 2.3 (iv), (2) the bank or financial institution refinancing the Loans is not affected by the reasons set forth in Section 2.3(iii) or any Tax in respect of any LIBOR loans and (3) no Default or Event of Default has occurred or is continuing. 2.4  Closing Fee.     Borrowers shall pay to Agent, for the ratable benefit of Lenders, a fee equal to $175,000 (the "Closing Fee"). Fifty-percent (50%) ($87,500) of the Closing Fee was paid by Borrowers on June 22, 2001; the remaining $87,500 shall be payable by Borrowers on the Closing Date. The Closing Fee shall be fully earned and non-refundable on the date of the execution of the Commitment Letter. 2.5  Letter of Credit and LC Guaranty Fees.     For all standby Letters of Credits and LC Guaranties for standby Letters of Credit, Borrowers shall pay to Agent, for the ratable benefit of Lenders, a fee equal to the Applicable Margin then in effect for LIBOR Portions per annum multiplied by the aggregate face amount of all such standby –5– -------------------------------------------------------------------------------- Letters of Credit and LC Guaranties for standby Letters of Credit outstanding from time to time during the term of this Agreement, which fees shall be payable monthly in arrears on the first day of each month hereafter. For all documentary Letters of Credits and LC Guaranties for documentary Letters of Credits, Borrowers shall pay to Agent, for the ratable benefit of Lenders, a fee equal to two percent (2%) per annum multiplied by the aggregate face amount of all such documentary Letters of Credit and LC Guaranties for documentary Letters of Credits which fees shall be payable monthly in arrears on the first day of each month hereafter plus all normal and customary charges associated with the issuance of such documentary Letters of Credit and LC Guaranties for documentary Letters of Credit, which fees and charges shall be as set forth on Exhibit 2.5 and shall be deemed fully earned and shall be due and payable upon issuance of each such Letter of Credit or LC Guaranty and shall not be subject to rebate or proration upon the termination of this Agreement for any reason. In addition, Borrower shall pay to Agent a fronting fee equal to .25% per annum multiplied by the face amount of all Letters of Credit and LC Guaranties payable upon issuance. 2.6  Unused Line Fee.     Borrowers shall pay to Agent, for the ratable benefit of Lenders, a fee (the "Unused Line Fee") equal to .25% per annum multiplied by the average daily amount by which (a) the Revolving Credit Maximum Amount exceeds (b) the sum of (i) the outstanding principal balance of the Revolving Credit Loans, plus (ii) the LC Amount. The Unused Line Fee shall be payable monthly in arrears on the first day of each month hereafter. 2.7  Prepayment Fee.     Borrowers shall pay to Agent, for the ratable benefit of Lenders, a fee in the event that prior to the second anniversary of the Closing Date, Borrowers elect to repay the Loans in full and terminate all Revolving Loan Commitments. Such fee shall be payable upon repayment of the Loans and shall be in an amount equal to (i) two percent (2%) of the Total Credit Facility if the Loans are repaid and the Revolving Loan Commitments are terminated on or before the first anniversary of the Closing Date, and (ii) one percent (1%) of the Total Credit Facility if the Loans are repaid and the Revolving Loan Commitments are terminated after the first anniversary of the Closing Date, but on or before the second anniversary of the Closing Date. 2.8  Capital Adequacy.     (i)    If any Lender shall have determined that the adoption after the date of this Agreement of any Legal Requirement regarding capital adequacy, or any change after the date of this Agreement therein or in the official interpretation or application thereof or compliance by any Lender with any request or directive after the date of this Agreement regarding capital adequacy (whether or not having the force of law) from any central bank or governmental authority, does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender, in its sole discretion, to be material, then from time to time, after submission by such Lender to Borrowers of a written demand therefor, Borrowers shall pay to such Lender, within 30 days of such demand, such additional amount or amounts as will compensate such Lender for such reduction; provided such Lender is requiring its borrowers generally to pay such amounts. A certificate of such Lender claiming entitlement to payment as set forth above shall be conclusive in the absence of manifest error. Such certificate shall set forth the nature of the occurrence giving rise to such payment, the additional amount or amounts to be paid to such Lender, and the method by which such amounts were determined. In determining such amount, such Lender may use any reasonable averaging and attribution method.     (ii)   In the event Agent or any Lender provides a written demand for payment of amounts reimbursable under Section 2.8(i) and such Legal Requirement is not generally applicable to financial –6– -------------------------------------------------------------------------------- institutions, then Borrowers may prepay the Loans without paying the prepayment fee specified in Section 2.7 provided that (1) no Default or Event of Default has occurred or is continuing, and (2) Agent receives an amount equal to all Obligations (other than the fee set forth in Section 2.7) in cash on or before the ninetieth (90th) day following such demand. 2.9  Audit Fees.     Borrowers shall pay to each of Agent and LaSalle for such party's sole account a fee equal to the lesser (so long as no Event of Default exists and is continuing) of (i) $750 per day, per examiner employed by Agent and LaSalle at any time after the Closing Date and (ii) the amounts charged by any third party examiner hired by Agent and Lenders, plus all out-of-pocket expenses incurred by such examiner, Agent and Lenders in connection with audits of the books and records and Properties of Borrowers and their Subsidiaries and such other matters as Agent shall deem appropriate in its reasonable discretion. During the occurrence and the continuation of an Event of Default, Borrowers shall pay to each of Agent and LaSalle the fees of examiners employed by Agent and LaSalle in accordance with Agent's and LaSalle's then prevailing practices including amounts in excess of $750 per day per examiner or the amounts actually charged by and third party examiner hired by Agent and Lenders plus all out-of-pocket expenses incurred by such examiner, Agent and Lenders. Such fees and expenses shall be payable on the first day of the month following the date of issuance by Agent and Lenders of a request for payment thereof to Borrower. 2.10  Reimbursement of Expenses.     If, at any time or times regardless of whether or not an Event of Default then exists, (i) Agent incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (1) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents, or (2) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby or (3) any visits to or inspections of Borrowers' locations; or (ii) Agent or any Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (1) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, any Borrower or any other Person) relating to the Collateral, this Agreement or any of the other Loan Documents or Borrowers, any of their Subsidiaries' (including Bakor) or any Guarantor's affairs; (2) any attempt to enforce any rights of Agent or any Lender against any Borrower or any other Person which may be obligated to Agent or any Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (3) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then all such legal and accounting expenses, other costs and out-of-pocket expenses of Agent or any Lender, as applicable, shall be charged to Borrowers; provided, that Borrowers shall not be responsible for such costs and out-of-pocket expenses to the extent incurred because of the gross negligence or willful misconduct of Agent or any Lender. Borrowers shall also reimburse Agent for expenses incurred by Agent in its administration of the Collateral to the extent and in the manner provided in Section 2.11 hereof. 2.11  Bank Charges.     Borrowers shall pay to Agent any and all fees, costs or expenses which Agent pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrowers or any other Person on behalf of Borrower, by Agent, of proceeds of Loans made to Borrowers pursuant to this Agreement including, without limitation, any amounts payable or reimbursed by Agent to Original Lender in connection with the assignment of the New Bank Credit Facility by Original Lender to Agent, and (ii) the depositing for collection by Agent of any check or item of payment received or delivered to Agent on account of the Obligations. –7– -------------------------------------------------------------------------------- 2.12  Collateral Protection Expenses; Appraisals.     All out-of-pocket expenses incurred by Agent and Lenders in protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrowers. If any Borrower fails to promptly pay any portion thereof when due, Agent may, at its option, but shall not be required to, pay the same and charge such Borrower therefor. Additionally, from time to time, if Agent or any Lender determines that obtaining appraisals is necessary in order for it to comply with applicable laws or regulations, and at any time if a Default or an Event of Default shall have occurred and be continuing, Agent may, at Borrowers' expense, obtain appraisals from appraisers (who may be personnel of Agent), stating the then current fair market value of all or any portion of the real estate or personal property of any Borrower or any of its Subsidiaries. Borrowers shall pay to Agent for Agent's sole account a fee of $750 per day, per appraiser employed by Agent at any time after the Closing Date (so long as no Event of Default exists or is continuing) or a fee equal to the amounts charged by a third party appraiser hired by Agent and Lenders, plus all out-of-pocket expenses incurred by such appraiser, Agent and Lenders in connection with any appraisals of the real estate or personal property of any Borrower or any of its Subsidiaries. So long as no Event of Default exists or is continuing, the fees payable by Borrowers for appraisals shall not exceed $3,000 during any fiscal year. During the occurrence and the continuation of an Event of Default, Borrowers shall pay to Agent for Agent's sole account the fees of appraisers employed by Agent in accordance with Agent's then prevailing practices including amounts in excess of $750 per day, per appraiser plus all out-of-pocket expenses incurred by such appraiser, Agent and Lenders. 2.13  Payment of Charges.     All amounts chargeable to Borrowers under this Agreement shall be Obligations secured by all of the Collateral, and shall be, unless specifically otherwise provided, payable on demand and shall bear interest from the date demand was made or such amount is due, as applicable, until paid in full at the rate applicable to Base Rate Portions from time to time. 2.14  No Deductions.     Any and all payments or reimbursements made hereunder shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto; excluding, however, the following: taxes imposed on the income of Agent or any Lender or franchise taxes by the jurisdiction under the laws of which Agent or any Lender is organized or doing business or any political subdivision thereof and taxes imposed on its income by the jurisdiction of Agent's or such Lender's applicable lending office or any political subdivision thereof or franchise taxes (all such taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto excluding such taxes imposed on net income or franchise taxes, herein "Tax Liabilities"). If any Borrower shall be required by law to deduct any such Tax Liabilities from or in respect of any sum payable hereunder to Agent or any Lender (other than payments of principal and interest with respect to LIBOR Portions, which shall be governed by subsection 2.3(iv)), then the sum payable hereunder shall be increased as may be necessary so that, after all required deductions are made, such Lender receives an amount equal to the sum it would have received had no such deductions been made. SECTION 3. LOAN ADMINISTRATION. 3.1  Manner of Borrowing Revolving Credit Loans.     Borrowings under the credit facility established pursuant to Section 1 hereof shall be as follows:     3.1.1  Loan Requests.  A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrowers shall give Agent written notice via facsimile of their intention to borrow, in which notice Borrowers shall specify the amount of the proposed borrowing and the proposed borrowing date, no later than 10:00 a.m. (Los Angeles, California time) on the proposed –8– -------------------------------------------------------------------------------- borrowing date (or in accordance with Section 2.3 in the case of a request for a LIBOR Revolving Portion), provided, however, that no such request may be made at a time when there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, or the Notes, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. A request for a Capex Loan shall be made in accordance with Section 1.3     3.1.2  Disbursement.  Each Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to subsection 3.1.1 as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by Agent in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrowers, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrowers and Agent from time to time or elsewhere if pursuant to a written direction from Borrowers; and (ii) the proceeds of each Revolving Credit Loan deemed requested under subsection 3.1.1(ii) shall be disbursed by Agent by way of direct payment of the relevant interest or other Obligation.     3.1.3  Payment by Lenders.  Agent shall give to each Lender prompt written notice by facsimile, telex or cable of the receipt by Agent from Borrowers of any request for a Revolving Credit Loan or Capex Loan. Each such notice shall specify the requested date and amount of such Revolving Credit Loan or Capex Loan, as the case may be, whether such Revolving Credit Loan or Capex Loan shall be subject to the LIBOR Option, and the amount of each Lender's advance thereunder (in accordance with its applicable Revolving Loan Percentage or Capex Loan Percentage). Each Lender shall, not later than 12:00 noon (Los Angeles, California time) on such requested date, wire to a bank designated by Agent the amount of that Lender's Revolving Loan Percentage of the requested Revolving Credit Loan or that Lender's Capex Loan Percentage of the requested Capex Loan, as the case may be. The failure of any Lender to make the Revolving Credit Loans or Capex Loans to be made by it shall not release any other Lender of its obligations hereunder to make its Revolving Credit Loan or Capex Loan. Neither Agent nor any other Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Loan or the Capex Loan to be made by such other Lender. The foregoing notwithstanding, Agent, in its sole discretion, may from its own funds make a Revolving Credit Loan or the Capex Loan on behalf of any Lender. In such event, the Lender on behalf of whom Agent made the Revolving Credit Loan or the Capex Loan shall reimburse Agent for the amount of such Revolving Credit Loan made on its behalf, on a weekly (or more frequent, as determined by Agent in its sole discretion) basis. The entire amount of interest attributable to such Revolving Credit Loan or the Capex Loan for the period from the date on which such Revolving Credit Loan was made by Agent on such Lender's behalf until Agent is reimbursed by such Lender, shall be paid to Agent for its own account.     3.1.4  Authorization.  Each Borrower hereby irrevocably authorizes Agent to advance to such Borrower, and to charge to such Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all interest accrued on the Obligations during the immediately preceding month and to pay all fees, costs and expenses and other Obligations at any time owed by such Borrower to Agent or any Lender hereunder.     3.1.5  Letter of Credit and LC Guaranty Requests.  A request for a Letter of Credit or LC Guaranty shall be made in the following manner: Borrowers may give Agent and Bank a written notice of their request for the issuance of a Letter of Credit or LC Guaranty, not later than 10:00 a.m. (Los Angeles, California time), one Business Day before the proposed issuance date thereof, in which notice Borrowers shall specify the proposed issuer, issuance date and format and wording for the Letter of Credit or LC Guaranty being requested (which shall be satisfactory to Agent and the Person being asked to issue such Letter of Credit or LC Guaranty); provided, that no such request may be made at a –9– -------------------------------------------------------------------------------- time when there exists a Default or Event of Default. Such request shall be accompanied by an executed application and reimbursement agreement in form and substance satisfactory to Agent and the Person being asked to issue the Letter of Credit or LC Guaranty, as well as any required resolutions. 3.2  Payments.     Except where evidenced by notes or other instruments issued or made by Borrowers to any Lender and accepted by such Lender specifically containing payment instructions that are in conflict with this Section 3.2 (in which case the conflicting provisions of said notes or other instruments shall govern and control), the Obligations shall be payable as follows:     3.2.1  Principal.  Principal payable on account of Revolving Credit Loans shall be payable by Borrowers to Agent for the ratable benefit of Lenders immediately upon the earliest of (i) if the Capex Loans have been paid in full, the receipt by Agent or Borrower of any proceeds of any of the Collateral (except as otherwise provided herein), including, without limitation, pursuant to subsections 3.3.1 and 6.2.4, to the extent of said proceeds, subject to Borrower's rights to reborrow such amounts in compliance with subsection 1.1.1 hereof; (ii) the occurrence of an Event of Default in consequence of which Agent or Majority Lenders elect to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that, if an Overadvance shall exist at any time, Borrower shall, on demand, repay the Overadvance. Amounts repaid on account of the Revolving Credit Loans may be reborrowed in accordance with this Agreement. Principal payable on account of the Capex Loans shall be as set forth in the Capex Loan Notes.     3.2.2  Interest.   (i)Base Rate Portion. Interest accrued on Base Rate Portions shall be due and payable on the earliest of (1) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (2) the occurrence of an Event of Default in consequence of which Agent or Majority Lenders elect to accelerate the maturity and payment of the Obligations or (3) termination of this Agreement pursuant to Section 4 hereof. (ii)LIBOR Portion. Interest accrued on each LIBOR Portion shall be due and payable on each LIBOR Interest Payment Date and on the earlier of (1) the occurrence of an Event of Default in consequence of which Agent or Majority Lenders elect to accelerate the maturity and payment of the Obligations or (2) termination of this Agreement pursuant to Section 4 hereof.     3.2.3  Costs, Fees and Charges.  Costs, fees and charges payable pursuant to this Agreement shall be payable by Borrowers to Agent, as and when provided in Section 2 hereof or to any other Person designated by Agent in writing.     3.2.4  Other Obligations.  The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrowers to Agent for distribution to Lenders, as appropriate, as and when provided in this Agreement, the Other Agreements or the Security Documents, or on demand, whichever is later. 3.3  Mandatory and Optional Prepayments.     3.3.1  Proceeds of Sale, Loss, Destruction or Condemnation of Property.  Except as provided in subsections 6.4.2 and 8.2.9, if any Borrower or any of its Subsidiaries sells any Property (including, without limitation, the Collateral) or if any of the Collateral is lost or destroyed or taken by condemnation, such Borrower shall, unless otherwise agreed by Majority Lenders, pay to Agent for the ratable benefit of Lenders, and as a mandatory prepayment of the Capex Loans until paid in full (and thereafter, the Revolving Credit Loans), as herein provided, a sum equal to one hundred percent (100%) of the Cash proceeds (including insurance proceeds but net of costs payable to a non-Affiliate –10– -------------------------------------------------------------------------------- and taxes incurred in connection with such sale or event) received by such Borrower or such Subsidiary from such sale, loss, destruction or condemnation when the aggregate of such proceeds exceed $100,000 in any calendar year; provided that upon the occurrence and continuation of an Event of Default, all such proceeds shall be paid to Agent for the ratable benefit of Lenders immediately upon receipt by such Borrower or such Subsidiary; provided, further, however, that in the event the real Property located at 430 Hudson River Road, Waterford, New York (the "Waterford Property") is sold, Borrowers shall pay to Agent for the ratable benefit of Lenders an amount equal to (A) if an Event of Default has occurred and is continuing, one hundred percent (100%) of the Cash proceeds from such sale (net of costs payable to a non-Affiliate and taxes incurred in connection with such sale), or (B) if no Event of Default has occurred and is continuing, the greater of (1) $735,000 and (2) fifty percent (50%) of the proceeds (net of costs payable to a non-Affiliate and taxes incurred in connection with such sale) from the sale of the Waterford Property. The applicable prepayment shall be applied to the installments of principal due under the Capex Loan Notes ratably, to be applied to future installment payments in inverse order of maturity until paid in full and thereafter applied to the Revolving Credit Loans. Notwithstanding the foregoing, if the proceeds of insurance (net of costs payable to a non-Affiliate and taxes incurred) with respect to any loss or destruction of Equipment, Inventory or real Property (i) are less than $100,000, unless an Event of Default is then in existence, Agent shall remit such proceeds to Borrowers for use in replacing or repairing the damaged Collateral or (ii) are equal to or greater than $100,000 and Borrowers have requested that Agent agree to permit Borrowers or the applicable Subsidiary to repair or replace the damaged Collateral, such amounts shall be provisionally applied to reduce the outstanding principal balance of the Capex Loans until the earlier of Agent's decision with respect thereto or the expiration of 180 days from such request. If Agent agrees, in its reasonable judgment, to permit such repair or replacement under clause (ii) of the preceding sentence, such amount shall, unless an Event of Default is in existence, be remitted to Borrowers for use in replacing or repairing the damaged Collateral; if Agent declines to permit such repair or replacement or does not respond to Borrowers within such 180 day period, such amount shall be applied to the Loans in the manner specified in the second sentence of this subsection 3.3.1 until payment thereof in full.     3.3.2  Excess Cash Flow Recapture.  Borrowers shall prepay the Capex Loan Notes in amounts equal to fifty percent (50%) of Borrowers' Excess Cash Flow with respect to each fiscal year of Borrowers during the Term hereof, with the first payment commencing in the fiscal year 2002, such prepayments to be based upon, and made within 5 Business Days following the due date for delivery by Borrowers to Agent of the annual financial statements required by subsection 8.1.3(i) hereof and each such prepayment shall be applied to the Loans in the manner specified in the second sentence of subsection 3.3.1 until payment thereof in full.     3.3.3  Proceeds from Issuance of Additional Indebtedness or Equity.  If any Borrower issues any additional Indebtedness for Money Borrowed (other than Indebtedness permitted under this Agreement) or issues any additional equity, such Borrower shall pay to Agent for the ratable benefit of Lenders, when and as received by any Borrower and as a mandatory prepayment of the Obligations, a sum equal to one hundred percent (100%) of the net proceeds to such Borrower of the issuance of such Indebtedness or equity; provided, however, that so long as no Default or Event of Default exists or is continuing and Agent receives not less than ten (10) Business Days prior notice of any issuance, the proceeds of Securities issued by Henry may be used by the Borrowers for their general operating and working capital needs in the ordinary course of their business. Any such prepayment shall be applied to the Loans in the manner specified in the second sentence of subsection 3.3.1 until payment thereof in full.     3.3.4  Refusal of Prepayments.  Notwithstanding the provisions of this Section 3.3, if any of Lenders holding any Capex Loan Notes elect not to accept mandatory or optional prepayments of their Capex Loan B Notes and Capex Loan C Notes, such Lender's (or Lenders') portion of all mandatory or optional prepayments with respect to which such an election was made will be applied to –11– -------------------------------------------------------------------------------- prepayment of future principal installments on the Capex Loan A Notes in inverse order of maturity. No such election may be made after any such Lender's Capex Loan A Notes have been paid in full.     3.3.5  LIBOR Portions.  If the application of any payment made in accordance with the provisions of this Section 3.3 at a time when no Event of Default has occurred and is continuing would result in termination of a LIBOR Portion prior to the last day of the LIBOR Period for such LIBOR Portion, the amount of such prepayment shall not be applied to such LIBOR Portion, but will, at Borrowers' option, be held by Agent in a non-interest bearing account or deposited by Borrowers in an interest-bearing account at a Lender or another bank satisfactory to Agent in its discretion, which account is in the name of Agent and from which account only Agent can make any withdrawal, in each case to be applied as such amount would otherwise have been applied under this Section 3.3 at the earlier to occur of (i) the last day of the relevant LIBOR Period or (ii) a Default or an Event of Default.     3.3.6  Optional Prepayments.  Borrowers may, at their option from time to time upon not less than 3 days prior written notice to Agent, prepay installments of the Capex Loan Notes, provided that the amount of any such prepayment is at least $250,000; that such prepayments are not from Money Borrowed; and that such prepayments are made ratably with respect to all Capex Loan Notes. Any such optional prepayment shall be credited against the amount of the mandatory prepayment required under subsection 3.3.2 for the fiscal year in which such optional prepayment was made. Except for charges under subsection 2.3(ii) applicable to prepayments of LIBOR Capex Portions, such prepayments shall be without premium or penalty. 3.4  Application of Payments and Collections.     All items of payment received on any Business Day shall be deemed received on the following Business Day. Each Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Agent from or on behalf of any Borrower, and each Borrower does hereby irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Agent or its agent against the Obligations, in such manner as Agent may deem advisable, notwithstanding any entry by Agent or any Lender upon any of its books and records. If as the result of collections of Accounts as authorized by subsection 6.2.4 hereof or otherwise, a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrowers, but shall be disbursed to Borrowers or otherwise at Borrowers' direction in the manner set forth in subsection 3.1.2, upon Borrowers' request at any time, so long as no Default or Event of Default then exists. Agent may at its option, offset such credit balance against any of the Obligations upon and during the continuance of an Event of Default. 3.5  All Loans to Constitute One Obligation.     The Loans shall constitute one general Obligation of Borrowers, and shall be secured by Lender's Lien upon all of the Collateral. 3.6  Loan Account.     Agent shall enter all Loans as debits to a loan account (the "Loan Account") and shall also record in the Loan Account all payments made by Borrowers on any Obligations and all proceeds of Collateral which are paid to Agent, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrowers pursuant to this Agreement or any other Loan Document. 3.7  Statements of Account.     Agent will account to Borrowers monthly with a statement of Loans, charges and payments made pursuant to this Agreement during the immediately preceding month, and such account rendered by Agent shall be deemed final, binding and conclusive upon Borrowers absent demonstrable error unless Agent is notified by Borrowers in writing to the contrary within 30 days of the date each accounting is –12– -------------------------------------------------------------------------------- received by Borrowers. Such notice shall only be deemed an objection to those items specifically objected to therein. 3.8  Sharing of Payments, Etc.     If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Loan made by it in excess of its ratable share of payments on account of Loans made by all Lenders, such Lender shall forthwith purchase from each other Lender such participation in such Loan as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each other Lender; provided, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lenders the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 3.8 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation. Notwithstanding anything to the contrary contained herein, all purchases and repayments to be made under this Section 3.8 shall be made through Agent. 3.9  Joint and Several Liability     3.9.1  Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this Section 3.9), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Borrower without preferences or distinction among them.     3.9.2  Except as otherwise expressly provided in this Agreement, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of any Revolving Credit Loans or Letters of Credit or LC Guaranties issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Borrower to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 3.9 afford grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 3.9, it being the intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of such –13– -------------------------------------------------------------------------------- Borrower under this Section 3.9 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 3.9 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Borrower or any Agent or Lender. The joint and several liability of the Borrower hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, constitution or place of formation of any of Borrower or any Agent or Lender.     3.9.3  Each Borrower waives all rights and defenses arising out of an election of remedies by Agent or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Agent's or such Lender's rights of subrogation and reimbursement against such Borrower by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise.     3.9.4  Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by real Property. This means, among other things: (i)Agent and Lenders may collect from such Borrower without first foreclosing on any Collateral pledged by any other Borrowers. (ii)If Agent or any Lender forecloses on any real Property pledged by Borrowers: (iii)The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (iv)Agent and Lenders may collect from such Borrower even if Agent or any Lender, by foreclosing on the real Property, has destroyed any right such Borrower may have to collect from the other Borrowers.     This is an unconditional and irrevocable waiver of any rights and defenses such Borrower may have because the Obligations are secured by real Property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure.     3.9.5  The provisions of this Section 3.9 are made for the benefit of Agent, Lenders and their respective successors and assigns, and may be enforced by it or them from time to time against any or all the Borrowers as often as occasion therefor may arise and without requirement on the part of any such Agent, Lender, successor or assign first to marshal any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 3.9 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by any Agent or Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the provisions of this Section 3.9 will forthwith be reinstated in effect, as though such payment had not been made.     3.9.6  Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar –14– -------------------------------------------------------------------------------- proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor. SECTION 4. TERM AND TERMINATION 4.1  Term of Agreement.     Subject to the right of Lenders to cease making Loans to Borrowers during the continuance of any Default or Event of Default, this Agreement shall be in effect for a period of five years from the date hereof, through and including August  , 2006 (the "Term"), unless terminated as provided in Section 4.2 hereof. 4.2  Termination.     4.2.1  Termination by Lenders.  Agent may, and at the direction of Majority Lenders shall, terminate this Agreement without notice upon or after the occurrence and during the continuance of an Event of Default.     4.2.2  Termination by Borrower.  Upon at least 90 days prior written notice to Agent and Lenders, Borrowers may, at their option, terminate this Agreement; provided, however, no such termination shall be effective until Borrowers have paid or collateralized to Agent's satisfaction all of the Obligations in immediately available funds, all Letters of Credit and LC Guaranties have expired, terminated or have been cash collateralized to Agent's satisfaction and Borrowers have complied with Sections 2.3(ii) and 2.7. Any notice of termination given by Borrowers shall be irrevocable unless all Lenders otherwise agree in writing. No Lender shall have any obligation to make any Loans or issue or procure any Letters of Credit or LC Guaranties on or after the termination date stated in such notice. Borrowers may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly.     4.2.3  Effect of Termination.  All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties and representations of Borrowers contained in the Loan Documents shall survive any such termination and Agent shall retain its Liens in the Collateral and Agent and each Lender shall retain all of its rights and remedies under the Loan Documents notwithstanding such termination until all Obligations have been discharged or paid, in full, in immediately available funds, including, without limitation, all Obligations under Sections 2.3(ii) and 2.7 resulting from such termination. Notwithstanding the foregoing or the payment in full of the Obligations, Agent shall not be required to terminate its Liens in the Collateral unless, with respect to any loss or damage Agent may incur as a result of dishonored checks or other items of payment received by Agent from Borrowers or any Account Debtor and applied to the Obligations, Agent shall, at its option, (i) have received a written agreement satisfactory to Agent, executed by Borrowers and by any Person whose loans or other advances to Borrowers are used in whole or in part to satisfy the Obligations, indemnifying Agent and each Lender from any such loss or damage or (ii) have retained cash Collateral for such period of time as Agent, in its discretion, may deem necessary to protect Agent and each Lender from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1  Security Interest in Collateral.     To secure the prompt payment and performance to Agent and each Lender of the Obligations, each Borrower hereby grants to Agent for the benefit of itself and each Lender a continuing Lien upon all of such Borrower's assets, including all of the following Property and interests in Property of –15– -------------------------------------------------------------------------------- Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located:       (i)   Accounts; (ii)   Certificated Securities; (iii)   Chattel Paper; (iv)   Computer Hardware and Software and all rights with respect thereto, including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing; (v)   Contract Rights; (vi)   Deposit Accounts; (vii)   Documents; (viii)   Equipment; (ix)   Financial Assets; (x)   Fixtures; (xi)   General Intangibles, including Payment Intangibles and Software; (xii)   Goods (including all of its Equipment, Fixtures and Inventory), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor; (xiii)   Instruments; (xiv)   Intellectual Property; (xv)   Inventory; (xvi)   Investment Property; (xvii)   Insurance Policies, including, without limitation, the Life Insurance Policies; (xviii)   money (of every jurisdiction whatsoever); (xix)   Letter-of-Credit Rights; (xx)   Payment Intangibles; (xxi)   Security Entitlements; (xxii)   Software; (xxiii)   Supporting Obligations; (xxiv)   Uncertificated Securities; and (xxv)   to the extent not included in the foregoing, all other personal property of any kind or description; together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided that to the extent that the provisions of any lease or license of Computer Hardware and Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) any assignment thereof, and the grant of a security interest therein, Agent will not enforce its security interest in such Borrower's rights under such lease or license (other than in respect of the Proceeds thereof) for so long as such prohibition continues, it being understood that upon request of Agent, each Borrower will in good faith use reasonable efforts to obtain consent for the –16– -------------------------------------------------------------------------------- creation of a security interest in favor of Agent for the ratable benefit of Lenders (and to Agent's enforcement of such security interest) in Agent's rights under such lease or license except for shrink-wrap licenses used in the ordinary course of Borrowers' business. 5.2  Lien Perfection; Further Assurances.     Each Borrower shall execute such UCC-1 financing statements as are required by the Code and such other instruments, assignments or documents as are necessary to perfect Agent's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Agent's Lien upon the Collateral. Unless prohibited by applicable law, each Borrower hereby authorizes Agent to execute and file any such financing statement including, without limitation, financing statements that indicate the Collateral constitutes all assets of each Borrower without the signature of any Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Agent's request, each Borrower shall also promptly execute or cause to be executed and shall deliver to Agent any and all documents, instruments and agreements deemed necessary by Agent to give effect to or carry out the terms or intent of the Loan Documents, including, without limitation, and in each case in form and substance satisfactory to Agent (i) delivering the original of all letters of credit issued to it as beneficiary along with a collateral assignment thereof evidencing the consent to such assignment by the issuer of the letter of credit and each correspondent or confirming bank, (ii) obtaining signed acknowledgments of Lenders' Liens from financial institutions holding Borrowers' depository accounts and bailees having possession of any Collateral, (iii) obtaining signed control agreements from any securities intermediary, and (iv) taking all steps necessary to grant Agent control of all electronic chattel paper. 5.3  Lien on Realty.     The due and punctual payment and performance of the Obligations shall also be secured by the Lien created by Mortgages upon all real Property of Borrowers now or hereafter owned. Each Mortgage shall be executed by such Borrower in favor of Agent. Each Mortgage shall be duly recorded, at Borrowers' expense, in each office where such recording is required to constitute a fully perfected first Lien on the real Property covered thereby. Borrowers shall deliver to Agent, at Borrowers' expense, mortgagee title insurance policies for each parcel of Prime Real Property issued by a title insurance company satisfactory to Agent, which policies shall be in form and substance satisfactory to Agent and shall insure a valid first Lien in favor of Agent, for the benefit of itself and Lenders, on the Property covered by each Mortgage, subject only to those exceptions acceptable to Agent and its counsel. Borrower shall deliver to Agent such other documents as Agent and its counsel may request relating to the real Property subject to the Mortgages. 5.4  Commercial Tort Claims.     If any Borrower or its Subsidiary shall at any time after the date hereof hold or acquire a commercial tort claim, such Borrower or such Subsidiary shall immediately notify Agent in writing of the details thereof and do all acts deemed appropriate by Agent to grant Agent a security interest for the ratable benefit of Lenders in any such commercial tort claim. 5.5  All Property Acknowledgement.     Each Borrower acknowledges that the description of Collateral in this Section 5 is intended to encompass all assets of such Borrower and each Borrower hereby represents and warrants that the description of Collateral in this Section 5 constitutes all assets of such Borrower. –17– -------------------------------------------------------------------------------- SECTION 6. COLLATERAL ADMINISTRATION 6.1  General.     6.1.1  Location of Collateral.  All Inventory and Equipment, other than Inventory in transit and motor vehicles, will at all times be kept by each Borrower and its Subsidiaries at one or more of business locations set forth in Exhibit 6.1.1 hereto, as updated pursuant to Section 6.3 hereof.     6.1.2  Insurance of Collateral.  Each Borrower shall maintain and pay for insurance upon all Collateral (including, without limitation, credit insurance for accounts receivable) wherever located and with respect to the business of such Borrower and each of its Subsidiaries, covering casualty, hazard, public liability, workers' compensation and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Each Borrower shall deliver certified copies of such policies to Agent as promptly as practicable, with satisfactory lender's loss payable endorsements, naming Agent as a loss payee, assignee or additional insured, as appropriate, as its interest may appear, and showing only such other loss payees, assignees and additional insureds as are satisfactory to Agent. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days' prior written notice to Agent in the event of cancellation of the policy for nonpayment of premium and not less than 30 days' prior written notice to Agent in the event of cancellation of the policy for any other reason whatsoever and a clause specifying that the interest of Agent shall not be impaired or invalidated by any act or neglect of Borrowers, any of their Subsidiaries or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. Each Borrower agrees to deliver to Agent, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. All proceeds of business interruption insurance (if any) of Borrowers and their Subsidiaries shall be remitted to Agent for application to the outstanding balance of the Revolving Credit Loans.     Unless each Borrower provides Agent with evidence of the insurance coverage required by this Agreement, Agent may purchase insurance at such Borrower's expense to protect Agent's interests in the Properties of such Borrower and its Subsidiaries. This insurance may, but need not, protect the interests of each Borrower and its Subsidiaries. The coverage that Agent purchases may not pay any claim that Borrowers or any Subsidiary makes or any claim that is made against Borrowers or any such Subsidiary in connection with said Property. Borrowers may later cancel any insurance purchased by Agent, but only after providing Agent with evidence that Borrowers and their Subsidiaries have obtained insurance as required by this Agreement. If Agent purchases insurance, Borrowers will be responsible for the costs of that insurance, including interest and any other charges Agent may impose in connection with the placement of insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the Obligations. The costs of the insurance may be more than the cost of insurance that Borrowers and their Subsidiaries may be able to obtain on their own.     6.1.3  Protection of Collateral.  No Lender shall be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Agent's or any Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrowers' sole risk. –18– -------------------------------------------------------------------------------- 6.2  Administration of Accounts.     6.2.1  Records, Schedules and Assignments of Accounts.  Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Agent daily or on such periodic basis as Agent shall request a sales and collections report for the preceding period, in form consistent with the reports currently prepared by such Borrower with respect to such information. On the fifteenth (15th) day of each month (or the next Business Day thereafter if the fifteenth day is not a Business Day) or more frequently as requested by Agent, from and after the date hereof, each Borrower shall deliver to Agent a detailed aged trial balance of all of its Accounts, and upon Agent's request therefor, copies of proof of delivery and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Agent shall request.     6.2.2  Taxes.  If an Account includes a charge for any tax payable to any governmental taxing authority, Agent is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrowers and to charge Borrowers therefor, except for taxes that (i) are being actively contested in good faith and by appropriate proceedings and with respect to which Borrowers maintain reasonable reserves on its books therefor (if required by GAAP) and (ii) would not reasonably be expected to result in any Lien other than a Permitted Lien. In no event shall Agent or any Lender be liable for any taxes to any governmental taxing authority that may be due by any Borrower.     6.2.3  Account Verification.  Any of Agent's officers, employees or agents shall have the right, at any reasonable time or times hereafter, in the name of Agent, any designee of Agent or any Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, facsimile or otherwise; provided, that unless a Default or an Event of Default is then in existence, prior to conducting each set of verifications, Agent shall generally consult with Borrowers about the verification process. Each Borrower shall cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification process.     6.2.4  Maintenance of Dominion Account.  Borrowers shall maintain a Dominion Account or Deposit Accounts pursuant to lockbox and blocked account arrangements acceptable to Agent. Borrowers shall issue to Agent an irrevocable letter of instruction directing Agent to deposit all payments or other remittances received in the lockbox and blocked accounts to the Dominion Account for application on account of the Obligations. Within five Business Days of the later of the Closing Date or the establishment of the lockbox with the Bank, the Chief Financial Officer of the Borrowers shall certify to Agent in writing that (i) Borrowers have notified all customers to remit payments to that certain lockbox established with the Bank and (ii) all invoices of Borrowers generated after the Closing Date include written instructions directing that all payments be remitted to the lockbox with the Bank. All funds deposited in any Dominion Account shall immediately become the property of Agent, for the ratable benefit of Lenders, and Borrowers shall obtain the agreement by Bank or by such other financial institution acceptable to Agent in favor of Agent to waive any recoupment, offset rights and any security interest in or against the funds so deposited. Agent assumes no responsibility for such lockbox and blocked account arrangements, including, without limitation, any claim of accord and satisfaction or release with respect to deposits accepted by Bank or by such other financial institution acceptable to Agent thereunder.     6.2.5  Collection of Accounts, Proceeds of Collateral.  To expedite collection, Borrowers shall endeavor in the first instance to make collection of its Accounts for Agent. All remittances received by Borrowers on account of Accounts, together with the proceeds of any other Collateral, shall be held as Agent's property, for its benefit and the benefit of Lenders, by Borrowers as trustee of an express trust for Agent's benefit and Borrowers shall immediately deposit same in kind in the lockboxes or a –19– -------------------------------------------------------------------------------- Dominion Account. Agent retains the right at all times after the occurrence and during the continuance of a Default or an Event of Default to notify Account Debtors that Borrowers' Accounts have been assigned to Agent and to collect Borrowers' Accounts directly in its own name and to charge the collection costs and expenses, including reasonable attorneys' fees, to Borrowers. Upon the request of Agent, each Borrower shall so notify Account Debtors. Once any such notice has been given to any Account Debtor, the affected Borrower shall not give any contrary instructions to such Account Debtor without Agent's prior written consent. 6.3  Records and Reports of Inventory.     Each Borrower shall keep records of its Inventory which records shall be complete and accurate in all material respects. On the third (3rd) Business Day of each week or more frequently as requested by Agent, each Borrower shall deliver to Agent Inventory reports (or more frequently as requested by Agent), which reports will be in such other format and detail as Agent shall reasonably request and shall include a current list of all locations of Borrowers' Inventory. Ninety (90) days after the Closing Date, Agent will review the variances in the Inventory reports and Agent in its sole discretion may request delivery of Inventory reports on a monthly basis. Each Borrower shall conduct (1) a physical inventory each month or such less frequent interval as Agent may determine at its locations in the following states: Florida, South Carolina, Pennsylvania, Indiana, Illinois, Texas and Arizona; and (2) a physical inventory semi-annually or such more frequent interval as Agent may determine at all other locations. Borrower shall provide to Agent a report based on each such physical inventory promptly thereafter, together with such supporting information (including, without limitation, a copy of the physical inventory) as Agent shall request.     6.4  Administration of Equipment.     6.4.1  Records and Schedules of Equipment.  Each Borrower shall keep records of its Equipment which shall be complete and accurate in all material respects itemizing and describing the kind, type, quality, quantity and book value of its Equipment and all dispositions made in accordance with subsection 6.4.2 hereof, and each Borrower shall, and shall cause each of its Subsidiaries to, furnish Agent with a current schedule containing the foregoing information on at least an annual basis and more often if reasonably requested by Agent. Promptly after the reasonable request therefor by Agent, each Borrower shall deliver to Agent any and all evidence of ownership, if any, of any of its Equipment.     6.4.2  Dispositions of Equipment.  Each Borrower shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of or transfer any of its respective Equipment or other fixed assets or any part thereof without the prior written consent of Agent; provided, however, that the foregoing restriction shall not apply, for so long as no Default or Event of Default exists and is continuing, to (i) dispositions of Equipment and other fixed assets which, in the aggregate during any consecutive twelve-month period, have a book value of $100,000 or less, provided that all proceeds thereof are remitted to Agent for application to the Loans as provided in subsection 3.3.1, or (ii) replacements of Equipment or other fixed assets that are substantially worn, damaged or obsolete with Equipment or other fixed assets which are useful in the business of Borrower or one of its Subsidiaries, provided that the replacement Equipment or other fixed assets shall be acquired within 180 days after any disposition of the Equipment or other fixed assets that are to be replaced and the replacement Equipment or other fixed assets shall be free and clear of Liens other than Permitted Liens that are Purchase Money Liens. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1  General Representations and Warranties. –20– --------------------------------------------------------------------------------     To induce Agent and each Lender to enter into this Agreement and to make advances hereunder, each Borrower warrants, represents and covenants to Agent and each Lender that:     7.1.1  Organization and Qualification.  Henry is a corporation duly org anized, validly existing and in good standing under the laws of the State of California. Kimberton is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Borrower's Subsidiaries is a corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. Each Borrower and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign limited liability company, limited partnership or corporation, as applicable, in each state or jurisdiction listed on Exhibit 7.1.1 hereto and in all other states and jurisdictions in which the failure of Borrower or any of its Subsidiaries to be so qualified would reasonably be expected to have a Material Adverse Effect.     7.1.2  Power and Authority.  Each Borrower and each of its Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate or other relevant action and do not and will not (i) require any consent or approval of the shareholders of any Borrower or any of the shareholders, partners or members, as the case may be, of any Subsidiary of Borrower; (ii) contravene any Borrower's or any of its Subsidiaries' charter, articles or certificate of incorporation, partnership agreement, certificate of formation, by-laws, limited liability agreement, operating agreement or other organizational documents (as the case may be); (iii) violate, or cause any Borrower or any of its Subsidiaries (including Bakor) to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to any Borrower or any of its Subsidiaries (including Bakor), the violation of which would reasonably be expected to have a Material Adverse Effect; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower or any of its Subsidiaries (including Bakor) is a party or by which it or its Properties may be bound or affected, the breach of or default under which would reasonably be expected to have a Material Adverse Effect; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Borrower or any of its Subsidiaries.     7.1.3  Legally Enforceable Agreement.  This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each Borrower and each of its Subsidiaries party thereto, enforceable against it in accordance with its respective terms.     7.1.4  Capital Structure.  Exhibit 7.1.4 hereto states, as of the date hereof, (i) the exact legal name of each of the Subsidiaries (including Bakor) of each Borrower, its jurisdiction of incorporation or organization and the percentage of its Voting Stock owned by such Borrower, (ii) the exact legal name of each Borrower's and each of its Subsidiaries' (including Bakor) corporate or such joint venture relationships and the nature of the relationship, (iii) the number, nature and holder of all outstanding Securities of each Borrower and the holder of Securities of each Subsidiary (including Bakor) of each Borrower and (iv) the number of issued and treasury Securities of each Borrower. Each Borrower has good title to all of the Securities it purports to own of each of such Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such Securities have been duly issued and are fully paid and non-assessable. As of the date hereof, there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell any Securities or obligations convertible into, or any powers of attorney relating to any Securities of any Borrower or any of its Subsidiaries. Except as set forth on Exhibit 7.1.4, as of the date hereof, there are no outstanding agreements or instruments binding upon any of any Borrower's or any of its Subsidiaries' partners, members or shareholders, as the case may be, relating to the ownership of its Securities. –21– --------------------------------------------------------------------------------     7.1.5  Names.  None of the Borrowers or any of their Subsidiaries (including Bakor) has been known as or has used any legal, fictitious or trade names except those listed on Exhibit 7.1.5 hereto. Except as set forth on Exhibit 7.1.5, none of the Borrowers or any of their Subsidiaries (including Bakor) has been the surviving entity of a merger or consolidation or has acquired all or substantially all of the assets of any Person. Each Borrower's organization I.D. number and the exact legal name of each Borrower is set forth on Exhibit 7.1.5.     7.1.6  Business Locations; Agent for Process.  Each Borrower's and each of its Subsidiaries' (including Bakor) chief executive office and other places of business as of the date hereof are as listed on Exhibit 6.1.1 hereto as updated from time to time by such Borrower. During the preceding one-year period, none of the Borrowers or any of their Subsidiaries has had an office or place of business other than as listed on Exhibit 6.1.1. All tangible Collateral is and will at all times be kept by each Borrower and its Subsidiaries in accordance with subsection 6.1.1. Except as shown on Exhibit 6.1.1, as of the date hereof, no Inventory is stored with a bailee, distributor, warehouseman or similar party, nor is any Inventory consigned to any Person.     7.1.7  Title to Properties; Priority of Liens.  Each Borrower and each of its Subsidiaries has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of the Collateral and all of its other Property, in each case, free and clear of all Liens except Permitted Liens. Each Borrower and each of its Subsidiaries has paid or discharged all lawful claims known to such Borrower which, if unpaid, might become a Lien against any such Borrower's or such Subsidiary's Properties that is not a Permitted Lien. The Liens granted to Agent under Section 5 hereof are first priority Liens, subject only to Permitted Liens.     7.1.8  Accounts.  Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrowers with respect to any Account or Accounts. With respect to each Account of each Borrower, whether or not such Account is an Eligible Account, unless otherwise disclosed to Agent in writing:     (i)  It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment;     (ii) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrowers, in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor and the Account Debtor is not an Affiliate of Borrower or a Subsidiary (including Bakor) of Borrower;     (iii) It is for a liquidated amount maturing as stated in the invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Agent;     (iv) There are no facts, events or occurrences known to Borrowers which in any way impair the validity or enforceability of such Account or tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered or made available to Agent with respect thereto;     (v) To such Borrower's knowledge, the Account Debtor thereunder (1) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (2) such Account Debtor is Solvent; and     (vi) To such Borrower's knowledge, there are no proceedings or actions which are threatened or pending against the Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. –22– --------------------------------------------------------------------------------     7.1.9  Equipment.  The Equipment of each Borrower and its Subsidiaries is in good operating condition and repair, and all necessary replacements of and repairs thereto shall be made so that the operating efficiency thereof shall be maintained and preserved, reasonable wear and tear excepted, except where the failure to so maintain the same would not reasonably be expected to have a Material Adverse Effect. Borrowers will not permit any Equipment that (1) is necessary for the operation of Borrowers' business or (2) has a fair market value in excess of $10,000 to become affixed to any real Property leased to any Borrower or any of its Subsidiaries so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form reasonably acceptable to Agent, and Borrowers will not permit any of the Equipment of any Borrower or any of its Subsidiaries to become an accession to any personal Property other than Equipment that is subject to first priority Liens (except for Permitted Liens) in favor of Agent.     7.1.10  Financial Statements; Fiscal Year.  The Consolidated balance sheets of each Borrower and all its Subsidiaries (including the accounts of all Subsidiaries of each Borrower and their respective Subsidiaries for the respective periods during which a Subsidiary relationship existed), including Bakor, as of December 31, 2000, and the related statements of income for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly in all material respects the financial positions of each Borrower and such Persons, taken as a whole, at such dates and the results of such Borrower's and such Persons' operations, taken as a whole, for such periods. As of the date hereof, since December 31, 2000, there has been no material adverse change in the financial position of any Borrower and such other Persons, taken as a whole, as reflected in the Consolidated and consolidating balance sheet as of such date. As of the date hereof, the fiscal year of each Borrower and each of its Subsidiaries ends on December 31 of each year.     7.1.11  Full Disclosure.  None of the financial statements referred to in subsection 7.1.10 hereof, this Agreement, any other written document or certificate of any Borrower provided to Agent or any Lender pursuant to the Loan Documents or any other written statement provided to Agent or any Lender on or after the Closing Date contains any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which any Borrower has failed to disclose to Agent or any Lender in writing which would reasonably be expected to have a Material Adverse Effect.     7.1.12  Solvent Financial Condition.  Each Borrower and each of its Subsidiaries, is now and, after giving effect to the initial Loans to be made and the initial Letters of Credit and LC Guaranties to be issued hereunder and all related transactions, will be, Solvent.     7.1.13  Surety Obligations.  Except as set forth on Exhibit 7.1.13, as of the date hereof, none of the Borrowers or any of their Subsidiaries are obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into to assure payment, performance or completion of performance of any undertaking or obligation of any Person.     7.1.14  Taxes.  The federal tax identification number of each Borrower is shown on Exhibit 7.1.14 hereto. Each Borrower and each of its Subsidiaries has filed all federal, state and local tax returns and other reports relating to taxes it is required by law to file, except where the failure to so file would not reasonably be expected to have a Material Adverse Effect, and has paid, or made provision for the payment of, all taxes, assessments, fees, levies and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies and charges are due and payable, unless and to the extent any of the foregoing are being actively contested in good faith and by appropriate proceedings and such Borrower and such Subsidiary maintains reasonable reserves on its books therefor (if required by GAAP). The provision for taxes on the books of each Borrower and its Subsidiaries is adequate for all years not closed by applicable statutes, and for the current fiscal year. –23– --------------------------------------------------------------------------------     7.1.15  Brokers.  Except as shown on Exhibit 7.1.15 hereto, there are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement.     7.1.16  Patents, Trademarks, Copyrights and Licenses.  Each Borrower and each of its Subsidiaries owns, possesses or licenses or has the right to use all the patents, trademarks, service marks, trade names, copyrights, licenses and other Intellectual Property necessary for the present and planned future conduct of its business without any known conflict with the rights of others, except for such conflicts as would not reasonably be expected to have a Material Adverse Effect. All such patents, trademarks, service marks, tradenames, copyrights, licenses, and Intellectual Property are listed on Exhibit 7.1.16 hereto. No claim has been asserted to any Borrower or any of its Subsidiaries which is currently pending that their use of their Intellectual Property or the conduct of their business does or may infringe upon the Intellectual Property rights of any third party. To the knowledge of each Borrower and except as set forth on Exhibit 7.1.16 hereto, as of the date hereof, no Person is engaging in any activity that infringes in any material respect upon any Borrower's or any of its Subsidiaries' material Intellectual Property. Except as set forth on Exhibit 7.1.16, each Borrower's and each of its Subsidiaries' (i) material trademarks, service marks, and copyrights are registered with the U.S. Patent and Trademark Office or in the U.S. Copyright Office, as applicable and (ii) material license agreements and similar arrangements relating to its Inventory (1) permit and do not restrict, the assignment by any Borrower or any of its Subsidiaries to Agent, or any other Person designated by Agent, of all of Borrower's or such Subsidiary's, as applicable, rights, title and interest pertaining to such license agreement or such similar arrangements and (2) would permit the continued use by such Borrower or such Subsidiary, or Agent or its assignee, of such license agreements or such similar arrangements and the right to sell Inventory subject to such license agreements for a period of no less than 6 months after a default or breach of such agreements or arrangements. The consummation and performance of the transactions and actions contemplated by this Agreement and the other Loan Document, including, without limitation, the exercise by Agent of any of its rights or remedies under Section 10, will not result in the termination or impairment of any Borrower's or any of its Subsidiaries' ownership or rights relating to its Intellectual Property, except for such Intellectual Property rights the loss or impairment of which would not reasonably be expected to have a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect, (i) none of the Borrowers or any of their Subsidiaries is in breach of, or default under, any term of any license or sublicense with respect to any of its Intellectual Property and (ii) to the knowledge of each Borrower, no other party to such license or sublicense is in breach thereof or default thereunder, and such license is valid and enforceable.     7.1.17  Governmental Consents.  Each Borrower and each of its Subsidiaries has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it, except where the failure to possess or so maintain such rights would not reasonably be expected to have a Material Adverse Effect.     7.1.18  Compliance with Laws.  Each Borrower and each of its Subsidiaries has duly complied in all material respects with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to Borrower or such Subsidiary, as applicable, its Properties or the conduct of its business, except for such non-compliance as would not reasonably be expected to have a Material Adverse Effect, and there have been no citations, notices or orders of noncompliance issued to Borrower or any of its Subsidiaries under any such law, rule or regulation, except where such noncompliance would not reasonably be expected to have a Material Adverse Effect. Each Borrower and each of its Subsidiaries has established and maintains an adequate monitoring system to insure that it remains in compliance in all material respects with all federal, state and local rules, laws and regulations applicable to it except –24– -------------------------------------------------------------------------------- where such noncompliance would not reasonably be expected to have a Material Adverse Effect No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. §201 et seq.), as amended.     7.1.19  Restrictions.  None of the Borrowers or any of their Subsidiaries is a party or subject to any contract or agreement which restricts their right or ability to incur Indebtedness, other than as set forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by any Borrower or any of its Subsidiaries, as applicable.     7.1.20  Litigation.  Except as set forth on Exhibit 7.1.20 hereto, there are no actions, suits, proceedings or investigations pending, or to the knowledge of any Borrower, threatened, against or involving any Borrower or any of its Subsidiaries (including Bakor), or the business, operations, Properties, prospects, profits or condition of any Borrower or any of its Subsidiaries (including Bakor) which, singly or in the aggregate, would reasonably be expected to have a Material Adverse Effect. None of the Borrowers or any of their Subsidiaries (including Bakor) is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal, which, singly or in the aggregate, would reasonably be expected to have a Material Adverse Effect.     7.1.21  No Defaults.  No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or any Borrower's performance hereunder, constitute a Default or an Event of Default. No event has occurred and no condition exists which would constitute a default under the Senior Notes, the Indenture or the Bakor Facility. None of the Borrowers or any of their Subsidiaries is in default in (and no event has occurred and no condition exists which constitutes, or which the passage of time or the giving of notice or both would constitute, a default in) the payment of any Indebtedness to any Person for Money Borrowed in excess of $20,000.     7.1.22  Leases.  Exhibit 7.1.22 hereto is a complete listing of all capitalized and operating personal property leases of each Borrower and its Subsidiaries and all real property leases of each Borrower and its Subsidiaries. Each Borrower and each of its Subsidiaries is in full compliance with all of the terms of each of its respective capitalized and operating leases, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect.     7.1.23  Pension Plans.  Except as disclosed on Exhibit 7.1.23 hereto, none of the Borrowers or any of their Subsidiaries has any Plan. Each Borrower and each of its Subsidiaries is in compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. No fact or situation that would reasonably be expected to result in a material adverse change in the financial condition of any Borrower and its Subsidiaries exists in connection with any Plan. None of the Borrowers or any of their Subsidiaries has any material withdrawal liability in connection with a Multi-employer Plan.     7.1.24  Trade Relations.  Except as set forth on Exhibit 7.1.24, there exists no actual or, to any Borrower's knowledge, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between any Borrower or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of any Borrower and its Subsidiaries, or with any material supplier, except in each case, where the same would not reasonably be expected to have a Material Adverse Effect, and there exists no present condition or state of facts or circumstances which would prevent any Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted.     7.1.25  Labor Relations.  Except as described on Exhibit 7.1.25 hereto, as of the date hereof, none of the Borrowers or any of their Subsidiaries is a party to any collective bargaining agreement. There –25– -------------------------------------------------------------------------------- are no material grievances, disputes or controversies with any union or any other organization of Borrower's or any of its Subsidiaries' employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization, except those that would not reasonably be expected to have a Material Adverse Effect.     7.1.26  Life Insurance Policies.  Exhibit 7.1.26 hereto is a complete listing of each Eligible Life Insurance Policy. –26– --------------------------------------------------------------------------------     7.1.27  Mergers.  Henry has duly and lawfully completed its merger with Monsey Products, Co. ("Monsey") and Monsey Products of Arizona LLC ("Monsey Arizona") in accordance with the General Corporation Law of the State of California such that, as a matter of law, Henry has succeeded as the surviving corporation in such merger, to all the assets of Monsey and Monsey Arizona without any further action on the part of Henry, Monsey or Monsey Arizona, any of their respective shareholders or members or their operative board of directors, and the merger agreement and other appropriate documentation to evidenced such merger has been filed with the California Secretary of State, and to the extent necessary, with the California Franchise Tax Board.     7.1.28  Eligible Inventory Locations.  Exhibit 7.1.28 hereto is a complete listing of each location for which Agent has received a landlord's waiver or a warehousemen waiver. No Affiliate of Borrowers or any of their Subsidiaries (including Bakor) has any Goods or Inventory at any of the locations listed on Exhibit 7.1.28. The Goods and Inventory of Borrowers located at the locations listed on Exhibit 7.1.28 are not physically united with other Goods or Inventory in such a manner that their identity is lost in a product or mass.     7.1.29  Existing Bank Accounts.  Exhibit 7.1.29 hereto is a complete listing of all Deposit Accounts, lockbox accounts, brokerage accounts, or other type of accounts maintained by any Borrower with any bank, securities intermediary, broker or other financial institution. Neither Borrower has entered into any control agreement or any other similar agreement granting a security interest in or control (as determined by the Uniform Commercial Code) over such accounts other than (i) those agreements in favor of Agent or (ii) for each such account, the institution's standard form agreement for opening such account which may contain provisions establishing rights of offset for returned items or account fees.     7.1.30  Securities Account.  The value of account number 801538000 maintained with Brown & Co. Securities does not and will not exceed $7,500 unless such account is subject to an agreement pursuant to Section 8.1.11. 7.2  Representation of Shareholders.     Each shareholder of Henry severally represents and warrants that (a) it is the owner of the Securities of Henry listed on Exhibit 7.1.4, (b) no shareholder, directly or indirectly, owns more than 20% of the Senior Notes and the shareholders collectively do not, directly or indirectly, own more than 30% of the Senior Notes and (c) such Securities of Henry are not subject to any lien, pledge, security interest or other encumbrance in favor of another Person. 7.3  Continuous Nature of Representations and Warranties.     Each representation and warranty contained in this Agreement and the other Loan Documents shall be deemed to have been made at the time of each request for and again at the time of making of each Loan and shall remain accurate, complete and not misleading at all times during the term of this Agreement as of the date of such representation or warranty, except for changes in the nature of any Borrower's or any Subsidiary's business or operations that would render the information in any Exhibit attached hereto or to any other Loan Document either inaccurate, incomplete or misleading, so long as Majority Lenders have consented to such changes or such changes are expressly permitted by this Agreement. 7.4  Survival of Representations and Warranties.     All representations and warranties of each Borrower contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery and acceptance thereof by Agent and each Lender and the parties thereto and the closing of the transactions described therein or related thereto. –27– -------------------------------------------------------------------------------- SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1  Affirmative Covenants.     During the term of this Agreement, and thereafter for so long as there are any Obligations outstanding, each Borrower covenants that, unless otherwise consented to by Majority Lenders, in writing, it shall:     8.1.1  Visits and Inspections; Lender Meeting.  Permit representatives of Agent, and during the continuation of any Default or Event of Default any Lender, from time to time, as often as may be reasonably requested, but only during normal business hours, to visit and inspect the Properties of each Borrower and each of its Subsidiaries, inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, each Borrower's and each of its Subsidiaries' business, assets, liabilities, financial condition, business prospects and results of operations. Agent, if no Default or Event of Default then exists, shall give Borrowers reasonable prior notice of any such inspection or audit. Without limiting the foregoing, each Borrower will participate and will cause its key management personnel to participate in a meeting with Agent and Lenders periodically (but in no event less than once during each year) during each year except that during the continuation of an Event of Default such meetings may be held more frequently as requested by Agent or Majority Lenders, which meeting(s) shall be held at such times and such places as may be reasonably requested by Agent.     8.1.2  Notices.  Promptly notify Agent in writing of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading in any material respect as of the date made or remade. In addition, each Borrower agrees to provide Agent with (i) at least 30 Business Days' prior written notice of (1) any change in the legal name of any Borrower or any of its Subsidiaries (including Bakor), (2) the adoption by any Borrower or any of its Subsidiaries (including Bakor) of any new fictitious name or tradename, (3) any change in the chief executive office of any Borrower or any of its Subsidiaries (including Bakor) and (4) any change in the state of organization or formation of any Borrower or any of its Subsidiaries (including Bakor), and (ii) prompt written notice of any change in the information disclosed in any Exhibit hereto, in each case after giving effect to the materiality limits and Material Adverse Effect qualifications contained therein.     8.1.3  Financial Statements.  Keep, and cause each of its Subsidiaries (including Bakor) to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with customary accounting practices reflecting all its financial transactions; and cause to be prepared and furnished to Agent and each Lender, the following, all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrowers' certified public accountants concur in any change therein and such change is disclosed to Agent in writing (including by means of the financial statements or notes thereto) and is consistent with GAAP:     (i)  not later than 90 days after the close of each fiscal year of Borrowers, unqualified (except for a qualification for a change in accounting principles with which the accountant concurs) audited financial statements, of Henry and its Subsidiaries (including Bakor) as of the end of such year, on a Consolidated and consolidating basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrowers but acceptable to Agent and, within a reasonable time thereafter a copy of any management letter issued in connection therewith;     (ii) not later than 30 days after the end of each month hereafter, including the last month of Borrowers' fiscal year, unaudited interim financial statements, and statements of cash flow of Henry and its Subsidiaries (including Bakor) as of the end of such month and of the portion of the fiscal year then elapsed, on a Consolidated and consolidating basis, certified by the principal financial officer of Borrowers as prepared in accordance with GAAP and fairly presenting in all –28– -------------------------------------------------------------------------------- material respects the financial position and results of operations of Henry and its Subsidiaries (including Bakor) for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes;     (iii) together with each delivery of financial statements pursuant to clauses (i) and (ii) of this subsection 8.1.3, a management report (1) setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year and the corresponding figures from the most recent Projections for the current fiscal year delivered pursuant to subsection 8.1.7 and (2) identifying the reasons for any significant variations. The information above shall be presented in reasonable detail and shall be certified by the chief financial officer of Borrowers to the effect that such information fairly presents in all material respects the results of operation and financial condition of Borrowers and their Subsidiaries (including Bakor) as at the dates and for the periods indicated;     (iv) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements or financial statements which Borrowers have made available to its Securities holders and copies of any regular, periodic and special reports or registration statements which, Borrowers or any of their Subsidiaries files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange;     (v) upon request of Agent, copies of any annual report to be filed with ERISA in connection with each Plan;     (vi) promptly upon receipt, copies of all statements from insurers regarding the Eligible Life Insurance Policies; and     (vii)  such other data and information (financial and otherwise) as Agent or any Lender, from time to time, may reasonably request, bearing upon or related to the Collateral or any Borrower's or any Subsidiaries' (including Bakor) financial condition or results of operations.     Concurrently with the delivery of the financial statements described in paragraph (i) of this subsection 8.1.3, Henry shall forward to Agent a copy of the accountants' letter to Henry's management that is prepared in connection with such financial statements and also shall cause to be prepared and shall furnish to Agent a certificate of the aforesaid certified public accountants certifying to Agent that, based upon their examination of the financial statements of Henry and its Subsidiaries performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof. Concurrently with the delivery of the financial statements described in paragraph (i) and (ii) (but solely for the last month of each fiscal quarter of Borrowers) of this subsection 8.1.3, or more frequently if reasonably requested by Agent, Borrowers shall cause to be prepared and furnished to Agent a Compliance Certificate in the form of Exhibit 8.1.3 hereto executed by the Chief Financial Officer of Borrower.     8.1.4  Borrowing Base Certificates.  Borrowers shall deliver to Agent a Borrowing Base Certificate in the form of Exhibit 8.1.4 with respect to Accounts each day and a Borrowing Base Certificate with respect to Inventory on the third Business Day of each week with such supporting materials as Agent shall reasonably request.     8.1.5  Landlord, Processor and Storage Agreements.  Provide Agent with copies of all agreements between any Borrower or any of its Subsidiaries and any landlord, processor, distributor, warehouseman or consignee which owns any premises at which any Collateral included in the Borrowing Base Certificate may, from time to time, be kept.     8.1.6  Guarantor Financial Statements.  Deliver or cause to be delivered to Agent financial statements, if any, for each Guarantor (to the extent not consolidated with the financial statements –29– -------------------------------------------------------------------------------- delivered to Agent under subsection 8.1.3) in form and substance satisfactory to Agent at such intervals and covering such time periods as Agent may request.     8.1.7  Projections.  No later than the end of each fiscal year of each Borrower, deliver to Agent Projections of each Borrower and each of its Subsidiaries (including Bakor) for the forthcoming fiscal year, month by month.     8.1.8  Subsidiaries.  Cause each Subsidiary of each Borrower, whether now or hereafter in existence, promptly upon Lender's request therefor, to execute and deliver to Lender a Guaranty Agreement and a security agreement pursuant to which such Subsidiary guaranties the payment of all Obligations and grants to Lender a first priority Lien (subject only to Permitted Liens) on all of its Properties of the types described in subsection 5.1. Additionally, Borrowers shall execute and deliver to Lender a pledge agreement (or amendment thereto) pursuant to which Borrowers grant to Lender a first priority Lien (subject only to Permitted Liens) with respect to all of the issued and outstanding Securities of each such Subsidiary.     8.1.9  Customer and Supplier Listing.  No later than the end of each fiscal year of each Borrower, deliver to Agent a detailed listing of all customers and suppliers for each Borrower together with the name, the telephone number, the facsimile number and address of an appropriate contact person.     8.1.10  Deposit Accounts with Original Lender and PNC Bank.  Each Borrower shall cause all of its Deposit Accounts with the Original Lender and PNC Bank to be closed as of the Closing Date; provided, however, that the Deposit Accounts bearing Nos. 3750793127, 3750793130, 3750793143 and 3751234931 with the Original Lender may remain open for a period of not more than one hundred and fifty (150) days following the Closing Date; the Deposit Account bearing No. 145990210 with the Original Lender may remain open until the later of (i) twenty (20) days following the Closing Date or (ii) the date of the establishment of the Deposit Accounts with the Bank; and the Deposit Accounts bearing Nos. 5641741418 and 47-47-002-3003784 with PNC Bank and the Deposit Account bearing No. 3729102005 with the Original Lender may remain open for a period of not more than five (5) days following the establishment of Deposit Accounts with the Bank and provided, further that such Deposit Accounts are maintained pursuant to lockbox and blocked account arrangements acceptable to Agent and Agent has a first priority perfected security interest in such Account.     8.1.11  Deposit and Brokerage Accounts.  For each Deposit Account, securities account, brokerage account or other similar account that any Borrower at any time opens or maintains, each Borrower shall pursuant to an agreement in form and substance satisfactory to Agent, cause the depository bank or securities intermediary, as applicable, to agree to comply at any time with instructions from Agent to such depository bank or securities intermediary, as applicable, directing the disposition of funds from time to time credited to such account without further consent of Borrowers; provided, however, that Borrowers shall not be required to deliver such an agreement for that certain securities account no. 801538000 currently maintained by Borrowers with Brown & Co. Securities so long as such account (i) only holds Securities consisting of a single share of stock of companies that are Borrowers' competitors, (ii) holds no more than 40 shares of stock in the aggregate at any time, and (iii) does not exceed $7500 in value at any time.     8.1.12  Investments.  Pledge to Agent all investments permitted under this Agreement (other than the investment in Bakor) in a manner and in form and substance satisfactory to Agent. 8.2  Negative Covenants. –30– --------------------------------------------------------------------------------     During the Term, and thereafter for so long as there are any Obligations outstanding, each Borrower covenants that, unless otherwise consented to by Majority Lenders, in writing, it shall not:     8.2.1  Mergers; Consolidations; Acquisitions.  Merge or consolidate, or permit any Subsidiary of any Borrower to merge or consolidate, with any Person; or acquire, or permit any of their respective Subsidiaries to acquire, all or any substantial part of the Properties of any Person, except for:     (i)  mergers of any Subsidiary of any Borrower into Borrower or another Subsidiary of any Borrower; and     (ii) acquisitions of assets consisting of fixed assets or real property that constitute Capital Expenditures permitted under subsection 8.2.8.     8.2.2  Loans.  Make, or permit any Subsidiary of any Borrower to make, any loans or other advances of money to any Person, other than (i) for travel advances, advances against commissions and other similar advances to employees not in excess of $100,000 in the aggregate at any time, (ii) deposits with financial institutions permitted under this Agreement, and (iii) prepaid expenses. Extensions of trade credit in the ordinary course of Borrowers' business do not constitute an advance for purposes of this Section 8.2.2.     8.2.3  Total Indebtedness.  Create, incur, assume, or suffer to exist, or permit any Subsidiary of any Borrower to create, incur or suffer to exist, any Indebtedness, except:     (i)  Obligations owing to Agent or any Lender under this Agreement;     (ii) Indebtedness existing on the date of this Agreement and listed on Exhibit 8.2.3.;     (iii) Indebtedness arising out of the refinancing, extension, renewal or refunding of any Indebtedness existing as of the Closing Date (including the Indebtedness owed to Lucent in connection with a telephone system) and listed on Exhibit 8.2.3; provided that such Indebtedness is not increased and is not secured by additional assets;     (iv) Permitted Purchase Money Indebtedness;     (v) Contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business;     (vi) Subordinated Debt;     (vii)  To the extent not mentioned above, trade payables, accrued expenses, income taxes payable, deferrals including deferred compensation and deferred income taxes, reserves including environmental reserves and warranty reserves, operating leases, accruals and accounts payable in the ordinary course of business (in each case to the extent not overdue and not for Money Borrowed and in each case determined in accordance with GAAP);     (viii) Indebtedness not included in paragraphs (i)—(vii) above which does not exceed at any time, in the aggregate, the sum of $500,000;     (ix)  Indebtedness consisting of intercompany loans and advances made by any Borrower to such other Borrower; provided that (i) each Borrower shall have executed and delivered to the other Borrower a demand note (collectively, the "Intercompany Notes") to evidence such Indebtedness, which Intercompany Notes shall be in form and substance satisfactory to Agent and shall be pledged and delivered to Agent pursuant to the Pledge Agreement, (ii) each Borrower shall record all intercompany transactions on its books and records, and (iii) no Default or Event of Default would occur and be continuing after giving effect to any such proposed intercompany loan. –31– --------------------------------------------------------------------------------     8.2.4  Affiliate Transactions.  Enter into, or be a party to, or permit any Subsidiary of any Borrower to enter into or be a party to, any transaction with any Affiliate of any Borrower or any holder of any Securities of any Borrower or any Subsidiary of any Borrower, including without limitation payment of any management, consulting or similar fees, except (i) in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed and acceptable to Agent and Lenders upon at least ten (10) days' prior written notice and are no less favorable to such Borrower than would be obtained in a comparable arms-length transaction with a Person not an Affiliate or Security holder of such Borrower, (ii) as otherwise permitted under this Agreement or as set forth on Exhibit 8.2.4 hereto, (iii) Permitted Estate Planning Transfers, and (iv) in the ordinary course and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms fully disclosed to Agent, wages, salaries, bonuses, benefits and other amounts payable for services rendered by employees, consultants or directors.     8.2.5  Limitation on Liens.  Create or suffer to exist, or permit any Subsidiary of any Borrower to create or suffer to exist, any Lien upon any of its Property (including, without limitation, the Securities of Bakor), income or profits, whether now owned or hereafter acquired, except:     (i)  Liens at any time granted in favor of Agent for the benefit of Lenders;     (ii) Liens for taxes, assessments or governmental charges (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in subsection 7.1.14 hereto, but only if such Lien would not reasonably be expected to have a Material Adverse Effect;     (iii) Liens arising in the ordinary course of the business of any Borrower or any of its Subsidiaries by operation of law or regulation (including liens of mechanics, warehousemen, landlords, carriers and materialmen), but only if payment in respect of any such Lien is not at the time required and such Liens do not, in the aggregate, materially detract from the value of the Property of any Borrower or any of its Subsidiaries or materially impair the use thereof in the operation of the business of any Borrower or any of its Subsidiaries;     (iv) Purchase Money Liens securing Permitted Purchase Money Indebtedness;     (v) Such other Liens as appear on Exhibit 8.2.5 hereto;     (vi) Liens incurred or deposits made in the ordinary course of business in connection with (1) worker's compensation, social security, unemployment insurance and other like laws or (2) sales contracts, leases, statutory obligations, work in progress advances and other similar obligations not incurred in connection with the borrowing of money or the payment of the deferred purchase price of property;     (vii)  Reservations, covenants, zoning and other land use regulations, title exceptions or encumbrances granted in the ordinary course of business, affecting real Property owned or leased by any Borrower or one of its Subsidiaries; provided that such exceptions do not in the aggregate materially interfere with the use of such Property in the ordinary course of such Borrower's or such Subsidiary's business;     (viii) Judgment Liens that do not give rise to an Event of Default under subsection 10.1.15;     (ix) the Liens permitted pursuant to Section 7 of the Pledge Agreement; and     (x) Such other Liens as Majority Lenders may hereafter approve in writing.     8.2.6  Payments and Amendments of Certain Debt.       (i)  Make or permit any Subsidiary of any Borrower to make any payment of any part or all of any Subordinated Debt or take any other action or omit to take any other action in respect of –32– -------------------------------------------------------------------------------- any Subordinated Debt, except in accordance with the subordination agreement relative thereto or the subordination provisions thereof; or     (ii) Amend or modify any agreement, instrument or document evidencing or relating to any Subordinated Debt.     8.2.7  Distributions.  Declare or make, or permit any Subsidiary of any Borrower to declare or make, any Distributions, except for:     (i)  Distributions by any Subsidiary of any Borrower to any Borrower;     (ii) Distributions paid solely in Securities of any Borrower or any of its Subsidiaries;     (iii) Distributions by any Borrower in amounts necessary to permit such Borrower to repurchase Securities of such Borrower from employees of such Borrower or any of its Subsidiaries upon the termination of their employment, so long as no Default or Event of Default exists at the time of or would be caused by the making of such Distributions and the aggregate cash amount of such Distributions, measured at the time when made, does not exceed $50,000 in any fiscal year of such Borrower;     (iv) Distributions made on or after January 1, 2004 to the holders of Henry's Series A Convertible Preferred Stock issued to Joseph T. Mooney, Jr., provided that (1) such Distributions are in accordance with the terms of such preferred stock in the form provided to Agent as of the date hereof, (2) such Distributions are made solely from the proceeds of life insurance policies insuring Joseph T. Mooney, Jr., and not from any of the proceeds of the Life Insurance Policies set forth on Exhibit 7.1.26 and subject to Assignments of Life Insurance in favor of Agent.     8.2.8  Capital Expenditures.  Make Capital Expenditures (including, without limitation, by way of capitalized leases) which, in the aggregate, as to Borrowers and all of their Subsidiaries, exceed the following amounts during the fiscal year of Borrower set forth below: Maximum Amount --------------------------------------------------------------------------------   Fiscal Year -------------------------------------------------------------------------------- $1,500,000   2001 $2,000,000   2002 and each fiscal year thereafter     8.2.9  Disposition of Assets.  Sell, lease or otherwise dispose of any of, or permit any Subsidiary of any Borrower to sell, lease or otherwise dispose of any of, its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except for:     (i)  sales of Inventory in the ordinary course of business to non-Affiliated third parties on ordinary and customary terms;     (ii) sales of Inventory to Bakor in the ordinary course of business pursuant to transfer pricing practices disclosed and acceptable to Agent; provided that (a) the amounts owed by Bakor to Borrowers in connection with such sales do not exceed $750,000 at any time (including any amounts written off) and (b) such amounts owed by Bakor are paid in the ordinary course and upon reasonable and customary terms.     (iii) transfers of Property to any Borrower by a Subsidiary of any Borrower;     (iv) dispositions of Property that is substantially worn, damaged, uneconomic or obsolete (subject to subsection 6.4.2 hereof);     (v) dispositions of investments described in paragraphs (ii), (iii), (iv), (v), (vi) and (vii) of the definition of the term "Restricted Investments";     (vi) the transfer of the property located at 336 Cold Stream Road, Kimberton, Pennsylvania (the "Kimberton Property") in exchange for the property located at 2911 Slauson Avenue, –33– -------------------------------------------------------------------------------- Huntington Park, California (the "Huntington Park Property") so long as (1) the Huntington Park Property is of equal or greater value than the Kimberton Property (as determined by the Agent based on appraisals thereof acceptable to Agent), (2) Borrowers have provided Agent with all environmental reports requested by Agent on the Huntington Park Property and Agent is satisfied with the contents of such reports, and (3) Agent has been granted a Lien pursuant to, and has received all other documentation required under, Section 5.3;     (vii)  leases listed on Exhibit 8.2.9; and     (viii) other dispositions expressly authorized by this Agreement.     8.2.10  Securities.  Cause or permit any of its Subsidiaries to issue any additional Securities.     8.2.11  Bill-and-Hold Sales, Etc.  Make, or permit any Subsidiary of any Borrower to make, a sale to any customer on a bill-and-hold or consignment basis other than that certain consignment arrangement with Roofing Wholesale of Arizona, provided that such arrangement does not exceed $60,000 in book value of goods in the aggregate at any time.     8.2.12  Restricted Investment.  Make or have, or permit any Subsidiary of any Borrower to make or have, any Restricted Investment except as listed in Schedule 8.2.12.     8.2.13  Subsidiaries and Joint Ventures.  Create, acquire or otherwise suffer to exist any Subsidiary or joint venture arrangement not in existence as of the date hereof.     8.2.14  Tax Consolidation.  File or consent to the filing of any consolidated income tax return with any Person other than Borrower's Subsidiaries.     8.2.15  Organizational Documents.  Agree to, or suffer to occur, any amendment, supplement or addition to its or any of its Subsidiaries' (including Bakor) charter, articles or certificate of incorporation, certificate of formation, limited partnership agreement, bylaws, limited liability agreement, operating agreement or other organizational documents (as the case may be), that would reasonably be expected to have a Material Adverse Effect.     8.2.16  Fiscal Year End.  Change, or permit any Subsidiary of any Borrower to change, its fiscal year end.     8.2.17  Transfer of Funds.  Transfer any funds to (a) any Subsidiaries that are not Borrowers, (b) Bakor or any Subsidiary of Bakor, other than in connection with the transfer of products pursuant to transfer pricing practices that are (i) acceptable to Agent and Lenders, (ii) on terms no less favorable to Borrowers' than would be obtained in comparable arm's length transactions with non-affiliates, and (iii) in accordance with Borrowers' past practices; or (c) to an Affiliate except for transactions authorized under Sections 8.2.4 (i), (ii), and (iv).     8.2.18  Senior Notes.  Purchase or pre-pay, or make or permit any Subsidiary of any Borrower to purchase or pre-pay, the Senior Notes without the prior written consent of Lenders.     8.2.19  Organization.  Change its or any Subsidiary's state of incorporation or organization or the form of its organization or its type of organization or its or any Subsidiary's legal name. –34– --------------------------------------------------------------------------------     8.2.20  Terminations; Amendments.  File any financing statement with respect to any Person other than Agent and Lenders except for Permitted Liens or file any amendment or termination statement with respect to any financing statement of Agent and Lenders.     8.2.21  No Restrictions on Payments to Agents. Enter into any contract or agreement that restricts or prohibits an Account Debtor's duty to make payment with respect to a Payment Intangible directly to the Agent.     8.2.22  Inventory in Alabama.  Transfer, store or keep any Inventory or other Property with a book value in excess of $10,000 at the Mobile, Alabama location or any other location in Alabama at any time.     8.2.23  Maintenance of Accounts.  Maintain or open any deposit, brokerage, securities or other bank account or account with any financial institution or intermediary except as expressly permitted under this Agreement. Without limiting the foregoing, Borrowers shall not: (i) maintain a balance in excess of $20,000 in the aggregate at any time in Account Nos. 5641741418 and 47-47-0002-3003784 with PNC Bank; (ii) maintain a balance in excess of $5,000 at any time in Account No. 145990210 with the Original Lender or permit or cause any collections to be deposited to such account; or (iii) maintain a balance in Account No. 372912005 with the Original Lender in excess of (x) $5,000 or (y) the amount of payroll accrued plus related payroll taxes. With respect to Account No. 372912005, Borrower shall not (1) utilize such Deposit Account for any purpose other than payroll purposes or (2) permit or cause to be permitted any amounts to be credited or deposited to such account except for amounts funded from a Revolving Credit Loan. 8.3  Specific Financial Covenants.     8.3.1  During the Term, and thereafter for so long as there are any Obligations outstanding, Borrowers covenant that, unless otherwise consented to by Majority Lenders in writing, Borrower shall maintain Availability of not less than $3,000,000.     8.3.2  If GAAP changes from the basis used in preparing the audited financial statements delivered to Agent by Borrowers on or before the Closing Date, each Borrower will provide Agent with certificates demonstrating compliance with such financial covenants and will include, at the election of Borrowers or upon the request of Agent, calculations setting forth the adjustments necessary to demonstrate how Borrowers are in compliance with such financial covenants based upon GAAP as in effect on the Closing Date.     8.4  Covenants of Henry Shareholders.     8.4.1  Without the prior written consent of Lenders, each shareholder of Henry hereby severally covenants and agrees that it will not directly or indirectly, create or suffer to exist any lien, pledge, security interest, or other encumbrance upon the Securities of Henry owned by such shareholder or assign, transfer, pledge, dispose, sell, or otherwise encumber the Securities of Henry owned by such shareholder; provided, however, that any shareholders whose total holdings do not exceed 10% of the Securities of Henry may sell such Securities of Henry at any time or from time to time with the prior written consent of Agent which such consent shall not be unreasonably withheld.     8.4.2  Warner W. Henry and the Henry Trust each hereby covenants and agrees that they will not, without the prior written consent of Lenders, directly or indirectly, vote or provide their consent to any of the following:       (i)   the dissolution or liquidation, in whole or in part, of any Borrower; (ii)   the consolidation or merger of any Borrower with any other Person except as permitted under Section 8.2.1; –35– -------------------------------------------------------------------------------- (iii)   the sale, disposition or encumbrance of all or substantially all of the assets of any Borrower; (iv)   any change in the authorized number of shares, the stated capital or the share capital of any Borrower or the issuance of any additional Securities in a manner that violates this Agreement; (v)   the payment of any Distributions in violation of this Agreement; (vi)   the redemption or repurchase of any Securities; or (vii)   the alteration of voting rights with respect to the Securities of any Borrower in a manner that violates this Agreement. SECTION 9. CONDITIONS PRECEDENT 9.1  Initial Conditions. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent or any Lender under the other sections of this Agreement, no Lender shall be required to make any initial Loan, nor shall Agent be required to or issue or procure any Letter of Credit or LC Guaranty unless and until each of the following conditions has been satisfied on or before the Closing Date:     9.1.1  Documentation.       Agent shall have received, in form and substance satisfactory to Agent and its counsel, a duly executed copy of this Agreement and the other Loan Documents set forth on Exhibit 9.1, together with such additional documents, instruments and certificates as Agent and its counsel shall reasonably require in connection therewith from time to time, all in form and substance satisfactory to Agent and its counsel.     9.1.2  No Default.       No Default or Event of Default shall exist.     9.1.3  Other Conditions.       Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied.     9.1.4  Initial Availability.       Agent shall have determined that immediately after Lenders have made the initial Loans and after Agent has issued or procured the initial Letters of Credit and LC Guaranties contemplated hereby, and Borrowers have paid (or, if accrued, treated as paid), all closing costs incurred in connection with the transactions contemplated hereby, and have reserved an amount sufficient to pay all trade payables greater than 30 days past the due date, Availability shall not be less than $10,000,000 (without taking into account the Note Payment Reserve).     9.1.5  No Litigation.       No action, proceeding, investigation, regulation or legislation shall have been instituted or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to –36– -------------------------------------------------------------------------------- obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby.     9.1.6  Material Adverse Effect.       Since March 31, 2001, there has not been any material adverse change in its business, assets, financial condition, income or prospects and no event or condition exists which would be reasonably likely to result in any Material Adverse Effect.     9.1.7  Capital Structure.       Lenders shall be satisfied with the corporate and legal structure and capitalization of Borrowers and their Affiliates, including, without limitation, the charter and bylaws of Borrowers and their Subsidiaries and each agreement or instrument relating thereto.     9.1.8  Insurance.       Agent shall be satisfied with the amount, types and terms and conditions of all insurance maintained by Borrowers and its Subsidiaries, and Agent shall have received endorsements naming Agent as an additional insured and loss payee under all insurance policies to be maintained with respect to the properties of Borrowers and its Subsidiaries. Such policies shall contain such endorsements as required by Agent, contain only those exceptions acceptable to Agent and otherwise be in form and substance satisfactory to Agent.     9.1.9  Opinions of Counsel.       Lenders shall have received written opinions of counsel for Borrowers in form and substance satisfactory to Agent and its counsel.     9.1.10  Cash Management.       Borrowers shall establish their primary collection and disbursement accounts at the Bank and shall have notified and instructed all Account Debtors to remit payment to the lockbox account with the Bank; provided that Borrowers may retain those certain accounts listed on Exhibit 8.1.10 for a period of up to one hundred and fifty (150) days following the Closing Date so long as such accounts are subject to a security interest in favor of Agent and are otherwise subject to arrangements acceptable to Agent.     9.1.11  Verification of Key Accounts.       Lenders shall have received a detail listing of each Borrower's customers and suppliers together with the name, the telephone number, the facsimile number and address of an appropriate contact person and Lenders shall have verified customer and supplier relationships, the results of which shall be satisfactory to Lenders in their sole discretion.     9.1.12  Due Diligence.       Completion by Lenders and their counsel of all business and legal due diligence with results satisfactory to Lenders, including, without limitation, lien searches and pre-closing collateral audits.     9.1.13  Waivers.       Receipt of all third party and governmental waivers and consents necessary or, in the discretion of Lenders, advisable in connection with the financing and the continuing operations of Borrowers.     9.1.14  Additional Information.       Agent shall not have become aware of any information or other matter affecting Borrowers or any of their Subsidiaries (including Bakor), if any, or the transactions contemplated hereby which is inconsistent in an adverse manner with any such information or other matter disclosed to Agent prior to the Closing Date. –37– --------------------------------------------------------------------------------     9.1.15  No Material Litigation and No Increased Liability.       As of the Closing Date, there will have been since audited consolidated financial statements for the fiscal year ending December 31, 2000 and the unaudited consolidated financial statements for the month ending March 30, 2001, no material increase in the liabilities, liquidated or contingent, of any Borrower or its Subsidiaries (including Bakor), or a material decrease in the assets of any Borrower or any litigation which could reasonably be expected to have a Material Adverse Effect on any Borrower or its Subsidiaries (including Bakor).     9.1.16  Other Agreements.       There shall not exist (on a pro forma basis after giving effect to the Total Credit Facility) any default under any material indebtedness or agreement of Borrowers, any Subsidiary (including, without limitation, the Senior Notes and the Indenture), Bakor (including, without limitation, the Bakor Facility) and the Henry II Company.     9.1.17  Arizona Property.       Receipt of evidence satisfactory to Agent that Borrowers shall have paid in full all indebtedness owing to the Commerce and Economic Development Department and that the deed of trust on the real property located at 4685 Finance Way, Kingman, Arizona, has been reconveyed to Borrowers and all UCC-1 financing statements filed by the Commerce and Economic Development Department have been terminated.     9.1.18  Purchase of Equipment.       Receipt of evidence satisfactory to Agent that Borrowers shall have purchased or have otherwise obtained good and valid title to all of the equipment leased by Henry pursuant to that certain Machinery Lease dated as June 24, 1969 among Henry and Frances W. Henry, as Trustee of Trust A and Frances W. Henry and Newton F. Wheeler, as Trustees of Trust B, under the Warner W. Henry Family Trust.     9.1.19  Lien Terminations.  Receipt of evidence satisfactory to Agent that Borrowers shall have terminated the liens held by Sanwa Bank California (UCC File No. 9364860091), Harris Bank and Provident National Bank.     9.1.20  Closing Date.       The Closing Date shall occur on or before August  , 2001.     9.1.21  Piper Jaffray Account.  Agent shall have received the U.S. Bancorp Piper Jaffray Notice to Securities Intermediary and Control Agreement duly executed by Borrowers and receipt of evidence satisfactory to Agent that Borrowers shall have completed all the necessary documentation to effectuate the transfer of the Securities held in account no. 04054515079 with Bear, Stearns Securities Corp. to an account with U.S. Bancorp Piper Jaffray. 9.2  Condition Precedents to all Loans. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent or any Lender under the other sections of this Agreement, no Lender shall be required to make any Loan, nor shall Agent be required to or issue or procure any Letter of Credit or LC Guaranty unless and until each of the following conditions has been and continues to be satisfied:     9.2.1  No Default.       No Default or Event of Default shall exist.     9.2.2  Representations and Warranties.   –38– --------------------------------------------------------------------------------     The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on the date of the making of such Loan, as though made on and as of such date.     9.2.3  No Litigation.       No action, proceeding, investigation, regulation or legislation shall have been instituted or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby.     9.2.4  Material Adverse Effect.       Since March 31, 2001, no event or condition exists which would be reasonably likely to result in any Material Adverse Effect. 9.3  Condition Subsequent to all Loans. Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Agent or any Lender under the other Sections of this Agreement, no Lender shall be required to make any loan, nor shall Agent be required to or issue or procure any Letter of Credit or LC Guaranty unless and until each of the following conditions has been satisfied:     9.3.1  Troy Property.  On or before December 31, 2001 either (a) sell the real property located at Troy, New York and deliver the proceeds of such sale to Agent for application to the Obligations hereunder; or (b) deliver to Agent a duly executed Mortgage covering the real property located at Troy, New York together with an ALTA Lender's title insurance policy and evidence that counterparts of the Mortgage has been recorded in all places to the extent necessary or desirable in the judgment of Agent, to create a valid and enforceable first priority lien on such Property in favor of Agent for the benefit of Lenders.     9.3.2  Credit Insurance.  Within thirty (30) days of the Closing Date deliver to Agent a duly executed collateral assignment of the Fidelity and Deposit Company of Maryland Credit Insurance Policy or such other credit insurance policy that Borrowers obtain, in form and substance satisfactory to Agent.     9.3.3  Certificates of Title.  Within ten (10) days of the Closing Date deliver to Agent certificates of title to all the vehicles owned by Borrowers.     9.3.4  Tax Good Standing Certificates.  Within thirty (30) days of the Closing Date deliver to tax good standing certificates for the following jurisdictions: Arizona, Illinois, New Jersey, New York, Pennsylvania, South Carolina, and Washington.     9.3.5  Tax Liens.  Within thirty (30) days of the Closing Date, deliver to Agent evidence satisfactory to Agent indicating that the tax liens of record in California, New York, South Carolina and Texas have been released, terminated or paid in full.     9.3.6  Insurance Policies.  Within ten (10) days of the Closing Date, deliver to Agent certified copies of policies bearing numbers PHF047444, BE7395745, 2673583 and 35BDDAC8871 to Agent as promptly as practicable, with satisfactory lender's loss payable endorsements, naming Agent as a loss payee, assignee or additional insured, as appropriate, as its interest may appear, and showing only such other loss payees, assignees and additional insureds as are satisfactory to Agent.     9.3.7  Certificates of Occupancy.  Within thirty (30) days of the Closing Date, deliver to Agent certificates of occupancy for all real Property owned or leased by Borrowers.     9.3.8  Originals.  Within ten (10) days of the Closing Date, deliver to Agent all original signature pages to all Loan Documents containing a facsimile signature. –39– --------------------------------------------------------------------------------     9.3.9  Piper Jaffray Account.  Within ten (10) days of the Closing Date, deliver to Agent evidence of the transfer of the Securities held in that certain account no. 04054515079 with Bear, Stearns Securities Corp. to an account with U.S. Bancorp Piper Jaffray. SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1  Events of Default.     The occurrence of one or more of the following events shall constitute an "Event of Default":     10.1.1  Payment of Obligations.  Any Borrower shall fail to pay any of the Obligations hereunder or under any Note on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise).     10.1.2  Misrepresentations.  Any representation, warranty or other statement made or furnished to Agent or any Lender by or on behalf of any Borrower, any Subsidiary of any Borrower in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made, furnished or remade pursuant to Section 7.3 hereof.     10.1.3  Breach of Specific Covenants.  Any Borrower shall fail or neglect to perform, keep or observe any covenant contained in Sections 5.2, 5.3, 5.4, 6.1.2, 6.2.4, 8.1 (other than Sections 8.1.5, 8.1.6, 8.1.9), 8.2, 8.3 or 9.3 hereof on the date that such Borrower is required to perform, keep or observe such covenant. Any shareholder of Henry shall fail or neglect to perform, keep or observe any covenant contained in Section 8.4 hereof.     10.1.4  Breach of Other Covenants.  Any Borrower shall fail or neglect to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and the breach of such other covenant is not cured to Agent's satisfaction within 30 days after the sooner to occur of such Borrower's receipt of notice of such breach from Agent or the date on which such failure or neglect first becomes known to any officer of such Borrower.     10.1.5  Default Under Security Documents or Other Agreements.  Any event of default shall occur under, or any Borrower, any of its Subsidiaries or any other Guarantor shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the Security Documents, the Other Agreements or any other Loan Document and such default shall continue beyond any applicable grace period.     10.1.6  Other Defaults.  There shall occur any default or event of default on the part of any Borrower or any Subsidiary of Borrower under any agreement, document or instrument to which any Borrower or such Subsidiary of Borrower is a party or by which any Borrower or such Subsidiary of Borrower or any of its Property is bound, evidencing or relating to (a) any Indebtedness (other than the Obligations) with an outstanding principal balance in excess of $100,000, if the payment or maturity of such Indebtedness is accelerated in consequence of such default or event of default or demand for payment of such Indebtedness is made or could be made in accordance with the terms thereof or (b) the Senior Notes or Indenture.     10.1.7  Uninsured Losses and Condemnation.  Any material loss, theft, damage, destruction, or condemnation of any portion of the Collateral having a fair market value of $100,000, in the aggregate, if (a) such loss, theft, damage or destruction is not fully covered (subject to such deductibles and self-insurance retentions as Agent shall have permitted) by insurance and (b) following such loss, theft, damage, destruction or condemnation, there then exists insufficient Availability to fully reserve for the reduction in the Borrowing Base on account of such Collateral. –40– --------------------------------------------------------------------------------     10.1.8  Insolvency and Related Proceedings.  Any Borrower or any Subsidiary (including Bakor) of any Borrower shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against any Borrower or any Subsidiary (including Bakor) of Borrower under the federal bankruptcy laws or similar laws in any applicable jurisdiction (if against any Borrower or any Subsidiary (including Bakor) of Borrower the continuation of such proceeding for more than 30 days), or any Borrower or any Subsidiary (including Bakor) of any Borrower shall make any offer of settlement, extension or composition to their respective unsecured creditors generally.     10.1.9  Business Disruption.  There shall occur a cessation of a substantial part of the business of any Borrower or any Subsidiary of Borrower for a period which materially adversely affects any Borrower's or such Subsidiary's capacity to continue its business on a profitable basis; or any Borrower or any Subsidiary of Borrower shall suffer the loss or revocation of any material license or permit now held or hereafter acquired by such Borrower or such Subsidiary of Borrower which is necessary to the continued or lawful operation of its business unless such or revocation would not have a Material Adverse Effect; or any Borrower or any Subsidiary of any Borrower shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs unless such injunction or order would not have a Material Adverse Effect; or any material lease or agreement pursuant to which any Borrower or any Subsidiary of any Borrower leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term, except any such lease or agreement the cancellation or termination of which would not reasonably be expected to have a Material Adverse Effect.     10.1.10  Change of Ownership.  (a) Warner W. Henry and/or the Henry Trust shall cease, directly or indirectly, to own and control, beneficially and of record both (i) in excess of 50% of the issued and outstanding Voting Stock of Henry and (ii) a sufficient percentage of the issued and outstanding Voting Stock of Henry to control the board of directors of Henry, (b) Warner W. Henry, the Henry Trust, Carol Henry or the lineal descendants of Warner W. Henry or the trusts of such individuals of which such individuals are the sole beneficiaries shall cease to own and control, beneficially and of record (directly or indirectly), a majority of the issued and outstanding Securities and Voting Stock of each Borrower and each of its other Subsidiaries (including Bakor), (c) Warner W. Henry ceases to be the trustee of the Henry Trust, or (d) any Borrower shall cease to own and control, beneficially and of record (directly or indirectly), 100% of the issued and outstanding Securities and Voting Stock of each of its Subsidiaries.     10.1.11  ERISA.  A Reportable Event shall occur which, in Agent's determination, constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if any Borrower or any Subsidiary of Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multi-employer Plan resulting from any Borrower's or such Subsidiary's complete or partial withdrawal from such Plan and any such event would reasonably be expected to have a Material Adverse Effect.     10.1.12  Challenge to Agreement.  Any Borrower or any Subsidiary of Borrower, or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Agent.     10.1.13  Repudiation of or Default Under Guaranty Agreement.  Any Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. –41– --------------------------------------------------------------------------------     10.1.14  Criminal Forfeiture.  Any Borrower or any Subsidiary of Borrower shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of any Borrower or any Subsidiary of Borrower.     10.1.15  Judgments.  Any money judgments, writ of attachment or similar processes (collectively, "Judgments") are issued or rendered against any Borrower or any Subsidiary of any Borrower, or any of their respective Property (i) in the case of money judgments, in an amount of $50,000 or more for any single judgment, attachment or process or $100,000 or more for all such judgments, attachments or processes in the aggregate, in each case in excess of any applicable insurance with respect to which the insurer has admitted liability, and (ii) in the case of non-monetary Judgments, such Judgment or Judgments (in the aggregate) would reasonably be expected to have a Material Adverse Effect, in each case which Judgment is not paid, stayed, released or discharged within 30 days.     10.1.16  Key Executives.  Warner W. Henry ceases to be the Chief Executive Officer of Henry for any reason and a successor reasonably satisfactory to Lenders does not assume his responsibilities. William H. Baribault ceases to be the Chief Operating Officer of Henry for any reason and a successor reasonably satisfactory to Lenders does not assume his responsibilities and position within 90 days of such cessation.     10.1.17  Bakor Indebtedness.  There shall occur any default or event of default on the part of Bakor under the Bakor Facility if the payment or maturity of such Indebtedness is accelerated in consequence of such default or event of default or demand for payment of such Indebtedness is made in accordance with the terms thereof.     10.1.18  Adverse Changes.  There shall occur any Material Adverse Effect.     10.1.19  Life Insurance Policies.  Any Life Insurance Policy listed on Exhibit 7.1.26 shall cease to be an Eligible Life Insurance Policy and there then exists insufficient Availability to fully reserve for the reduction in the Borrowing Base on account of such Life Insurance Policy following the exclusion of such policy. 10.2  Acceleration of the Obligations.     Upon or at any time after the occurrence and during the continuance of an Event of Default, (i) the Revolving Loan Commitments shall, at the option of Agent or Majority Lenders be terminated and/or (ii) Agent or Majority Lenders may declare all or any portion of the Obligations at once due and payable without presentment, demand protest or further notice by Agent or any Lender, and Borrowers shall forthwith pay to Agent, the full amount of such Obligations, provided, that upon the occurrence of an Event of Default specified in subsection 10.1.8 hereof, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Agent or any Lender. 10.3  Other Remedies.     Upon the occurrence and during the continuance of an Event of Default, Agent shall have and may exercise from time to time the following rights and remedies:     10.3.1  All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which Agent or Lenders may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive.     10.3.2  The right to take immediate possession of the Collateral, and to (i) require Borrowers and each of their Subsidiaries to assemble the Collateral, at Borrowers' expense, and make it available to Agent at a place designated by Agent which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said –42– -------------------------------------------------------------------------------- premises until sold (and if said premises be the Property of Borrowers or any Subsidiary of Borrowers, Borrowers agree not to charge, or permit any of their Subsidiaries to charge, Agent for storage thereof).     10.3.3  The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Agent, in its sole discretion, may deem advisable. Agent may at its option disclaim any and all warranties regarding the Collateral in connection with any such sale. Each Borrower agrees that 10 days' written notice to Borrower or any of its Subsidiaries of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Agent may designate in said notice. Agent shall have the right to conduct such sales on Borrowers' or any of their Subsidiaries' premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Agent shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Agent, on behalf of Lenders, may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing 2 Business Days for collection, first to the costs, expenses and reasonable attorneys' fees incurred by Agent in collecting the Obligations, in enforcing the rights of Agent and Lenders under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral, second to the interest due upon any of the Obligations; and third, to the principal of the Obligations. If any deficiency shall arise, each Borrower and each Guarantor shall remain jointly and severally liable to Agent and Lenders therefor.     10.3.4  Agent is hereby granted a license or other right to use, without charge, each Borrower's and each of its Subsidiary's labels, patents, copyrights, licenses, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in completing, advertising for sale and selling any Collateral and Borrower's and each of its Subsidiary's rights under all licenses and all franchise agreements shall inure to Agent's benefit.     10.3.5  Agent may, at its option, require Borrowers to deposit with Agent funds equal to the LC Amount and, if Borrowers fail to promptly make such deposit, Agent may advance such amount as a Revolving Credit Loan (whether or not an Overadvance is created thereby). Each such Revolving Credit Loan shall be secured by all of the Collateral and shall bear interest and be payable at the same rate and in the same manner as Loans. Any such deposit or advance shall be held by Agent as a reserve to fund future payments on such LC Guaranties and future drawings against such Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full, returned to Borrower. 10.4  Set Off and Sharing of Payments.     In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, during the continuance of any Event of Default, each Lender is hereby authorized by each Borrower at any time or from time to time, with prior written consent of Agent and with reasonably prompt subsequent notice to Borrowers (any prior or contemporaneous notice to Borrowers being hereby expressly waived) to set off and to appropriate and to apply any and all (i) balances held by such Lender at any of its offices for the account of Borrowers or any of their Subsidiaries (regardless of whether such balances are then due to Borrowers or such Subsidiaries), and (ii) other property at any time held or owing by such Lender to or for the credit or for the account of Borrowers or any of their Subsidiaries, against and on account of any of the Obligations. Any Lender exercising a right to set off shall, to the extent the amount of any such set off exceeds its Revolving –43– -------------------------------------------------------------------------------- Loan Percentage of the amount set off, purchase for cash (and the other Lenders shall sell) interests in each such other Lender's pro rata share of the Obligations as would be necessary to cause such Lender to share such excess with each other Lender in accordance with their respective Revolving Loan Percentages. Each Borrower agrees, to the fullest extent permitted by law, that any Lender may exercise its right to set off with respect to amounts in excess of its pro rata share of the Obligations and upon doing so shall deliver such excess to Agent for the benefit of all Lenders in accordance with the Revolving Loan Percentages. 10.5  Remedies Cumulative; No Waiver.     All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrowers contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or in any Guaranty Agreement given to Agent or any Lender or contained in any other agreement between any Lender and Borrowers or between Agent and Borrowers heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Agent or any Lender to require strict performance by Borrowers of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and other Obligations owing or to become owing from Borrowers to Agent and each Lender have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrowers contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrowers under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Lenders, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Agent and directed to Borrowers. –44– -------------------------------------------------------------------------------- SECTION 11. THE AGENT 11.1  Authorization and Action.     Each Lender hereby appoints and authorizes Agent to take such action on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Each Lender hereby acknowledges that Agent shall not have by reason of this Agreement assumed a fiduciary relationship in respect of any Lender. In performing its functions and duties under this Agreement, Agent shall act solely as agent of Lenders and shall not assume, or be deemed to have assumed, any obligation toward, or relationship of agency or trust with or for, Borrowers. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including without limitation enforcement and collection of the Notes), Agent may, but shall not be required to, exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, whenever such instruction shall be requested by Agent or required hereunder, or a greater or lesser number of Lenders if so required hereunder, and such instructions shall be binding upon all Lenders; provided, that Agent shall be fully justified in failing or refusing to take any action which exposes Agent to any liability or which is contrary to this Agreement, the other Loan Documents or applicable law, unless Agent is indemnified to its satisfaction by the other Lenders against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. If Agent seeks the consent or approval of the Majority Lenders (or a greater or lesser number of Lenders as required in this Agreement), with respect to any action hereunder, Agent shall send notice thereof to each Lender and shall notify each Lender at any time that the Majority Lenders (or such greater or lesser number of Lenders) have instructed Agent to act or refrain from acting pursuant hereto. 11.2  Agent's Reliance, Etc.     Neither Agent, any Affiliate of Agent, nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Agent: (i) may treat each Lender party hereto as the holder of Obligations until Agent receives written notice of the assignment or transfer or such lender's portion of the Obligations signed by such Lender and in form reasonably satisfactory to Agent; (ii) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (iii) makes no warranties or representations to any Lender and shall not be responsible to any Lender for any recitals, statements, warranties or representations made in or in connection with this Agreement or any other Loan Documents; (iv) shall not have any duty beyond Agent's customary practices in respect of loans in which Agent is the only lender, to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of Borrowers, to inspect the property (including the books and records) of Borrowers, to monitor the financial condition of Borrowers or to ascertain the existence or possible existence or continuation of any Default or Event of Default; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (vi) shall not be liable to any Lender for any action taken, or inaction, by Agent upon the instructions of Majority Lenders pursuant to Section 11.1 hereof or refraining to take any action pending such instructions; (vii) shall not be liable for any apportionment or distributions of payments made by it in good faith pursuant to Section 3 hereof; (viii) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate, message or other instrument or –45– -------------------------------------------------------------------------------- writing (which may be by telephone, facsimile, telegram, cable or telex) believed in good faith by it to be genuine and signed or sent by the proper party or parties; and (ix) may assume that no Event of Default has occurred and is continuing, unless Agent has actual knowledge of the Event of Default, has received notice from Borrowers or Borrowers' independent certified public accounts stating the nature of the Event of Default, or has received notice from a Lender stating the nature of the Event of Default and that such Lender considers the Event of Default to have occurred and to be continuing. In the event any apportionment or distribution described in clause (vii) above is determined to have been made in error, the sole recourse of any Person to whom payment was due but not made shall be to recover from the recipients of such payments any payment in excess of the amount to which they are determined to have been entitled. 11.3  Fleet and Affiliates.     With respect to its commitment hereunder to make Loans, Fleet shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent; and the terms "Lender," "Lenders" or "Majority Lenders" shall, unless otherwise expressly indicated, include Fleet in its individual capacity as a Lender. Fleet and its Affiliates may lend money to, and generally engage in any kind of business with, Borrowers, and any Person who may do business with or own Securities of Borrowers all as if Fleet were not Agent and without any duty to account therefor to any other Lender. 11.4  Lender Credit Decision.     Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on the financial statements referred to herein and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Agent shall not have any duty or responsibility, either initially or on an ongoing basis, to provide any Lender with any credit or other similar information regarding Borrower. 11.5  Indemnification.     Lenders agree to indemnify Agent (to the extent not reimbursed by Borrowers), in accordance with their respective Aggregate Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent under this Agreement; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share, as set forth above, of any out-of-pocket expenses (including reasonable attorneys' fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiation, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Borrower. The obligations of Lenders under this Section 11.5 shall survive the payment in full of all Obligations and the termination of this Agreement. If after payment and distribution of any amount by Agent to Lenders, any Lender or any other Person, including any Borrower, any creditor of Borrower, a liquidator, administrator or trustee in bankruptcy, recovers from Agent any amount found to have been wrongfully paid to Agent or disbursed by Agent to Lenders, then Lenders, in accordance with their respective Aggregate Percentages, shall reimburse Agent for all such amounts. –46– -------------------------------------------------------------------------------- 11.6  Rights and Remedies to be Exercised by Agent Only.     Each Lender agrees that, except as set forth in subsection 10.4, no Lender shall have any right individually (i) to realize upon the security created by this Agreement or any other Loan Document, (ii) to enforce any provision of this Agreement or any other Loan Document, or (iii) to make demand under this Agreement or any other Loan Document. 11.7  Agency Provisions Relating to Collateral.     Each Lender authorizes and ratifies Agent's entry into this Agreement and the Security Documents for the benefit of Lenders. Each Lender agrees that any action taken by Agent with respect to the Collateral in accordance with the provisions of this Agreement or the Security Documents, and the exercise by Agent of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all Lenders. Agent is hereby authorized on behalf of all Lenders, without the necessity of any notice to or further consent from any Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or the Loan Documents which may be necessary to perfect and maintain perfected Agent's Liens upon the Collateral, for its benefit and the ratable benefit of Lenders. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent upon any Collateral (i) upon termination of the Agreement and payment and satisfaction of all Obligations; or (ii) constituting property being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with subsection 8.2.9 hereof (and Agent may rely conclusively on any such certificate, without further inquiry); or (iii) constituting property in which Borrowers owned no interest at the time the Lien was granted or at any time thereafter; or (iv) in connection with any foreclosure sale or other disposition of Collateral after the occurrence and during the continuation of an Event of Default or (v) if approved, authorized or ratified in writing by Agent at the direction of all Lenders. Upon request by Agent at any time, Lenders will confirm in writing Agent's authority to release particular types or items of Collateral pursuant hereto. Agent shall have no obligation whatsoever to any Lender or to any other Person to assure that the Collateral exists or is owned by Borrower or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent herein or pursuant to the Security Documents have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of its rights, authorities and powers granted or available to Agent in this Section 11.7 or in any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, but consistent with the provisions of this Agreement, including given Agent's own interest in the Collateral as a Lender and that Agent shall have no duty or liability whatsoever to any Lender. 11.8  Agent's Right to Purchase Commitments.     Agent shall have the right, but shall not be obligated, at any time upon written notice to any Lender and with the consent of such Lender, which may be granted or withheld in such Lender's sole discretion, to purchase for Agent's own account all of such Lender's interests in this Agreement, the other Loan Documents and the Obligations, for the face amount of the outstanding Obligations owed to such Lender, including without limitation all accrued and unpaid interest and fees. 11.9  Right of Sale, Assignment, Participations.     Each Borrower hereby consents to any Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, such Lender's rights, title, interests, –47– -------------------------------------------------------------------------------- remedies, powers, and duties hereunder or thereunder subject to the terms and conditions set forth below:     11.9.1  Sales, Assignments.  Each Lender hereby agrees that, with respect to any sale or assignment (i) no such sale or assignment shall be for an amount of less than $5,000,000, (ii) each such sale or assignment shall be made on terms and conditions which are customary in the industry at the time of the transaction, (iii) Agent must consent, such consent not to be unreasonably withheld, to each such assignment to a Person that is not an original signatory to this Agreement, (iv) the assignee Lender shall pay to Agent a processing and recordation fee of $3,500 and any out-of-pocket attorneys' fees and expenses incurred by Agent in connection with any such sale or assignment. After such sale or assignment has been consummated (x) the assignee Lender thereupon shall become a "Lender" for all purposes of this Agreement and (y) the assigning Lender shall have no further liability for funding the portion of Revolving Loan Commitments or Capex Loan Commitments assumed by such other Lender.     11.9.2  Participations.  Any Lender may grant participations in its extensions of credit hereunder to any other Lender or other lending institution (a "Participant"), provided that (i) no such participation shall be for an amount of less than $5,000,000, (ii) no Participant shall thereby acquire any direct rights under this Agreement, (iii) no Participant shall be granted any right to consent to any amendment, except to the extent any of the same pertain to (1) reducing the aggregate principal amount of, or interest rate on, or fees applicable to, any Loan or (2) extending the final stated maturity of any Loan or the stated maturity of any portion of any payment of principal of, or interest or fees applicable to, any of the Loans; provided, that the rights described in this subclause (2) shall not be deemed to include the right to consent to any amendment with respect to or which has the effect of requiring any mandatory prepayment of any portion of any Loan or any amendment or waiver of any Default or Event of Default, (iv) no sale of a participation in extensions of credit shall in any manner relieve the originating Lender of its obligations hereunder, (v) the originating Lender shall remain solely responsible for the performance of such obligations, (vi) Borrower and Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, (vii) in no event shall any financial institution purchasing the participation grant a participation in its participation interest in the Loans without the prior written consent of Agent, and, in the absence of a Default or an Event of Default, Borrowers, which consents shall not unreasonably be withheld and (viii) all amounts payable by Borrowers hereunder shall be determined as if the originating Lender had not sold any such participation.     11.9.3  Certain Agreements of Borrower.  Each Borrower agrees that (i) it will use its best efforts to assist and cooperate with each Lender in any manner reasonably requested by such Lender to effect the sale of participation in or assignments of any of the Loan Documents or any portion thereof or interest therein, including, without limitation, assisting in the preparation of appropriate disclosure documents and making members of management available at reasonable times to meet with and answer questions of potential assignees and Participants; and (ii) subject to the provisions of Section 12.14 hereof, such Lender may disclose credit information regarding Borrowers to any potential Participant or assignee.     11.9.4  Non U.S. Resident Transferees.  If, pursuant to this Section 11.9, any interest in this Agreement or any Loans is transferred to any transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Lender shall cause such transferee (other than any Participant), and may cause any Participant, concurrently with and as a condition precedent to the effectiveness of such transfer, to (i) represent to the transferor Lender (for the benefit of the transferor Lender, Agent, and Borrower) that under applicable law and treaties no taxes will be required to be withheld by Agent, any Borrowers or the transferor Lender with respect to any payments to be made to such transferee in respect of the interest so transferred, (ii) furnish to the transferor Lender, Agent and Borrowers either United States Internal Revenue Service Form 4224 or –48– -------------------------------------------------------------------------------- United States Internal Revenue Service Form 1001 (wherein such transferee claims entitlement to complete exemption from United States federal withholding tax on all interest payments hereunder), and (iii) agree (for the benefit of the transferor Lender, Agent and Borrowers) to provide the transferor Lender, Agent and Borrowers a new Form 4224 or Form 1001 upon the 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 transferee, and to comply from time to time with all applicable United States laws and regulations with regard to such withholding tax exemption. 11.10  Amendment.     No amendment or waiver of any provision of this Agreement or any other Loan Document (including without limitation any Note), nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver or consent shall be effective, unless (i) in writing and signed by each Lender, do any of the following: (1) increase or decrease the aggregate Loan Commitments, or any Lender's Revolving Loan Commitment, Capex Loan A Commitment, Capex Loan B Commitment or Capex Loan C Commitment, (2) reduce the principal of, or interest on, any amount payable hereunder or under any Note, other than those payable only to Fleet in its capacity as Agent, which may be reduced by Fleet unilaterally, (3) increase or decrease any interest rate payable hereunder, (4) postpone any date fixed for any payment of principal of, or interest on, any amounts payable hereunder or under any Note, other than those payable only to Fleet in its capacity as Agent, which may be postponed by Fleet unilaterally, (5) reduce the number of Lenders that shall be required for Lenders or any of them to take any action hereunder, (6) release or discharge any Person liable for the performance of any obligations of Borrowers hereunder or under any of the Loan Documents, (7) amend any provision of this Agreement that requires the consent of all Lenders or consent to or waive any breach thereof, (8) amend the definition of the term "Majority Lenders," (9) amend this Section 11.10 or (10) release any substantial portion of the Collateral, unless otherwise permitted pursuant to Section 11.7 hereof; or (ii) in writing and signed by Agent in addition to Lenders required above to take such action, affect the rights or duties of Agent under this Agreement, any Note or any other Loan Document. 11.11  Resignation of Agent; Appointment of Successor.     Agent may resign as Agent by giving not less than thirty (30) days' prior written notice to Lenders and Borrowers. If Agent shall resign under this Agreement, then, (i) subject to the consent of the Borrowers (which consent shall not be unreasonably withheld and which consent shall not be required during any period in which a Default or an Event of Default exists), the Majority Lenders shall appoint from among Lenders a successor agent for Lenders or (ii) if a successor agent shall not be so appointed and approved within the thirty (30) day period following Agent's notice to Lenders and the Borrowers of its resignation, then Agent shall appoint a successor agent who shall serve as Agent until such time as the Majority Lenders appoint a successor agent, subject to the Borrowers' consent as set forth above. Upon its appointment, such successor agent shall succeed to the rights, powers and duties of Agent and the term "Agent" shall mean such successor effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After the resignation of any Agent hereunder, the provisions of this Section 11 shall inure to the benefit of such former Agent and such former Agent shall not by reason of such resignation be deemed to be released from liability for any actions taken or not taken by it while it was an Agent under this Agreement. –49– -------------------------------------------------------------------------------- SECTION 12. MISCELLANEOUS 12.1  Power of Attorney.     Each Borrower hereby irrevocably designates, makes, constitutes and appoints Agent (and all Persons designated by Agent) as such Borrower's true and lawful attorney (and agent-in-fact), solely with respect to the matters set forth in this Section 12.1, and Agent, or Agent's agent, may, without notice to such Borrower and in such Borrower's or Agent's name, but at the cost and expense of such Borrower:     12.1.1  At such time or times as Agent or said agent, in its sole discretion, may determine, endorse such Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Agent or under Agent's control.     12.1.2  At such time or times upon or after the occurrence and during the continuance of an Event of Default (provided that the occurrence of an Event of Default shall not be required with respect to clauses (iv) and (viii) below), as Agent or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of such Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Agent deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign such Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to such Borrower and notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse the name of such Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Agent on account of the Obligations; (viii) endorse the name of such Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use such Borrower's stationery and sign the name of such Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Agent's determination, to fulfill such Borrowers' obligations under this Agreement.     The power of attorney granted hereby shall constitute a power coupled with an interest and shall be irrevocable. 12.2  Indemnity.     Each Borrower hereby agrees to indemnify Agent and each Lender (and each of their Affiliates) and hold Agent and each Lender (and each of their Affiliates) harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by any such Person (including reasonable attorneys fees and legal expenses) as the result of each Borrower's failure to observe, perform or discharge Borrowers' duties hereunder. In addition, each Borrower shall defend Agent and each Lender (and each of their Affiliates) against and save it harmless from all claims of any Person with respect to the Collateral (except those resulting from the gross negligence or intentional misconduct of any such Person). Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Agent or any Lender (and each of their Affiliates) by any –50– -------------------------------------------------------------------------------- Person under any Environmental Laws by reason of Borrowers' or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. Notwithstanding any contrary provision in this Agreement, the obligation of each Borrower under this Section 12.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 12.3  Sale of Interest.     None of the Borrowers may sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, Borrowers' rights, title, interests, remedies, powers, and duties hereunder or thereunder. 12.4  Severability.     Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.5  Successors and Assigns.     This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of each Borrower, Agent and each Lender permitted under Section 11.9 hereof. 12.6  Cumulative Effect; Conflict of Terms.     The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 12.7  Execution in Counterparts.     This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 12.8  Notice.     Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given, delivered or –51– -------------------------------------------------------------------------------- received immediately when delivered against receipt, one Business Day after deposit with an overnight courier or, in the case of facsimile notice, when sent, addressed as follows: If to Agent:   Fleet Capital Corporation 15260 Ventura Blvd. Suite 400 Sherman Oaks, California 91403 Attention: Loan Administration Manager Facsimile No.: (818) 382-4291 With a copy to:   Paul, Hastings, Janofsky & Walker LLP 555 So. Flower Street 23rd Floor Los Angeles, California 90071 Attention: Hydee R. Feldstein, Esq. Facsimile No.: (213) 627-0705 If to Borrowers:   Henry Company Kimberton Enterprises, Inc. 2911 Slauson Avenue Huntington Park, California 90255 Attention: Jeffrey A. Wahba Facsimile No.: (323) 581-7764 With a copy to:   Munger, Tolles & Olson 355 Grand Avenue 35th Floor Los Angeles, California 90071 Attention: Judith T. Kitano, Esq. Facsimile No.: (213) 687-3702 or to such other address as each party may designate for itself by notice given in accordance with this Section 12.8; provided, however, that any notice, request or demand to or upon a Lender pursuant to subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by such Lender. 12.9  Consent.     Whenever Agent's or Majority's Lenders' consent is required to be obtained under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any action, inaction, condition or event, except as otherwise specifically provided herein, Agent or Majority Lenders, as applicable, shall be authorized to give or withhold such consent in their sole and absolute discretion. 12.10  Credit Inquiries.     Each Borrower hereby authorizes and permits Agent and each Lender to respond to usual and customary credit inquiries from third parties concerning any Borrower or any of its Subsidiaries. 12.11  Time of Essence.     Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 12.12  Entire Agreement.     This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. –52– -------------------------------------------------------------------------------- 12.13  Interpretation.     No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.14  Confidentiality.     Agent and each Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement in accordance with Agent's and such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a prospective participant or assignee in connection with the contemplated participation or assignment or as required or requested by any governmental authority or representative thereof or pursuant to legal process and shall require any such participant or assignee to agree to comply with this Section 12.14. 12.15  GOVERNING LAW; CONSENT TO FORUM.     THIS AGREEMENT HAS BEEN NEGOTIATED AND DELIVERED IN AND SHALL BE DEEMED TO HAVE BEEN MADE IN LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF AGENT'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF ANY BORROWER, AGENT OR ANY LENDER, EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY BORROWER ON THE ONE HAND AND AGENT OR ANY LENDER ON THE OTHER HAND PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR ANY LENDER OF ANY JUDGMENT OR ORDER –53– -------------------------------------------------------------------------------- OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 12.16  WAIVERS BY BORROWERS.     EACH BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH AGENT AND EACH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT OR ANY LENDER ON WHICH SUCH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR ANY LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO AGENT'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO EXERCISE ANY OF AGENT'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND EACH LENDER'S ENTERING INTO THIS AGREEMENT AND THAT AGENT AND EACH LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH SUCH BORROWER. EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 12.17  Revival and Reinstatement of Obligations.     If the incurrence or payment of the Obligations by any Borrower or the transfer to Lenders of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lenders are required to repay or restore, in whole or in part, any such Voidable Transfer, or elect to do so upon the reasonable advice of their counsel, then, as to any such Voidable Transfer, or the amount thereof that Lenders are required or elect to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lenders related thereto, the liability of Borrowers automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. –54– --------------------------------------------------------------------------------     IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year specified at the beginning of this Agreement.     HENRY COMPANY, a California corporation     --------------------------------------------------------------------------------     Name:   Jeffrey A. Wahba         Title:   Chief Financial Officer         KIMBERTON ENTERPRISES, INC., a Delaware corporation     --------------------------------------------------------------------------------     Name:   Gary Spence         Title:   Vice President and Assistant Treasurer         FLEET CAPITAL CORPORATION, a Rhode Island corporation, as Agent and as a Lender     --------------------------------------------------------------------------------     Name:   Matthew R. Van Steenhuyse         Title:   Senior Vice President         Revolving Loan Commitment:   $16,428,500         Revolving Loan Percentage:   65.714%         Capex Loan Commitment:   $6,571,400         Capex Loan Percentage:   65.714%         LASALLE BUSINESS CREDIT, INC., a Delaware corporation, as a Lender     --------------------------------------------------------------------------------     Name:   John S. Eby         Title:   Vice President     –55– --------------------------------------------------------------------------------     Revolving Loan Commitment:   $8,571,500         Revolving Loan Percentage:   34.286%         Capex Loan Commitment:   $3,428,600         Capex Loan Percentage:   34.286%         The following Person is a signatory to this Agreement in its capacity as a shareholder and solely with respect to Sections 7.2, 8.4.1 and 8.4.2 of this Agreement.     WARNER W. HENRY TRUST     By:                 --------------------------------------------------------------------------------     Name:   Warner W. Henry         Title:   Trustee         The following Person is a signatory to this Agreement solely with respect to Section 8.4.2 of this Agreement.     --------------------------------------------------------------------------------     Warner W. Henry     The following Persons are signatories to this Agreement in their capacities as shareholders and solely with respect to Sections 7.2 and 8.4.1 of this Agreement.     WILLIAM WARNER HENRY TRUST     By:                 --------------------------------------------------------------------------------     Name:   Terrill M. Gloege         Title:   Trustee         CATHERINE ANNE HENRY TRUST     By:                 --------------------------------------------------------------------------------     Name:   Terrill M. Gloege         Title:   Trustee     –56– --------------------------------------------------------------------------------     MICHAEL ANDREW HENRY TRUST     By:                 --------------------------------------------------------------------------------     Name:   Terrill M. Gloege         Title:   Trustee         --------------------------------------------------------------------------------     Frederick H. Muhs     --------------------------------------------------------------------------------     Joseph T. Mooney, Jr.     --------------------------------------------------------------------------------     Carol F. Henry –57– -------------------------------------------------------------------------------- APPENDIX A     GENERAL DEFINITIONS When used in the Second Amended and Restated Financing and Security Agreement (this "Agreement") dated as of August  , 2001, by and among Fleet Capital Corporation, individually and as Agent, the other financial institutions which are or become parties thereto and the Borrowers, (a) the terms Account, Certificated Security, Chattel Paper, Commercial Tort Claims, Electronic Chattel Paper, Letter-of-Credit Rights, Payment Intangibles, Software, Supporting Obligations and Tangible Chattel Paper, Deposit Account, Document, Financial Asset, Fixture, Goods, Instrument, Inventory, Investment Property, Security, Proceeds, Security Entitlement and Uncertificated Security have the respective meanings assigned thereto under the Code (as defined below); (b) all terms indicating Collateral having the meanings assigned thereto under the Code shall be deemed to mean such Property, whether now owned or hereafter created or acquired by any Borrower or in which any Borrower now has or hereafter acquires any interest; (c) capitalized terms which are not otherwise defined shall have the respective meanings assigned thereto in said Agreement; and (d) the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa):     Account Debtor—any Person who is or may become obligated under or on account of an Account, Contract Right, Chattel Paper or General Intangible of any Borrower or its Subsidiaries.     Affiliate—with respect to any Person means any other Person: (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Person designated; (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock (or in the case of a designated Person which is not a corporation, 5% or more of the equity interest) in such designated Person; (iii) which beneficially owns or holds 5% or more of the Voting Stock (or in the case of a designated Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by a Subsidiary of such designated Person, or (iv) who is an officer or director of (a) such designated Person;, (b) of any Subsidiary of such designated Person or (c) of such designated Person described in clause (i) above. Without limiting the generality of the foregoing; with respect to the Borrowers, the term "Affiliate" shall include Warner W. Henry, the Henry Trust, Henry II Company, Central Coast Wine Company, Frederick H. Muhs, Joseph T. Mooney, Jr. and Carol F. Henry and the immediate family members, spouses and lineal descendants of individuals who are Affiliates of any Borrower.     Agent—Fleet Capital Corporation in its capacity as agent for Lenders under the Agreement and any successor in that capacity appointed pursuant to subsection 11.11.     Aggregate Percentage—with respect to each Lender, the percentage equal to the quotient of (i) such Lender's Loan Commitment divided by (ii) the aggregate of all Loan Commitments.     Agreement—the Second Amended and Restated Financing and Security Agreement referred to in the first sentence of this Appendix A, all Exhibits and Schedules thereto and this Appendix A, as each of the same may be amended from time to time. A–1 --------------------------------------------------------------------------------     Applicable Margin—The percentages set forth below with respect to the Base Rate Revolving Portion, the Base Rate Capex A Portion, the Base Rate Capex B Portion, the LIBOR Revolving Portion, the LIBOR Capex A Portion and the LIBOR Capex B Portion: Base Rate Revolving Portion   0 % Base Rate Capex A Portion   0 % Base Rate Capex B Portion   0 % Base Rate Capex C Portion   0 % LIBOR Revolving Portion   2.75 % LIBOR Capex A Portion   2.75 % LIBOR Capex B Portion   2.75 % LIBOR Capex C Portion   2.75 %     Assignment of Life Insurance—those certain assignments of life insurance as collateral dated the date hereof from the Borrower for the benefit of Lenders, which Assignments of Life Insurance assign to the Lender all of the right, title and interest of the Borrowers in, and to, the Life Insurance Policies, as those assignments are amended, restated, reissued, supplemented or otherwise modified in writing at any time and from time to time.     Availability—the amount of additional money which Borrowers are entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference between (a) the Borrowing Base minus (b) the sum of the principal amount of Revolving Credit Loans then outstanding (plus any amounts which Agent or any Lender may have paid for the account of Borrowers pursuant to any of the Loan Documents and which have not been reimbursed by Borrowers or charged as a Revolving Credit Loan), plus the LC Amount, plus the amount of all reserves. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is 0.     Bakor—Bakor, Inc., a Canadian corporation.     Bakor Facility—that certain credit facility between Bakor and National Bank of Canada as evidenced by that certain Amended and Restated Credit Agreement dated as of October 1, 1999.     Bank—Fleet National Bank.     Base Rate—the rate of interest announced or quoted by Bank from time to time as its prime rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate.     Base Rate Portion—a Base Rate Capex Portion or a Base Rate Revolving Portion.     Base Rate Revolving Portion—that portion of the Revolving Credit Loans that is not subject to a LIBOR Option.     Base Rate Capex A Portion—that portion of Capex Loan A that is not subject to a LIBOR Option.     Base Rate Capex B Portion—that portion of Capex Loan B that is not subject to a LIBOR Option.     Base Rate Capex C Portion—that portion of Capex Loan C that is not subject to a LIBOR Option.     Base Rate Capex Portion—a Base Rate Capex A Portion, a Base Rate Capex B Portion and/or a Base Rate Capex C Portion. A–2 --------------------------------------------------------------------------------     Borrowing Base—as at any date of determination thereof, an amount equal to the lesser of: (i)the Revolving Credit Maximum Amount; or (ii)an amount equal to:     (a) 85% of the net amount of Eligible Accounts outstanding at such date; plus     (b) the lesser of (1) $750,000 and (2) Eligible Foreign Accounts; plus     (c) the lesser of (1) $10,000,000 and (2) the sum of (i) 60% of the value of Eligible Finished Inventory at such date, plus (ii) 45% of Eligible Raw Materials Inventory at such date, plus (iii) the lesser of (x) $150,000 and (y) 60% of Eligible In Transit Inventory at such date, plus (iv) the lesser of (aa) $600,000 and (bb) 60% of Eligible Private Label Goods Inventory; plus     (d) 95% of the aggregate cash surrender value immediately available to Agent as assignee of the Eligible Life Insurance Policies.     For purposes hereof, (1) the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Agent's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time and (2) the amount of Eligible Finished Inventory and Eligible Raw Materials Inventory shall be determined on a first-in, first-out, lower of cost or market basis in accordance with GAAP.     Borrowing Base Certificate—a certificate by a responsible officer of Borrowers in the form of Exhibit 8.1.4 and otherwise in form and substance satisfactory to Agent     Business Day—(i) when used with respect to the LIBOR Option, shall mean a day on which dealings may be effected in deposits of United States Dollars in the London interbank foreign currency deposits market and on which Agent or its affiliate is conducting and other banks may conduct business in London, England and in the State of California and (ii) when used with respect to any other provision of the Agreement, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of California or is a day on which banking institutions located in such state are closed or any day which is a legal holiday under the laws of the state in which the Bank or any Lender is located.     Capex Loans—Capex Loan A, Capex Loan B and Capex Loan C.     Capex Loan A—the Loans described in Section 1.3.1.     Capex Loan B—the Loans described in Section 1.3.2.     Capex Loan C—the Loans described in Section 1.3.3.     Capex Loan A Commitment—with respect to any Lender, the amount of such Lender's Capex Loan A Commitment as set forth below such Lender's name on the signature pages hereof, minus all Capex Loan A payments made to such Lender.     Capex Loan B Commitment—with respect to any Lender, the sum of the amount of such Lender's Capex Loan B Commitment as set forth below such Lender's name on the signature pages hereof, minus either (a) for purposes of determining borrowing availability under Section 1.3.2, all Capex Loan B advances made by such Lender, whether or not repaid, or (b) for all other purposes, all Capex Loan B payments made to such Lender.     Capex Loan C Commitment—with respect to any Lender, the sum of the amount of such Lender's Capex Loan C Commitment as set forth below such Lender's name on the signature pages hereof, minus either (a) for purposes of determining borrowing availability under Section 1.3.3, all Capex A–3 -------------------------------------------------------------------------------- Loan C advances made by such Lender, whether or not repaid, or (b) for all other purposes, all Capex Loan C payments made to such Lender.     Capex Loan Commitments—the Capex Loan A Commitments, the Capex Loan B Commitments, and the Capex Loan C Commitments.     Capex Loan A Notes—the Secured Promissory Notes to be executed by Borrowers on or about the Closing Date in favor of each applicable Lender to evidence Capex Loan A, which shall be in the form of Exhibit 1.3A to the Agreement, together with any replacement or successor notes therefor.     Capex Loan B Notes—the Secured Promissory Notes to be executed by Borrowers on or after the Closing Date in favor of each applicable Lender to evidence Capex Loan B, which shall be in the form of Exhibit 1.3B to the Agreement, together with any replacement or successor notes therefor.     Capex Loan C Notes—the Secured Promissory Notes to be executed by Borrowers on or after the Closing Date in favor of each applicable Lender to evidence Capex Loan C, which shall be in the form of Exhibit 1.3C to the Agreement, together with any replacement or successor notes therefor.     Capex Loan Notes—the Capex Loan A Notes, the Capex Loan B Notes and the Capex Loan C Notes.     Capex Loan Percentage—means the Capex Loan A Percentage, the Capex Loan B Percentage or the Capex Loan C Percentage, as the case may be.     Capex Loan A Percentage—with respect to each Lender, the percentage equal to the quotient of such Lender's Capex Loan A Commitment divided by the aggregate of all Capex Loan A Commitments.     Capex Loan B Percentage—with respect to each Lender, the percentage equal to the quotient of such Lender's Capex Loan B Commitment divided by the aggregate of all Capex Loan B Commitments.     Capex Loan C Percentage—with respect to each Lender, the percentage equal to the quotient of such Lender's Capex Loan C Commitment divided by the aggregate of all Capex Loan C Commitments.     Capital Expenditures—expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations.     Capitalized Lease Obligation—any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.     Cash—all cash, currency, checks, cashier's checks, money orders or other cash equivalents.     Closing Date—the date on which all of the conditions precedent in Section 9 of the Agreement are satisfied and the initial Loan is made or the initial Letter of Credit or LC Guaranty is issued under the Agreement.     Code—the Uniform Commercial Code as adopted and in force in the State of California, as from time to time in effect.     Collateral—all of the Property and interests in Property described in Section 5 of the Agreement, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations.     Commitment Letter—that certain letter agreement among Borrowers, Agent and Lenders dated as of June 20, 2001.     Compliance Certificate—a certificate by a responsible officer of Borrowers in the form of Exhibit 8.1.3. A–4 --------------------------------------------------------------------------------     Computer Hardware and Software—all of each Borrower's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes.     Consolidated—the consolidation in accordance with GAAP of the accounts or other items as to which such term applies.     Contract Right—any right of any Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.     Current Assets—at any date means the amount at which all of the current assets of a Person would be properly classified as current assets shown on a balance sheet at such date in accordance with GAAP.     Default—an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default.     Default Rate—as defined in subsection 2.1.2 of the Agreement.     Derivative Obligations—every obligation of a Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreement), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices.     Distribution—in respect of any Person means and includes: (i) the payment of any dividends or other distributions on Securities (except distributions in such Securities) and (ii) the redemption or acquisition of Securities of such Person, as the case may be, unless made contemporaneously from the net proceeds of the sale of Securities.     Dominion Account—a special bank account or accounts of Agent established by Borrowers pursuant to subsection 6.2.4 of the Agreement at the Bank and over which Agent shall have sole and exclusive access and control for withdrawal purposes.     Eligible Account—an Account arising in the ordinary course of the business of Borrowers from the sale of goods or rendition of services which Agent, in its reasonable credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if:     (i)  it arises out of a sale made or services rendered by any Borrower to a Subsidiary of Borrower or an Affiliate (including without limitation, Bakor, Henry II Company, and Central Coast Wine Company) of any Borrower or to a Person controlled by an Affiliate of any Borrower or to an employee, shareholder, officer or director, or     (ii) it remains unpaid more than 60 days after the due date or more than 90 days after the original invoice date; or     (iii) (a) except as otherwise specified in this paragraph, it is owed by any Account Debtor and the total unpaid Accounts of such Account Debtor and such Account Debtor's Affiliates exceed A–5 -------------------------------------------------------------------------------- 10% of the net amount of all Eligible Accounts but only to the extent of such excess; or (b) it is owed by Lowe's Companies, Inc. and the total unpaid Accounts of Lowe's Companies, Inc. and its Affiliates exceed 20% of the net amount of all Eligible Accounts, but only to the extent of such excess, or (c) during the months of December, January, February, March, April, May, June and July, it is owed by The Home Depot, Inc. and the total unpaid Accounts of The Home Depot, Inc. and its Affiliates exceed 25% of the net amount of all Eligible Accounts, but only to the extent of such excess, or (d) during the months of August, September, October and November it is owed by The Home Depot, Inc. and the total unpaid Accounts of The Home Depot, Inc. and its Affiliates exceed 35% of the net amount of all Eligible Accounts, but only to the extent of such excess;     (iv) any covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; or     (v) the Account Debtor is also a creditor or supplier of Borrower or any Subsidiary (including Bakor) of any Borrower, or the Account Debtor has disputed liability with respect to such Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to any Borrower or any Subsidiary of any Borrower, or the Account otherwise is or may become subject to right of setoff by the Account Debtor, provided, that any such Account shall be eligible to the extent such amount thereof exceeds such contract, dispute, claim, setoff or similar right; or     (vi) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws, as now constituted or hereafter amended, has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or     (vii)  it arises from a sale made or services rendered to an Account Debtor outside the United States,     (viii) (a) it arises from a sale to the Account Debtor on a bill-and-hold or consignment basis; or (b) it is subject to a reserve established by any Borrower or any of its Subsidiaries for potential returns or refunds or extended warranty claims, to the extent of such reserve; or     (ix) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless any Borrower or any such Subsidiary, as applicable, assigns its right to payment of such Account to Agent, in a manner satisfactory to Agent, in its sole judgment, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. §203 et seq., as amended); or     (x) it is not at all times subject to Agent's duly perfected, first priority security interest and to no other Lien that is not a Permitted Lien; or     (xi) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by any Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or     (xii)  the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or     (xiii) any Borrower or a Subsidiary of any Borrower has made any agreement with the Account Debtor for any deduction therefrom (including, without limitation, any deductions for A–6 -------------------------------------------------------------------------------- volume rebates or co-op advertising credits) to the extent of such deduction or the accrual of such deduction in accordance with GAAP; or     (xiv) more than 50% of the Accounts owing from the Account Debtor are not Eligible Accounts hereunder except solely by reason of (iii) above.     Eligible Finished Inventory—all Inventory of Borrowers consisting of first quality goods held for sale in the ordinary course of Borrowers' business which satisfies each of the Inventory Eligibility Requirements.     Eligible Foreign Accounts—an Account arising in the ordinary course of business of Borrowers from the sale of goods or rendition of services which (1) otherwise constitutes an Eligible Account; and (2) arises from a sale made or services rendered to an Account Debtor outside the United States and such sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Agent in its sole judgment.     Eligible In Transit Inventory—Inventory of Borrowers which (1) is in-transit between facilities owned by Borrowers or those leased facilities listed on Exhibit 7.1.28; and (2) otherwise constitutes Eligible Finished Inventory.     Eligible Inventory—all Eligible Finished Inventory and Eligible Raw Materials Inventory.     Eligible Life Insurance Policies—at any time of determination thereof, the collective reference to each Life Insurance Policy covered by the Assignments of Life Insurance provided such Life Insurance Policy conforms and continues to conform to the following criteria in Agent's reasonable credit judgment: (a)the Life Insurance Policy arose in the ordinary course of the Borrowers' business from a bona fide transaction between Borrowers and the Life Insurance Policy issuer; (b)the Life Insurance Policy is an issued, valid, legally enforceable obligation of the Life Insurance Policy issuer, is in full force and effect and requires no further act on the part of any Person under any circumstances (other than the payment of premiums) to make cash surrender value payable at any time, and the death benefits and other benefits payable as set forth in the Life Insurance Policy, by the Life Insurance Policy issuer; (c)the Life Insurance Policy issuer has not rejected or refused to honor, or otherwise notified Borrowers or Agent of any dispute concerning with respect to, the Life Insurance Policy; (d)all premiums have been fully paid when due, without giving effect to and without relying on any grace period; (e)the Life Insurance Policy is not subject to any present or known contingent (and no facts exist which are the basis for any future) offset, claim, deduction or counterclaim, dispute or defense in law or equity on the part of the issuer including, without limitation, those arising on account of a breach of any express or implied representation or warranty; (f)the Life Insurance Policy issuer is not a Subsidiary or Affiliate of Borrowers or an employee, officer, director of shareholder of Borrowers or any Subsidiary or Affiliate of Borrowers; (g)the Life Insurance Policy issuer is not incorporated or primarily conducting business or otherwise located in any jurisdiction outside of the United States of America; A–7 -------------------------------------------------------------------------------- (h)the Life Insurance Policy issuer with respect to such Life Insurance Policy is not insolvent or the subject of any receivership, conservatorship, bankruptcy or insolvency proceedings of any kind or of any other similar proceeding or action, threatened or pending; (i)the Life Insurance Policy issuer is not the United States of America or any department, agency, state or other instrumentality thereof. (j)Borrowers are not indebted in any manner to the Life Insurance Policy issuer (as creditor, lessor, supplier otherwise), with the exception of premiums which are not past due; (k)the title of Borrowers to the Life Insurance Policy is absolute and is not subject to any prior assignment, claim, Lien, or security interest, except Permitted Liens; (l)Borrowers have the full and unqualified right and power to assign and grant a security interest in, and Lien on, the Life Insurance Policy to Agent as security and collateral for the payment of the Obligations; (m)the Life Insurance Policy does not by its terms nor by operation of applicable laws, forbid or make void or unenforceable the applicable Assignment of Life Insurance as Collateral; (n)the Life Insurance Policy is subject to the Lien and assignment in favor of Agent, which Lien and assignment is perfected as to the Life Insurance Policy by the filing of the applicable Assignment of Life Insurance with the Life Insurance Policy issuer and constitutes a first priority security interest and Lien and a first assignment; (o)the Life Insurance Policy issuer has acknowledged the applicable Assignment of Life Insurance as collateral; (p)the Life Insurance Policy issuer has not loaned any money against the Life Insurance Policy; and (q)any Life Insurance Policy which is not excluded for reasons addressed by items (a) through (o) above, but which Agent in its sole discretion has deemed to be ineligible.     Eligible Private Label Goods—means private label goods produced by Borrowers which (1) is produced in connection with a written purchase order, (2) shipped within thirty (30) days of the production date and (3) otherwise constitutes Eligible Finished Inventory.     Eligible Production Equipment—means and includes any equipment which is purchased after the Closing Date, fully operational and purchased after the Closing Date and acceptable to Agent in its reasonable credit judgment; but in no event shall any computer equipment or hardware, computer software, telephones and/or telephone systems constitute Eligible Production Equipment.     Eligible Raw Materials Inventory—all Inventory of Borrowers consisting of asphalt, mineral spirits, various fibers, resins, polyester, glass matting and all other raw materials used in the course of Borrowers' business for the manufacture of finished goods which satisfies each of the Inventory Eligibility Requirements.     Environmental Indemnity Agreement—the Environmental Indemnity Agreement which is to be executed on the Closing Date by Borrowers, in form and substance satisfactory to Agent.     Environmental Laws—all federal, state and local laws, rules, regulations, ordinances, orders and consent decrees relating to pollution or the protection of the environment. A–8 --------------------------------------------------------------------------------     Equipment—all "equipment" as defined in the Code including, without limitation, all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles, data processing and computer equipment, rolling stock, trailers and other tangible personal Property (other than Inventory) and all including embedded software and peripheral equipment and supporting information relating to any of the foregoing, of every kind and description used in the operations of Borrowers or owned by Borrowers or in which Borrowers has an interest, whether now owned or hereafter acquired by Borrowers and wherever located, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor.     ERISA—the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder.     Event of Default—as defined in Section 10.1 of the Agreement.     Excess Cash Flow—with respect to any fiscal year of Borrowers, the amount equal to the sum of net income plus(a) depreciation, amortization and other non-cash charges deducted in determining net income minus the sum of (b) regularly scheduled payments of principal on Indebtedness for Money Borrowed, and (c) Capital Expenditures which are not financed for such fiscal year.     GAAP—generally accepted accounting principles in the United States of America in effect from time to time.     General Intangibles—all "general intangibles" as defined in the Code including, without limitation, all payment intangibles, all customer lists, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill, all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choices in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive for pledged Securities and Investment Property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation, all tapes, cards, computer runs and other papers and documents whether now owned or hereafter created or acquired by Borrower.     Guarantors—any Person who now or hereafter guarantees payment or performance of the whole or any part of the Obligations.     Guaranty Agreements—any continuing guaranty agreement and other guaranty in form and substance satisfactory to Agent, hereafter executed by any Guarantor.     Henry Trust—Warner W. Henry Living Trust, dated December 4, 1982, Warner H. Henry, trustee.     Huntington Park Property—has the meaning specified in subsection 8.2.9(v).     Indebtedness—as applied to a Person means, without duplication:     (i)  all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations;     (ii) all obligations of other Persons which such Person has guaranteed;     (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person;     (iv) Derivative Obligations; and A–9 --------------------------------------------------------------------------------     (v) in the case of Borrowers (without duplication), the Obligations.     Indenture—that certain Indenture dated as of April 22, 1998 (as amended, supplemented, or otherwise modified from time to time between Henry and the Trustee.     Insurance Policies—all insurance policies owned by Borrowers or to which Borrowers are a party.     Intellectual Property—all past, present and future: trade secrets, know-how and other proprietary information; trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patentable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing.     Intellectual Property Security Agreement—that certain Amended and Restated Intellectual Property Security Agreement which is to be executed on the Closing Date by each Borrower, in form and substance satisfactory to Agent.     Intercompany Notes—has the meaning specified in Section 8.2.3 (ix) of the Agreement.     Inventory Eligibility Requirements—such Inventory of Borrowers (other than packaging materials and supplies, tooling, samples and literature) which Agent, in its reasonable judgment, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory if:     (i)  it is not raw materials which are readily marketable in their current form or it is not finished goods; or     (ii) it is work-in-process; or     (iii) it is not in good, new and saleable condition; or     (iv) it is slow-moving, obsolete or unmerchantable; or     (v) it does not meet all standards imposed by any applicable governmental agency or authority; or     (vi) it does not conform in all respects to any covenants, warranties and representations set forth in the Agreement; or     (vii)  it is not at all times subject to Agent's duly perfected, first priority security interest and no other Lien except a Permitted Lien; or     (viii) it is located outside the United States or it is located in Alabama; or     (ix) it is not situated at a location in compliance with the Agreement, provided that Inventory situated at a domestic location not owned by Borrowers will be Eligible Inventory only if (a) Agent has received a satisfactory landlord's agreement or bailee letter, as applicable, with respect to such domestic location and (b) the Inventory located at such domestic location has a book value of $50,000.00 or more; or A–10 --------------------------------------------------------------------------------     (x) it is in transit unless it satisfies the requirements of Eligible In Transit Inventory; or     (xi) it consists of goods returned or rejected by any Borrower's customers; or     (xii)  it is used for demonstration purposes; or     (xiii) it is damaged or reclaimed; or     (xiv)  it is private label goods produced by Borrowers; or     (xv)  it is lithographed pails devoid of product, or pre-printed cartridges; or     (xvi)  it is in unlabeled pails or unlabeled containers, including but not limited to brite stock; or     (xvii) it consists of goods consigned or on a bill-and-hold basis; or     (xviii) it is not otherwise acceptable to Agent in its sole judgment.     Kimberton Property—has the meaning specified in subsection 8.2.9(v).     LC Amount—at any time, the aggregate undrawn face amount of all Letters of Credit and LC Guaranties then outstanding.     LC Guaranty—any guaranty pursuant to which Agent or any Affiliate of Agent shall guaranty the payment or performance by any Borrower of its reimbursement obligation under any letter of credit.     LC Obligations—Any Obligations that arise from any draw against any Letter of Credit or against any Letter of Credit supported by an LC Guaranty.     Legal Requirement—any requirement imposed upon Agent or any Lender by any law of the United States of America or the United Kingdom or by any regulation, order, interpretation, ruling or official directive (whether or not having the force of law) of the Federal Reserve Board, the Bank of England or any other board, central bank or governmental or administrative agency, institution or authority of the United States of America, the United Kingdom or any political subdivision of either thereof.     Letter of Credit—any standby or documentary letter of credit issued by Agent or any Affiliate of Agent for the account of Borrowers. A–11 --------------------------------------------------------------------------------     LIBOR Capex A Portion—that portion of Capex Loan A specified in a LIBOR Request which is not less than $500,000 and is an integral multiple of $100,000, which does not exceed the outstanding balance of Capex Loan A not already subject to a LIBOR Option and, which, as of the date of the LIBOR Request specifying such LIBOR Capex A Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period of which was commenced and not terminated.     LIBOR Capex B Portion—that portion of Capex Loan B specified in a LIBOR Request which is not less than $500,000 and is an integral multiple of $100,000, which does not exceed the outstanding balance of Capex Loan B not already subject to a LIBOR Option and, which, as of the date of the LIBOR Request specifying such LIBOR Capex B Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period of which was commenced and not terminated.     LIBOR Capex C Portion—that portion of Capex Loan C specified in a LIBOR Request which is not less than $500,000 and is an integral multiple of $100,000, which does not exceed the outstanding balance of Capex Loan C not already subject to a LIBOR Option and, which, as of the date of the LIBOR Request specifying such LIBOR Capex C Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period of which was commenced and not terminated.     LIBOR Capex Portion—a LIBOR Capex A Portion, a LIBOR Capex B Portion, and/or a LIBOR Capex C Portion.     LIBOR Interest Payment Date—the first day of each calendar month during and immediately following the applicable LIBOR Period.     LIBOR Option—the option granted pursuant to Section 2.3 of the Agreement to have the interest on all or any portion of the principal amount of the Revolving Loans or the Capex Loans based on a LIBOR Rate.     LIBOR Period—any period of 1 month, 2 months, 3 months or 6 months commencing on a Business Day, selected as provided in subsection 2.3(i); provided, that (i) no LIBOR Period shall extend beyond the last day of the Term, unless Borrowers and Lenders have agreed to an extension of the Term beyond the expiration of the LIBOR Period in question; and (ii) with respect to any LIBOR Capex Portion, no applicable LIBOR Period shall extend beyond the scheduled installment payment date for such LIBOR Capex Portion. If any LIBOR Period so selected shall end on a date that is not a Business Day, such LIBOR Period shall instead end on the next preceding or succeeding Business Day as determined by Agent in accordance with the then current banking practice in London; provided, that Borrowers shall not be required to pay double interest, even though the preceding LIBOR Period ends and the new LIBOR Period begins on the same day. Each determination by Agent of the LIBOR Period shall, in the absence of manifest error, be conclusive.     LIBOR Portion—a LIBOR Revolving Portion or a LIBOR Capex Portion.     LIBOR Rate—with respect to any LIBOR Portion for the related LIBOR Period, an interest rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) equal to the product of (i) the Base LIBOR Rate (as hereinafter defined) multiplied by (ii) Statutory Reserves. For purposes of this definition, the term "Base LIBOR Rate" shall mean the rate (rounded upwards, if necessary, to the next higher 1/16 of 1%) at which deposits of U.S. dollars approximately equal in principal amount to the LIBOR Portion specified in the applicable LIBOR Request are offered to Agent or Agent's affiliate by prime banks in the London interbank foreign currency deposits market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such LIBOR Period, for delivery on the first day of such LIBOR Period. Each determination by Agent of any LIBOR Rate shall, in the absence of manifest error, be conclusive. A–12 --------------------------------------------------------------------------------     LIBOR Request—a notice in writing from Borrowers to Agent requesting that interest on all or any portion of a Revolving Credit Loan or all or any portion of a Capex Loan be based on the LIBOR Rate, specifying: (i) the first day of the LIBOR Period; (ii) the length of the LIBOR Period consistent with the definition of that term; and (iii) the dollar amount of the LIBOR Revolving Portion or the LIBOR Capex Portion, consistent with the definitions of such terms.     LIBOR Revolving Portion—that portion of the Revolving Credit Loans specified in a LIBOR Request (including any portion of Revolving Credit Loans which is being borrowed by Borrower concurrently with such LIBOR Request) which is not less than $1,000,000 and is an integral multiple of $100,000, which does not exceed the outstanding balance of Revolving Credit Loans not already subject to a LIBOR Option and, which, as of the date of the LIBOR Request specifying such LIBOR Revolving Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.3 of the Agreement and the LIBOR Period of which was commenced and not terminated.     Lien—any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include rights of seller under conditional sales contracts or title retention agreements, reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, Borrowers shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Life Insurance Policies—all the policies set forth on Exhibit 7.1.26.     Loan Account—the loan account established on the books of Agent pursuant to Section 3.6 of the Agreement.     Loan Commitment—with respect to any Lender, the amount of such Lender's Revolving Loan Commitment plus such Lender's Capex Loan A Commitment plus such Lender's Capex Loan B Commitment plus such Lender's Capex Loan C Commitment.     Loan Documents—the Agreement, the Other Agreements and the Security Documents.     Loans—all loans and advances of any kind made by Agent or any Lender pursuant to the Agreement.     Majority Lenders—as of any date, Lenders holding 51% of the Capex Loans and Revolving Loan Commitments determined on a combined basis and following the termination of the Revolving Loan Commitments, Lenders holding 51% or more of the outstanding Loans, LC Amounts and LC Obligations not yet reimbursed by Borrowers or funded with a Revolving Credit Loan; provided, that (i) in each case, if there are 2 or more Lenders with outstanding Loans, LC Amounts, unfunded and unreimbursed LC Obligations or Revolving Loan Commitments, at least 2 Lenders shall be required to constitute Majority Lenders; and (ii) prior to termination of the Revolving Loan Commitments, if any Lender breaches its obligation to fund any requested Revolving Credit Loan, for so long as such breach exists, its voting rights hereunder shall be calculated with reference to its outstanding Loans, LC Amounts and unfunded and unreimbursed LC Obligations, rather than its Revolving Loan Commitment.     Material Adverse Effect—(i) a material adverse effect on the business, condition (financial or otherwise), operation, performance or properties of Borrowers or any of their Subsidiaries, (ii) a material adverse effect on the rights and remedies of Agent or Lenders under the Loan Documents, (iii) a material adverse effect on the value of the Collateral or Lenders' Lien, or (iv) the material impairment of the ability of Borrowers or any of their Subsidiaries to perform its obligations hereunder or under any Loan Document. A–13 --------------------------------------------------------------------------------     Money Borrowed—means, without duplication, (i) Indebtedness arising from the lending of money by any Person to Borrowers or any of their Subsidiaries; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrowers or any of their Subsidiaries, (1) which is represented by notes payable or drafts accepted that evidence extensions of credit, (2) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (3) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of Borrowers or any of their Subsidiaries under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by Borrowers or any of their Subsidiaries. Money Borrowed shall not include trade payables or accrued expenses.     Mortgages—All mortgages, deeds of trust, leasehold mortgages and comparable documents now or at any time hereafter securing the whole or any part of the Obligations.     Multiemployer Plan—has the meaning set forth in Section 4001(a)(3) of ERISA.     New Bank Credit Facility—has the meaning specified in the Recitals hereof.     Note Payment Reserve—with respect to the period from October 16 through April 15, an amount equal to $1,000,000 on the 15th day of each of the months of December, January, February and March, and, with respect to the period from April 16 to October 15, an amount equal to $1,000,000 on the 15th day of each of the months of June, July, August and September of each year, prior to each Senior Note payment.     Notes—the Revolving Notes and the Capex Notes.     Obligations—all Loans, all LC Obligations and all other advances, debts, liabilities, obligations, covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrowers to Agent, for its own benefit and the benefit of Lenders, from Borrowers to Lenders, or from Borrowers to Bank, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired, including without limitation any Derivative Obligations owing to Agent, any Lender or Bank.     Other Agreements—the Environmental Indemnity Agreement, all Borrowing Base Certificates, all Compliance Certificates, and any and all agreements, instruments and documents (other than the Agreement and the Security Documents), heretofore, now or hereafter executed by any Borrower, any Subsidiary of any Borrower or any other third party and delivered to Agent in respect of the transactions contemplated by the Agreement.     Original Lender—has the meaning specified in the Recitals hereof.     Overadvance—the amount, if any, by which the outstanding principal amount of Revolving Credit Loans, plus the LC Amount, plus the amount of LC Obligations that have not been reimbursed by Borrowers or funded with a Revolving Credit Loan, plus reserves established in accordance with this agreement, exceeds the Borrowing Base.     Permitted Estate Planning Transfers—the collective reference to transfers of any of the Borrowers' common stock to a revocable trust or trusts for the grantor's estate planning purposes or which are made to or for the benefit of the families of Warner W. Henry, Frederick H. Muhs, and Joseph T. Mooney, Jr. or trusts or other entities exclusively benefiting such persons, provided that Warner W. A–14 -------------------------------------------------------------------------------- Henry or the Henry Trust shall retain at least 51% of the Voting Stock of Borrowers and Warner W. Henry shall remain as the trustee of the Henry Trust.     Permitted Liens—any Lien of a kind permitted pursuant to subsection 8.2.5 of the Agreement.     Permitted Purchase Money Indebtedness—Purchase Money Indebtedness of Borrowers incurred after the date hereof which is secured by a Purchase Money Lien and the principal amount of which, when aggregated with the principal amount of all other such Purchase Money Indebtedness does not exceed $750,000 and Capitalized Lease Obligations of Borrowers at the time outstanding, does not exceed $100,000. For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of capitalized leases (as opposed to operating leases) shall be computed as a Capitalized Lease Obligation.     Person—an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof.     Plan—an employee benefit plan now or hereafter maintained for employees of Borrowers or any of their Subsidiaries that is covered by Title IV of ERISA.     Pledge Agreement—the Pledge Agreement which is to be executed on the Closing Date by Borrowers, in form and substance satisfactory to Agent.     Prime Real Property—means each of the real property parcels at the following locations: (1) 320, 330, 343 Coldstream, Kimberton, Pennsylvania, (2) 729 Pike Springs Road, Kimberton Pennsylvania, (3) Corner of Pike Springs Road and Coldstream, (4) 2701 State Road 60, Bartow, Florida, (5) 4685 Finance Way, Kingman Arizona, (6) 11155 East 47th Avenue, Denver, Colorado, and (7) 430 Hudson River Road, Waterford, New York.     Projections—Borrowers' forecasted Consolidated and consolidating (i) balance sheets, (ii) profit and loss statements, (iii) cash flow statements, and (iv) capitalization statements, all prepared on a consistent basis with the historical financial statements of Borrowers and their Subsidiaries, together with appropriate supporting details and a statement of underlying assumptions and Borrower's forecasted Availability.     Property—any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.     Purchase Money Indebtedness—means and includes (i) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within 10 days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time.     Purchase Money Lien—a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien.     Reportable Event—any of the events set forth in Section 4043(b) of ERISA. A–15 --------------------------------------------------------------------------------     Restricted Investment—any investment or any acquisition, whether made in cash or by delivery of Property to any Person, by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i)investments by any Borrower, to the extent existing on the Closing Date, in one or more Subsidiaries of any Borrower (including the investment in Bakor) or intercompany loans in accordance with Section 8.2.3 (ix); (ii)loans and advances to officers and employees of a Borrower or its Subsidiary permitted under Section 8.2.2; (iii)Property to be used in the ordinary course of business; (iv)Current Assets arising from the sale of goods and services in the ordinary course of business of any Borrower or any of its Subsidiaries; (v)investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, provided that such obligations mature within one year from the date of acquisition thereof; (vi)investments in certificates of deposit maturing within one year from the date of acquisition and fully insured by the Federal Deposit Insurance Corporation or maintained with Agent, any Lender or other financial institution with capital and surplus in excess of $100 million or as otherwise approved by Agent; (vii)investments in commercial paper rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc. (viii)investments in money market, mutual or similar funds having assets in excess of $100,000,000 and the investments of which are limited to investment grade securities; (ix)investments existing on the date hereof and listed on Exhibit 8.2.12 hereto; and (x)investments otherwise expressly permitted pursuant to the Agreement.     Revolving Credit Loan—a Loan made by Lender pursuant to Section 1.1.1 of the Agreement.     Revolving Credit Maximum Amount—$25,000,000.     Revolving Loan Commitment—with respect to any Lender, the amount of such Lender's Revolving Loan Commitment as set forth below such Lender's name on the signature page hereof.     Revolving Loan Percentage—with respect to each Lender, the percentage equal to the quotient of such Lender's Revolving Loan Commitment divided by the aggregate of all Lenders' Revolving Loan Commitments.     Revolving Notes—the Secured Promissory Notes to be executed by each Borrower on or about the Closing Date in favor of each Lender to evidence the Revolving Credit Loans, which shall be in the form of Exhibit 1.1 to the Agreement, together with any replacement or successor notes therefor.     Security—all shares of stock, partnership interests, membership interests, membership units or other ownership interests in any other Person and all warrants, options or other rights to acquire the same.     Security Documents—the Guaranty Agreements, the Pledge Agreement, the Mortgages, the Intellectual Property Security Agreement, the Assignments of Life Insurance, all lockbox, blocked account and control agreements and all other instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. A–16 --------------------------------------------------------------------------------     Senior Notes—any and all 10% Senior Notes due 2008 to be issued from time to time under the Indenture.     Solvent—as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts discounted based on the likelihood of their having to be paid), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage.     Statutory Reserves—a fraction (expressed as a decimal) the numerator of which is the number one, and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency or supplemental reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority to which Lender is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board of Governors of the Federal Reserve System or any successor thereto). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. LIBOR Portions shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.     Subordinated Debt—Indebtedness of any Borrower or any Subsidiary of Borrower that is subordinated to the Obligations in a manner satisfactory to Agent, and contains terms, including without limitation, payment terms, satisfactory to Agent.     Subsidiary—any Person of which another Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock at the time of determination; provided, however, that unless otherwise indicated, the term "Subsidiary" when used in connection with the Borrowers shall not include Bakor.     Tax—in relation to any LIBOR Portion and the applicable LIBOR Rate, any tax, levy, impost, duty, deduction, withholding or charges of whatever nature required by any Legal Requirement (i) to be paid by any Lender and/or (ii) to be withheld or deducted from any payment otherwise required hereby to be made by Borrowers to any Lender; provided, that the term "Tax" shall not include any taxes imposed upon the income of any Lender or franchise taxes.     Term—has the meaning specified in Section 4.1 of the Agreement.     Test Count Variance Reserve—an amount determined by Agent based upon any variance resulting from Agent's test count of Borrowers' Inventory.     Total Credit Facility—$35,000,000, as reduced from time to time pursuant to the terms of the Agreement.     Trustee—U.S. Trust Company of California, N.A. and its successors and assigns as Trustee under the Indenture.     Unused Line Fee—has the meaning specified in Section 2.6.     Voting Stock—Securities of any class or classes of a corporation, limited partnership or limited liability company or any other entity the holders of which are ordinarily, in the absence of contingencies, entitled to vote with respect to the election of corporate directors (or Persons performing similar functions).     Warranty Reserve—an amount equal to the average annual warranty expense for the past three years. A–17 -------------------------------------------------------------------------------- Waterford Property—has the meaning specified in Section 3.3.1.     Other Terms.  All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein.     Certain Matters of Construction.  The terms "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. A–18 -------------------------------------------------------------------------------- LIST OF EXHIBITS AND SCHEDULES       Exhibit 1.1   Form of Revolving Note Exhibit 1.3A   Form of Capex Loan A Note Exhibit 1.3B   Form of Capex Loan B Note Exhibit 1.3C   Form of Capex Loan C Note Exhibit 2.5   Letter of Credit and LC Guaranty Fees Exhibit 6.1.1   Business Locations Exhibit 7.1.1   Jurisdictions in which Borrower and each Subsidiary is Authorized to do Business Exhibit 7.1.4   Capital Structure of Borrowers and each Subsidiary Exhibit 7.1.5   Names Exhibit 7.1.13   Surety Obligations Exhibit 7.1.14   Tax Identification Numbers of Borrowers and Subsidiaries Exhibit 7.1.15   Brokers' Fees Exhibit 7.1.16   Patents, Trademarks, Copyrights and Licenses Exhibit 7.1.19   Contracts Restricting Right to Incur Debt Exhibit 7.1.20   Litigation Exhibit 7.1.22   Capitalized and Operating Leases Exhibit 7.1.23   Pension Plans Exhibit 7.1.24   Trade Relations Exhibit 7.1.25   Labor Relations Exhibit 7.1.26   Life Insurance Policies Exhibit 7.1.28   Eligible Inventory Locations Exhibit 7.1.29   Bank Accounts Exhibit 8.1.3   Compliance Certificate Exhibit 8.1.4   Form of Borrowing Base Certificate Exhibit 8.2.3   Existing Indebtedness Exhibit 8.2.4   Permitted Affiliate Transactions Exhibit 8.2.5   Permitted Liens Exhibit 8.2.9   Permitted Leases Exhibit 8.2.12   Permitted Investments Exhibit 9.1   Schedule of Closing Documents -------------------------------------------------------------------------------- EXHIBIT 1.1 FORM OF REVOLVING NOTE Page 1 -------------------------------------------------------------------------------- EXHIBIT 1.3A FORM OF CAPEX LOAN A NOTE Page 1 -------------------------------------------------------------------------------- EXHIBIT 1.3B FORM OF CAPEX LOAN B NOTE Page 1 -------------------------------------------------------------------------------- EXHIBIT 1.3C FORM OF CAPEX LOAN C NOTE Page 1 -------------------------------------------------------------------------------- EXHIBIT 2.5 DOCUMENTARY LETTER OF CREDIT AND LC GUARANTY FEES Issuance   $250 + 1/8% flat on face amount of l/c (overall minimum: $325) Amendment   $85 (Note: An amendment to increase and/or extend the l/c will be treated as an issuance.) A maximum of six amendments will be allowed for each l/c. Negotiation/Payment   1/8% flat (minimum: $125) Non-Utilization/Cancellation Of Unused Credits   $150 Transfer/Assignment of L/C   0.25% flat (minimum: $250) Shipping Guaranty/ Airway Release   $150 Wire Transfer   $35 per transfer Mail/Domestic Courier   $15 per item up to one pound SWIFT issuance/amendment   $50/$20 Plus any and all out-of-pocket expenses.     Please note that this fee schedule is subject to change from time to time. Page 1 -------------------------------------------------------------------------------- EXHIBIT 6.1.1 BUSINESS LOCATIONS 1.Borrower currently has the following business locations, and no others: Chief Executive Office: Other Locations: 2.Borrower maintains its books and records relating to Accounts and General Intangibles at: 3.Borrower has had no office, place of business or agent for process located in any county other than as set forth above, except: 4.Each Subsidiary currently has the following business locations, and no others: Chief Executive Office: Other Locations: 5.Each Subsidiary maintains its books and records relating to Accounts and General Intangibles at: 6.Each Subsidiary has had no office, place of business or agent for process located in any county other than as set forth above, except: 7.The following bailees, warehouseman, similar parties and consignees hold inventory of Borrower or one of its Subsidiaries: Name and Address of Party --------------------------------------------------------------------------------   Nature of Relationship --------------------------------------------------------------------------------   Amount of Inventory --------------------------------------------------------------------------------   Owner of Inventory --------------------------------------------------------------------------------               Page 2 -------------------------------------------------------------------------------- EXHIBIT 7.1.1 JURISDICTIONS IN WHICH BORROWER AND EACH SUBSIDIARY IS AUTHORIZED TO DO BUSINESS Name of Entity --------------------------------------------------------------------------------   Jurisdictions --------------------------------------------------------------------------------                                     Page 1 -------------------------------------------------------------------------------- EXHIBIT 7.1.4     CAPITAL STRUCTURE OF BORROWERS AND EACH SUBSIDIARY 1.The class and the number of authorized and issued Securities of each Borrower and each of its Subsidiaries and the record owner of such Securities are as follows: Henry: Class of Securities --------------------------------------------------------------------------------   Number of Securities Issued and Outstanding --------------------------------------------------------------------------------   Record Owners --------------------------------------------------------------------------------   Number of Securities Authorized but Unissued -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------     Kimberton: Class of Securities --------------------------------------------------------------------------------   Number of Securities Issued and Outstanding --------------------------------------------------------------------------------   Record Owners --------------------------------------------------------------------------------   Number of Securities Authorized but Unissued -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Subsidiaries of Henry: Class of Securities --------------------------------------------------------------------------------   Number of Securities Issued and Outstanding --------------------------------------------------------------------------------   Record Owners --------------------------------------------------------------------------------   Number of Securities Authorized but Unissued -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Page 1 -------------------------------------------------------------------------------- Subsidiaries of Kimberton: Class of Securities --------------------------------------------------------------------------------   Number of Securities Issued and Outstanding --------------------------------------------------------------------------------   Record Owners --------------------------------------------------------------------------------   Number of Securities Authorized but Unissued -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2.The number, nature and holder of all other outstanding Securities of each Borrower and each of its Subsidiaries are as follows: 3.The correct name and jurisdiction of incorporation or organization of each Subsidiary of each Borrower and the percentage of its issued and outstanding Voting Stock owned by such Borrower are as follows: Name --------------------------------------------------------------------------------   Jurisdiction of Incorporation/Organization --------------------------------------------------------------------------------   Percentage of Voting Stock Owned by Borrower -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4.The name of each Borrowers' and each of its Subsidiaries' corporate or joint venture Affiliates and the nature of the affiliation are as follows: 5.The agreements or instruments binding upon the partners, members or shareholders of each Borrower or any of its Subsidiaries and relating to the ownership of its Securities, are as follows: Page 2 -------------------------------------------------------------------------------- EXHIBIT 7.1.5 NAMES 1.Borrowers' correct name, as registered with the applicable Secretary of State of the State of its incorporation or formation is: 2.In the conduct of its business, Borrowers have used the following names: 3.Each Subsidiary's correct name, as registered with the Secretary of State of the State of its incorporation or formation, is: 4.In the conduct of its business, each Subsidiary has used the following names: 5.Neither Borrower has been the surviving entity of a merger or consolidation nor has it acquired substantially all the assets of any person. 6.No Subsidiary has been the surviving entity of a merger or consolidation nor has it acquired substantially all the assets of any person. Page 3 -------------------------------------------------------------------------------- EXHIBIT 7.1.13 SURETY OBLIGATIONS Page 1 -------------------------------------------------------------------------------- EXHIBIT 7.1.14 TAX IDENTIFICATION NUMBERS OF BORROWERS AND SUBSIDIARIES Name --------------------------------------------------------------------------------   Number --------------------------------------------------------------------------------                                     Page 2 -------------------------------------------------------------------------------- EXHIBIT 7.1.15 BROKERS' FEES Page 3 -------------------------------------------------------------------------------- EXHIBIT 7.1.16 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES 1.Borrowers' and their Subsidiaries' patents: Patent --------------------------------------------------------------------------------   Owner --------------------------------------------------------------------------------   Status in Patent Office --------------------------------------------------------------------------------   Federal Registration Number --------------------------------------------------------------------------------   Registration Date -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 2.Borrowers' and their Subsidiaries' trademarks: Trademark --------------------------------------------------------------------------------   Owner --------------------------------------------------------------------------------   Status in Patent Office --------------------------------------------------------------------------------   Federal Registration Number --------------------------------------------------------------------------------   Registration Date -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 3.Borrowers' and their Subsidiaries' copyrights: Copyrights --------------------------------------------------------------------------------   Owner --------------------------------------------------------------------------------   Status in Copyright Office --------------------------------------------------------------------------------   Federal Registration Number --------------------------------------------------------------------------------   Registration Date -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 4.Borrowers' and their Subsidiaries' licenses (other than routine business licenses, authorizing them to transact business in local jurisdictions): Name of License --------------------------------------------------------------------------------   Nature of License --------------------------------------------------------------------------------   Licensor --------------------------------------------------------------------------------   Term of License -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 5.Infringement Activities: 6.Unregistered material trademarks, service marks and copyrights: 7.Material license agreements that do not permit assignment or limit the use of license after default: Page 1 -------------------------------------------------------------------------------- EXHIBIT 7.1.19 CONTRACTS RESTRICTING RIGHT TO INCUR DEBT Contracts that restrict the right of any Borrower or any of its Subsidiaries to incur Indebtedness: Title of Contract --------------------------------------------------------------------------------   Identity of Parties --------------------------------------------------------------------------------   Nature of Restriction --------------------------------------------------------------------------------   Term of Contract -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Page 2 -------------------------------------------------------------------------------- EXHIBIT 7.1.20 LITIGATION 1.Actions, suits, proceedings and investigations pending against any Borrower or any Subsidiary: Title of Action --------------------------------------------------------------------------------   Nature of Action --------------------------------------------------------------------------------   Complaining Parties --------------------------------------------------------------------------------   Jurisdiction or Tribunal -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 2.The only threatened actions, suits, proceedings or investigations of which any Borrower or any Subsidiary is aware are as follows: Page 3 -------------------------------------------------------------------------------- EXHIBIT 7.1.22 CAPITALIZED AND OPERATING LEASES Each Borrower and its Subsidiaries have the following capitalized and operating leases: Lessee --------------------------------------------------------------------------------   Lessor --------------------------------------------------------------------------------   Term of Lease --------------------------------------------------------------------------------   Property Covered -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Page 4 -------------------------------------------------------------------------------- EXHIBIT 7.1.23 PENSION PLANS Each Borrower and its Subsidiaries have the following Plans: Party --------------------------------------------------------------------------------   Type of Plan -------------------------------------------------------------------------------- Borrower           Subsidiaries           Page 5 -------------------------------------------------------------------------------- EXHIBIT 7.1.24 TRADE RELATIONS Page 6 -------------------------------------------------------------------------------- EXHIBIT 7.1.25 LABOR RELATIONS 1.Borrowers and their Subsidiaries are parties to the following collective bargaining agreements: Type of Agreement --------------------------------------------------------------------------------   Parties --------------------------------------------------------------------------------   Term of Agreement -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 2.Material grievances, disputes of controversies with employees of any Borrower or any of its Subsidiaries are as follows: Parties Involved --------------------------------------------------------------------------------   Nature of Grievance, Dispute or Controversy -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- 3.Threatened strikes, work stoppages and asserted pending demands for collective bargaining with respect to any Borrower or any of its Subsidiaries are as follows: Parties Involved --------------------------------------------------------------------------------   Nature of Matter -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Page 1 -------------------------------------------------------------------------------- EXHIBIT 7.1.26 LIFE INSURANCE POLICIES Name --------------------------------------------------------------------------------   Policy Number --------------------------------------------------------------------------------   Net Surrender Value --------------------------------------------------------------------------------   Policy Total -------------------------------------------------------------------------------- Executive Life Insurance Plan—07/01/92               Doose, J.   6032742   99       Gordinier, R.   6032751   214       Wahba, J.   6054678   49   361 Executive Life Insurance Plan—07/01/1993               Enright, J.   6075010-1   159   159 Executive Life Insurance Plan—07/01/1992               Gordinier, R.   6044614-1   181   181 Executive Life Insurance Plan—04/01/1995               Pasterick, G.   2201431   113       Pugh, N.   2201434   105       Reno, F.   2201433   94   312 Executive Life Insurance Plan—04/01/1999               Moffat, S.   1079030   43   43 Executive Life Insurance Plan—Quiggle — 11/01/1994               Quiggle, L.   1066593   58   58 [To be confirmed by Borrowers] Page 2 -------------------------------------------------------------------------------- EXHIBIT 7.1.28 ELIGIBLE INVENTORY LOCATIONS Page 3 -------------------------------------------------------------------------------- EXHIBIT 7.1.29 BANK ACCOUNTS 372912005   B of A—Henry Group of Companies 1464300101   B of A—Resin Technology Company 1459904210   B of A—World Asphalt Companies 372500887   B of A—Factory Payroll 3750793224   Nations Bank—Group Funding 3750793127   Nations Bank—Coatings Deposits 3750793130   Nations Bank—RTC Deposits 3750793143   Nations Bank—Sealants Deposits 3750793156   Nations Bank—Group Payroll 3751234931   Nations Bank—Monsey Deposits 3299962102   Nations Bank—Monsey Payroll 3299906695   Nations Bank—Disbursement Checking     [need to add Kimberton accounts] Page 4 -------------------------------------------------------------------------------- EXHIBIT 8.1.3 COMPLIANCE CERTIFICATE [                              ]     [                        ], [    ] Fleet Capital Corporation, as Agent 15260 Ventura Boulevard Suite 400 Sherman Oaks, California 91403     The undersigned, the chief financial officer of Henry Company and Kimberton Enterprises, Inc. ("Borrowers"), gives this certificate to Fleet Capital Corporation, in its capacity as Agent ("Agent") in accordance with the requirements of subsection 8.1.3 of that certain Second Amended and Restated Financing and Security Agreement dated                        , 2001 among Borrowers, Agent and Lenders party thereto ("Financing Agreement"). Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings ascribed to them in the Financing Agreement. 1.Based upon my review of the balance sheets and statements of income of each Borrower and its Subsidiaries for the monthly period ending                        ,      , copies of which are attached hereto, I hereby certify that: (i)Capital Expenditures during the period and for the fiscal year to date total $            and $            , respectively. (ii)Availability during the period was [$            ]. 2.No Default exists on the date hereof, other than:                        [if none, so state]; and 3.No Event of Default exists on the date hereof, other than                        [if none, so state].                 Very truly yours,           --------------------------------------------------------------------------------     Chief Financial Officer Page 5 -------------------------------------------------------------------------------- EXHIBIT 8.1.4     FORM OF BORROWING BASE CERTIFICATE (Accounts Receivable) Client:    HENRY COMPANY & KIMBERTON ENTERPRISES Accounts Receivable Loan Number:    HE Foreign Receivables Loan Number:    HEN02 Dates Covered Accounts Receivable:        Dates Covered—Foreign Receivables:     COLLATERAL --------------------------------------------------------------------------------     HEN01 --------------------------------------------------------------------------------   HEN02 --------------------------------------------------------------------------------     AR- Coatings --------------------------------------------------------------------------------   AR- Resin Tech --------------------------------------------------------------------------------   AR- Sealants --------------------------------------------------------------------------------   AR- Sub Total --------------------------------------------------------------------------------   Foreign Receivables --------------------------------------------------------------------------------                       Beginning Balance               0.00     2. Sales (+)               0.00     3. Credit Memos (-)               0.00     4. Adjustment (+)               0.00     5. Adjustment (-)               0.00     6. Net Collections (-)               0.00     7. Discounts (-)               0.00     8. Overpayments (+)               0.00     Current Balance   0.00   0.00   0.00   0.00   0.00 Ineligible               0.00   0.00 Eligible Collateral (85%)   0.00   0.00   0.00   0.00   0.00 Less Reserve               0.00   0.00 Qualified A/R Collateral (Foreign Receivables capped at $750,000.00)   0.00   0.00   0.00   0.00   0.00 Qualified Inventory Collateral (from Inventory Borrowing Certificate—Capped at $10,000,000.00)                   0.00 Eligible Life Insurance Policies @95%                     Aggregate Cash Surrender Value = Less Letters of Credit                   0.00 Total Qualified Collateral                   0.00 LOAN --------------------------------------------------------------------------------           Beginning Balance     10. Cash (Checks/ACH) (-)   0.00 11. Cash (Wire) (-)     12. Adjustment (+/-)     13. Advance (+)     Current Balance   0.00 Remaining Availability   0.00     The foregoing information is delivered to Fleet Capital Corporation in accordance with a Secured Amended and Restated Financing and Security Agreement (the "Financing Agreement") between Fleet Capital Corporation and HENRY COMPANY & KIMBERTON ENTERPRISES, INC., dated            . I hereby certify that the information contained herein is true and correct as of the dates Page 1 -------------------------------------------------------------------------------- shown herein. Nothing contained herein shall constitute a waiver, modification, or limitation of any of the terms or conditions set forth in the referenced Financing Agreement. Approved by:   Prepared by: Title:   Title: Date:   Date: Page 2 -------------------------------------------------------------------------------- FORM OF BORROWING BASE CERTIFICATE (Inventory)             Client: HENRY COMPANY & KIMBERTON ENTERPRISES   Report Date: Assignment Number:   Dates Covered: Advance Rate - --------------------------------------------------------------------------------   HEN05 - FG FINISHED GOODS 60% --------------------------------------------------------------------------------   HEN06-FG INTER COMPANY IN TRANSIT 60% --------------------------------------------------------------------------------   HEN07 - FG PRIVATE LABEL 60% --------------------------------------------------------------------------------   HEN08 RAW MATERIALS 45% --------------------------------------------------------------------------------                   Beginning Balance                 2. Inventory Additions (+)                 4. Adjustment (+)                 5. Adjustment (-)                 6. Inventory Removal (-)                 Current Balance   0.00   0.00   0.00   0.00 Ineligible                 Eligible Collateral (60%)   0.00   0.00   0.00   0.00 Less Reserve                 Qualified Collateral   0.00   0.00   0.00   0.00     The foregoing information is delivered to Fleet Capital Corporation in accordance with a Secured Amended and Restated Financing and Security Agreement (the "Financing Agreement") between Fleet Capital Corporation and HENRY COMPANY & KIMBERTON ENTERPRISES, INC., dated            . I hereby certify that the information contained herein is true and correct as of the dates shown herein. Nothing contained herein shall constitute a waiver, modification, or limitation of any of the terms or conditions set forth in the referenced Financing Agreement. Approved by:   Prepared by: Title:   Title: Date:   Date: Page 3 -------------------------------------------------------------------------------- EXHIBIT 8.2.3 EXISTING INDEBTEDNESS Page 4 -------------------------------------------------------------------------------- Borrower --------------------------------------------------------------------------------   Lender --------------------------------------------------------------------------------   Amount --------------------------------------------------------------------------------   Maturity -------------------------------------------------------------------------------- EXHIBIT 8.2.4 PERMITTED AFFILIATE TRANSACTIONS Page 5 -------------------------------------------------------------------------------- EXHIBIT 8.2.5 PERMITTED LIENS Secured Party --------------------------------------------------------------------------------   Nature of Lien --------------------------------------------------------------------------------       --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Page 6 -------------------------------------------------------------------------------- EXHIBIT 8.2.12 PERMITTED INVESTMENTS Page 7 -------------------------------------------------------------------------------- EXHIBIT 9.1     SCHEDULE OF CLOSING DOCUMENTS     In addition to, and not in limitation of, the conditions described in Section 9 of the Agreement, pursuant to Section 9.1, the following items must be received by Agent in form and substance satisfactory to Agent on or prior to the Closing Date (each capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in Annex A to the Agreement):     A.  Appendices.  All exhibits, schedules and appendices to the Agreement, in form and substance satisfactory to Agent.     B.  Revolving Notes and Capex Notes.  Duly executed originals of the Revolving Notes and Capex Notes for each applicable Lender, dated the Closing Date.     C.  Security Interests and Code Filings.       (a) Evidence satisfactory to Agent that Agent (for the benefit of itself and Lenders) has a valid and perfected first priority security interest in the Collateral, including (i) such documents duly executed by each Borrower (including financing statements under the Code and other applicable documents under the laws of any jurisdiction with respect to the perfection of Liens) as Agent may request in order to perfect its security interests in the Collateral, and (ii) copies of Code search reports listing all effective financing statements that name any Borrower as debtor, together with copies of such financing statements, none of which shall cover the Collateral, except for those relating to the obligations to Original Lender under the New Bank Credit Facility (all of which shall be amended on the Closing Date) or Permitted Liens.     (b) Evidence satisfactory to Agent, including copies, of all UCC-1 and other financing statements filed in favor of any Borrower with respect to each location, if any, at which Inventory may be consigned.     (c) Control Letters from (i) all issuers of uncertificated securities and financial assets held by any Borrower, (ii) all securities intermediaries with respect to all securities accounts and securities entitlements of any Borrower, and (iii) all futures commission agents and clearing houses with respect to all commodities contracts and commodities accounts held by any Borrower.     (d) Assignments of Life Insurance Policies duly executed by all issuers of Life Insurance Policies.     D.  Assignment Agreement, Amended Statements.  Copies of a duly executed assignment agreement, in form and substance satisfactory to Agent, by and between all parties to the New Bank Credit Facility evidencing assignment of all right, title and interest in the New Bank Credit Facility to Lenders, together with (a) UCC-2/3 or other appropriate assignment and amendment statements, in form and substance satisfactory to Agent, manually signed by the Original Lender assigning all liens of Original Lender upon any of the personal property of each Borrower, (b) termination of all bank, agency agreements or other similar agreements or arrangements in favor of Original Lender, and (c) all executed originals of the New Bank Credit Facility loan documentation.     E.  Intellectual Property Security Agreements.  Duly executed originals of the Intellectual Property Security Agreement dated the Closing Date and signed by each Borrower which owns any Intellectual Property, all in form and substance satisfactory to Agent, together with all instruments, documents and other agreements executed pursuant thereto.     F.  Initial Borrowing Base Certificate.  Duly executed originals of an initial Borrowing Base Certificate from Borrowers, dated the Closing Date, reflecting information concerning Eligible Accounts and Eligible Inventory of Borrower as of a date not more than three (3) days prior to the Closing Date. Page 1 --------------------------------------------------------------------------------     G.  Initial Loan Request.  Duly executed originals of a request for a Revolving Credit Loan or Capex Loan, as the case may be, dated the Closing Date, with respect to the initial Revolving Credit Loan or Capex Loan to be requested by Borrower on the Closing Date.     H.  Cash Management System, Blocked Account Agreements.  Evidence satisfactory to Agent that, as of the Closing Date, cash management systems complying with Section 6.2.4 and Section 9.10 of the Agreement have been established and are currently being maintained in the manner set forth in Section 6.2.4 and Section 9.10, together with copies of duly executed tri-party blocked account and lock box agreements, satisfactory to Agent, with the Bank as required by Section 6.2.4.     I.  Charter and Good Standing.  For each Borrower, such Person's (a) charter and all amendments thereto, (b) good standing certificates (including verification of tax status) in its state of incorporation and (c) good standing certificates (including verification of tax status) and certificates of qualification to conduct business in each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, each dated a recent date prior to the Closing Date and certified by the applicable Secretary of State or other authorized governmental authority.     J.  Bylaws and Resolutions.  For each Borrower, (a) such Person's bylaws, together with all amendments thereto and (b) resolutions of such Person's Board of Directors and stockholders, approving and authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party and the transactions to be consummated in connection therewith, each certified as of the Closing Date by such Person's corporate secretary or an assistant secretary as being in full force and effect without any modification or amendment.     K.  Incumbency Certificates.  For each Borrower, signature and incumbency certificates of the officers of each such Person executing any of the Loan Documents, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary as being true, accurate, correct and complete.     L.  Pledge Agreement.  Duly executed originals of each of the Pledge Agreement accompanied by (as applicable) (a) share certificates representing all of the outstanding Securities being pledged pursuant to such Pledge Agreement and stock powers for such share certificates executed in blank and (b) the original any intercompany notes and other instruments evidencing Indebtedness being pledged pursuant to such Pledge Agreement, duly endorsed in blank.     M.  Accountants' Letters.  A letter from the Borrowers to their independent auditors authorizing the independent certified public accountants of the Borrowers to communicate with Agent and Lenders in accordance with Section 8.1.3, and a letter from such auditors acknowledging Lenders' reliance on the auditor's certification of past and future financial statements of Borrowers.     N.  Officer's Certificate.  Agent shall have received duly executed originals of a certificate of the Chief Executive Officer and Chief Financial Officer of Borrowers, dated the Closing Date, stating that, since March 31, 2001 (a) no event or condition has occurred or is existing which could reasonably be expected to have a Material Adverse Effect; (b) there has been no material adverse change in the industry in which Borrower operates; (c) no Litigation has been commenced which, if successful, could reasonably be expected to have a Material Adverse Effect or could challenge any of the transactions contemplated by the Agreement and the other Loan Documents; (d) there have been no Restricted Investments made by any Borrower; (e) there has been no material increase in liabilities, liquidated or contingent, and no material decrease in assets of Borrower or any of its Subsidiaries; and (f) there shall not exist (on a pro forma basis after giving the effect to the Total Credit Facility) any default under any material indebtedness or agreement of Borrowers (including without limitation, the Senior Notes and Indenture) and any Subsidiary or Affiliate of Borrowers (including, without limitation, the Bakor Facility). Page 2 --------------------------------------------------------------------------------     O.  Waivers.  Agent, on behalf of Lenders, shall have received landlord waivers and consents, bailee letters and mortgagee agreements in form and substance satisfactory to Agent for each of the following locations:         420 H Street N.W. Auburn, WA       2900 Bristol Street, Suite #A-101 Costa Mesa, CA       10144 Waterman Road Elk Grove, CA       2911 Slauson Avenue Huntington Park, CA       2270 Castle Harbor Place Ontario, CA       2946 N.E. Columbia Boulevard Portland, OR         P.  Mortgages.  Mortgages covering all of the following real Property (the "Mortgaged Properties") together with: (a) ALTA Lender's title insurance policies (with the exception of real Property located in Texas, which shall use the standard "Texas Mortgagee Policy"), for each parcel of Prime Real Property and certificates of occupancy, in each case satisfactory in form and substance to Agent, in its sole discretion; and (b) evidence that counterparts of the Mortgages have been recorded in all places to the extent necessary or desirable, in the judgment of Agent, to create a valid and enforceable first priority Page 3 -------------------------------------------------------------------------------- lien (subject to Permitted Liens) on each mortgaged Property in favor of Agent for the benefit of itself and Lenders (or in favor of such other trustee as may be required or desired under local law):         430 Hudson River Road Waterford, New York       320, 330, 343 Coldstream Road Kimberton, PA       729 Pike Springs Road Kimberton, PA       Corner of Pike Springs Road and Coldstream       4351 West Morris Indianapolis, IN       2651 Commerce Drive Rock Hill, SC       3802 Miller Park Drive Garland, TX       2701 State Road 60 West Bartow, FL       4685 Finance Way Kingman, AZ       1301 Herkimer Street Joliet, IL       11155 East 47th Avenue Denver, CO         Q.  Leasehold Mortgages.  Leasehold Mortgages covering all of the following leased real Property:         420 H Street N.W. Auburn, WA       10144 Waterman Road Elk Grove, CA       2901 Slauson Avenue Huntington Park, CA       2909-2911 Slauson Avenue Huntington Park, CA       5731 Bickett Street Huntington Park, CA       2270 Castle Harbor Place Ontario, CA       2946 N.E. Columbia Boulevard Portland, OR         R.  Subordination and Intercreditor Agreements.  Agent and Lenders shall have received any and all subordination and/or intercreditor agreements, all in form and substance reasonably satisfactory to Page 4 -------------------------------------------------------------------------------- Agent, in its sole discretion, as Agent shall have deemed necessary or appropriate with respect to any Indebtedness of any Borrower.     S.  Environmental Reports.  Agent shall have received Phase I Environmental Site Assessment Reports, consistent with American Society of Testing and Materials (ASTM) Standard E 1527-94, and applicable state requirements, on all of the real Property, dated no more than 6 months prior to the Closing Date, prepared by environmental engineers satisfactory to Agent, all in form and substance satisfactory to Agent, in its sole discretion; and Agent shall have further received such environmental review and audit reports, including Phase II reports, with respect to the real Property of any Borrower as Agent shall have requested, and Agent shall be satisfied, in its sole discretion, with the contents of all such environmental reports. Agent shall have received letters executed by the environmental firms preparing such environmental reports, in form and substance satisfactory to Agent, authorizing Agent and Lenders to rely on such reports.     T.  Environmental Indemnity Agreement.  Duly executed originals of the Environmental Indemnity Agreement dated the Closing Date and signed by each Borrower, in form and substance satisfactory to Agent.     U.  Appraisals.  Agent shall have received appraisals as to all Equipment and as to each parcel of real Property owned by each Borrower, each of which shall be in form and substance satisfactory to Agent.     V.  Audited Financials; Financial Condition.  Agent shall have received Borrowers' final financial statements for its Fiscal Year ended December 31, 2001, audited by PriceWaterhouseCoopers and unaudited consolidated and consolidating financial statements for each monthly period ending 30 days prior to the Closing Date. Borrowers shall have provided Agent with its current operating statements, a consolidated and consolidating balance sheet and statement of cash flows, and Projections certified by its Chief Financial Officer, in each case in form and substance satisfactory to Agent, and Agent shall be satisfied, in its sole discretion, with all of the foregoing. Agent shall have further received a certificate of the Chief Executive Officer and/or the Chief Financial Officer of Borrower, based on such Projections, to the effect that (a) Borrowers will be Solvent upon the consummation of the transactions contemplated herein; (b) the Projections are based upon estimates and assumptions stated therein, all of which Borrowers believe to be reasonable and fair in light of current conditions and current facts known to Borrower and, as of the Closing Date, reflect Borrowers' good faith and reasonable estimates of its future financial performance and of the other information projected therein for the period set forth therein; and (c) containing such other statements with respect to the solvency of Borrowers and matters related thereto as Agent shall request.     W.  Other Documents.  Such other certificates, documents and agreements respecting any Borrower as Agent may, in its sole discretion, request. Page 5 -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.1A TABLE OF CONTENTS SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT SECTION 1. CREDIT FACILITY SECTION 2. INTEREST, FEES AND CHARGES SECTION 3. LOAN ADMINISTRATION. SECTION 4. TERM AND TERMINATION SECTION 5. SECURITY INTERESTS SECTION 6. COLLATERAL ADMINISTRATION SECTION 7. REPRESENTATIONS AND WARRANTIES SECTION 8. COVENANTS AND CONTINUING AGREEMENTS SECTION 9. CONDITIONS PRECEDENT SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT SECTION 11. THE AGENT SECTION 12. MISCELLANEOUS APPENDIX A LIST OF EXHIBITS AND SCHEDULES EXHIBIT 1.1 FORM OF REVOLVING NOTE EXHIBIT 1.3A FORM OF CAPEX LOAN A NOTE EXHIBIT 1.3B FORM OF CAPEX LOAN B NOTE EXHIBIT 1.3C FORM OF CAPEX LOAN C NOTE EXHIBIT 7.1.1 EXHIBIT 7.1.4 EXHIBIT 7.1.13 EXHIBIT 7.1.14 EXHIBIT 7.1.15 EXHIBIT 8.1.4 FORM OF BORROWING BASE CERTIFICATE (Inventory) EXHIBIT 8.2.3 EXHIBIT 8.2.4 EXHIBIT 8.2.5 EXHIBIT 8.2.12 EXHIBIT 9.1

Exhibit 10.1 FORM OF TERMINATION PROTECTION AGREEMENT              THIS TERMINATION PROTECTION AGREEMENT is entered into between Juno Online Services, Inc. (the “Company”) and ___________ (the “Executive”).              Executive is a skilled and dedicated employee who has important management responsibilities and talents which benefit the Company.  The Company believes that its best interests will be served if Executive is encouraged to remain with the Company.  The Company has determined that Executive’s ability to perform Executive’s responsibilities and utilize Executive’s talents for the benefit of the Company, and the Company’s ability to retain Executive as an employee, will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a change in ownership or control of the Company.  Accordingly, the Company and Executive agree as follows:              1.          Defined Terms.              Unless otherwise indicated, capitalized terms used in this Agreement which are defined in Schedule A shall have the meanings set forth in Schedule A.              2.          Effective Date; Term.              This Agreement shall be effective as of _______, 2001 (the “Effective Date”) and shall remain in effect until _______, 2004 (the “Term”); provided, however, that commencing with _______, 2002 and on each anniversary thereof (each an “Extension Date”), the Term shall be automatically extended for an additional one-year period, unless the Company or Executive provides the other party hereto written notice before the applicable Extension Date that the Term shall not be so extended.  Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect until the later of eighteen months following the Change of Control and the date that all of the Company’s obligations under this Agreement have been satisfied in full.              3.          Termination Protection Benefits.              If Executive’s employment with the Company is terminated upon or at any time within eighteen months following a Change of Control, by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to the payments and benefits provided hereafter in this Section 3 and as set forth in this Agreement.  If Executive’s employment with the Company is terminated prior to a Change of Control, by the Company by virtue of an act or omission by the Company or by Executive for Good Reason, either (i) at the request of a party (other than the Company or an affiliate of the Company) to a bona fide transaction which, if consummated, would result in a Change of Control, whether or not such Change of Control actually occurs, or (ii) in connection with or in anticipation of a Change of Control that subsequently occurs, Executive shall be entitled to the benefits provided hereafter in this Section 3 and as set forth in this Agreement, and Executive’s Termination Date shall be Executive’s last day of employment for purposes of clause (i) and shall be deemed to have occurred immediately following the Change of Control for purposes of clause (ii).  If Executive’s employment with the Company is terminated for any reason other than by the Company with Cause or due to Executive’s death or Permanent Disability within the three month period immediately prior to a Change of Control that subsequently occurs, Executive shall be entitled to the benefits provided hereafter in this Section 3 and as set forth in this Agreement, and Executive’s Termination Date shall be deemed to have occurred immediately following the Change of Control.  For purposes of this Agreement, the effective date of any such termination is referred to as the “Termination Date.”  Notice of termination without Cause or for Good Reason shall be given in accordance with Section 14, and shall indicate the specific termination provision hereunder relied upon, the relevant facts and circumstances, and the Termination Date. a.          Severance Payments.  Within ten business days after the Termination Date, the Company shall pay Executive a cash lump sum amount equal to: (1)         ___ times Executive’s Base Salary in effect on the Termination Date or the date of a Change of Control (if any), whichever is higher; provided that if any reduction of the Base Salary, or any failure to increase the Base Salary pursuant to an agreement between Executive and the Company, has occurred, then the Base Salary on either date shall be as in effect immediately prior to such reduction or after giving effect to such increase, as the case may be; and (2)         ___ times Executive’s Bonus in effect on the Termination Date or the date of a Change of Control (if any), whichever is higher; provided that if any reduction of the Bonus, or any failure to increase the Bonus pursuant to an agreement between Executive and the Company, has occurred, then the Bonus on either date shall be as in effect immediately prior to such reduction or after giving effect to such increase, as the case may be; and (3)         Executive’s Bonus (as determined in (2), above) multiplied by a fraction, the numerator of which shall equal the number of days Executive was employed by the Company between the last day of the last period for which Executive received a year-end bonus and the Termination Date and the denominator of which shall equal 365 (or such other lower number of days in the applicable measuring period). b.          Treatment of Stock Options.  Any stock options outstanding on the Termination Date (and any options into which such options are converted or options granted in substitution for such options) shall (1) become fully vested and exercisable (if not already vested and exercisable), and (2) remain exercisable for a period of one year following the Termination Date.  Notwithstanding the foregoing, no option shall be exercisable after the specified maximum term of the option, as set forth in the document granting the option. c.          COBRA.  If, following the Termination Date, Executive elects to continue group health benefits in accordance with the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) (or other similar state coverage continuation law) and in accordance with the terms of the applicable plans, policies and arrangements of the Company, the Company shall pay the entire amount of all required premiums for a period of up to eighteen months or until Executive obtains comparable coverage under another health plan, whichever is earlier.  Executive agrees to provide notice to the Company promptly if Executive becomes so covered under another health plan. d.          Payment of Earned But Unpaid Amounts.  Within ten business days after the Termination Date (or such earlier date required by law), the Company shall pay Executive any as-yet unpaid portion of the Base Salary owed through the Termination Date, any Bonus earned but unpaid as of the Termination Date for any previously completed fiscal year (or other measuring period) of the Company, all compensation previously deferred by Executive but not yet paid, and reimbursement for any unreimbursed expenses properly incurred by Executive in accordance with Company policies prior to the Termination Date.  Executive shall also receive such employee benefits, if any, to which Executive may be entitled from time to time under the employee benefit or fringe benefit plans, policies or programs of the Company, other than any Company severance policy (payments and benefits in this subsection (d), the “Accrued Benefits”). e.          Non-Compete Payment.  Within ten business days after the Termination Date, the Company shall pay Executive a cash lump sum amount equal to ___ times the sum of Executive’s Base Salary and Bonus (as determined in Section 3(a)(1) and Section 3(a)(2) above).  The payment of such amount is compensation for, and is subject to, Executive’s compliance with the covenants and restrictions set forth on the attached Schedule B.              4.          Mitigation.              Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, and (except as provided in Section 3(c) in the case where Executive obtains other group health benefits), compensation earned from such employment or otherwise shall not reduce the amounts otherwise payable under this Agreement.              5.          Impact of “Golden Parachute” Tax Provisions. a.          In the event the Company determines, based upon the advice of the independent public accountants for the Company, that part or all of the consideration, compensation or benefits to be paid or provided to or for the benefit of Executive under this Agreement constitute “parachute payments” under Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), then, if the aggregate present value of such parachute payments, whether evaluated alone or together with the aggregate present value of any consideration, compensation or benefits to be paid to Executive under any other plan, arrangement or agreement which constitute “parachute payments” (collectively the “Parachute Amount”) exceed 2.99 times the Executive’s “base amount”, as defined in Section 280G(b)(3) of the Code (the “Executive Base Amount”), the amounts constituting “parachute payments” which would otherwise be payable or provided to or for the benefit of Executive shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Executive Base Amount (the “Reduced Amount”); provided that such amounts shall not be so reduced if Executive determines, based upon the advice of an independent nationally recognized public accounting firm (which may, but need not be, the independent public accountants of the Company), that without such reduction Executive would be entitled to receive and retain, on a net after-tax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net-after tax basis, that Executive would be entitled to retain upon Executive’s receipt of the Reduced Amount.  All costs incurred by the Company or Executive in order to make the determinations described in this Section 5(a) shall be paid by the Company. b.          If the determination made pursuant to Section 5(a) results in a reduction of the amounts that would otherwise be paid or provided to or for the benefit of Executive, Executive may then elect, in Executive’s sole discretion, which and how much of any particular entitlement shall be eliminated or reduced and shall advise the Company in writing of Executive’s election within ten days of the determination of the reduction in payments.  If no such election is made by Executive within such ten-day period, the Company may elect which and how much of any entitlement shall be eliminated or reduced and shall notify Executive promptly of such election.  Within ten days following such determination and the elections hereunder, the Company shall pay or provide to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay or provide to or for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. c.          As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made under Section 5(a) (“Overpayment”) or that additional payments which are not made by the Company pursuant to Section 5(a) should have been made (“Underpayment”).  In the event that there is a final determination by the Internal Revenue Service which the parties do not contest, or a final determination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall return to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.  In the event that there is (1) a final determination by the Internal Revenue Service which the parties do not contest, (2) a final determination by a court of competent jurisdiction, or (3) a change in the provisions of the Code, any regulations promulgated thereunder, or other administrative or judicial announcements, decisions, or interpretations pursuant to which an Underpayment reasonably arises under this Agreement, any such Underpayment shall be promptly paid or provided by the Company to or for the benefit of Executive, together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.              6.          Termination for Cause.              Nothing in this Agreement shall be construed to prevent the Company from terminating Executive’s employment for Cause.  If Executive is terminated for Cause, the Company shall have no obligation to make any payments under this Agreement, except for the Accrued Benefits.              7.          Indemnification; Director’s and Officer’s Liability Insurance.              Executive shall, after the Termination Date, retain all rights to indemnification under applicable law or under the Company’s Certificate of Incorporation or By-Laws, as they may be amended or restated from time to time, but which in any event shall not be reduced in scope from such rights possessed by Executive on the date of a Change of Control, if any, or the Termination Date, if earlier (except as required by law).  In addition, the Company shall maintain Director’s and Officer’s liability insurance on behalf of Executive, at no less than the level in effect immediately prior to the Termination Date, for the six-year period following the Termination Date, and throughout the period of any applicable statute of limitations with respect to any services rendered by Executive for or on behalf of the Company.              8.          Release.              Executive’s receipt of any payments under this Agreement is contingent upon (i) Executive’s execution of a release substantially in the form attached hereto as Exhibit 1, and (ii) the expiration of the Age Discrimination in Employment Act revocation period set forth in such release, without such release being revoked by Executive.              9.          Not an Employment Agreement; Effect on Other Rights.              This Agreement is not, and nothing herein shall be deemed to create, a contract of employment between the Company and Executive.  Except as expressly provided herein, this Agreement shall not interfere in any way with the right of the Company at any time to reduce Executive’s compensation or other benefits or terminate Executive’s employment, with or without Cause.  Any rights that Executive shall have in that regard shall be as set forth in any applicable employment agreement between Executive and the Company.  With respect to Executive’s employment agreement, if any, as in effect immediately prior to the Termination Date, nothing herein shall have any effect on Executive’s rights thereunder; provided, however, that in the event of Executive’s termination of employment in accordance with Section 3 hereof, this Agreement shall govern solely for the purpose of providing the terms of all payments and additional benefits to which Executive is entitled upon such termination and any payments or benefit provided thereunder shall reduce the corresponding type of payments or benefits hereunder.              10.        Costs of Proceedings.              Each party shall pay its own costs and expenses in connection with any legal proceeding (including arbitration), relating to the interpretation or enforcement of any provision of this Agreement, except that the Company shall pay such costs and expenses, including attorneys’ fees and disbursements, of Executive if Executive prevails in such proceeding.              11.        Assignment.              Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns.  If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation.  The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  The provisions of this Section 11 shall continue to apply to each subsequent employer of Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer.              12.        Withholding.              Notwithstanding any other provision of this Agreement, the Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder.              13.        Applicable Law.              This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles thereof.              14.        Notice.              For the purpose of this Agreement, any notice and all other communication provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.              If to the Company: Juno Online Services, Inc. 1540 Broadway, 27th Floor New York, New York  10036 Attention:  General Counsel              If to Executive: To the most recent address of Executive set forth in the personnel records of the Company.              15.        Succeeding Provisions of Law.              References in this Agreement to any provision of law shall also be read to include any other provision that replaces, succeeds, or otherwise modifies such provision of law.              16.        Entire Agreement; Modification.              This Agreement constitutes the entire agreement between the parties on the subject of termination of employment and subsequent non-competition, and, except as expressly provided herein, supersedes all other prior agreements expressly concerning the terms of all payments and additional benefits to which Executive is entitled upon termination of employment, whether or not such termination is in connection with the occurrence of a Change of Control, including that certain employment agreement between the Company and Executive dated _____________, and the supplemental letter between the Company and Executive dated ________ which forms a part of such employment agreement.  This Agreement may be changed only by a written agreement executed by the Company and Executive.              17.        Counterparts.              This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.              IN WITNESS WHEREOF, the parties have executed this Agreement on the ____ day of ______, 2001.     COMPANY     Juno Online Services, Inc.         By: --------------------------------------------------------------------------------   Name: --------------------------------------------------------------------------------   Title: --------------------------------------------------------------------------------       EXECUTIVE   [Name]           --------------------------------------------------------------------------------   Schedule A CERTAIN DEFINITIONS              As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated:              1.          “Act” means the Securities Exchange Act of 1934, as amended.              2.          “Base Salary” means Executive’s annual rate of base salary in effect on the date in question.              3.          “Bonus” means the amount payable (including any guaranteed minimum amounts) to Executive under the applicable bonus arrangement (including an existing employment agreement) with respect to the relevant fiscal year (or other shorter measuring period) of the Company.  If no amount payable or minimum amount is specified as of the relevant date, then solely for the purpose of calculating the portion of the severance payment described in Sections 3(a)(2) and 3(a)(3), the “Bonus” shall mean the sum of all bonus payments made with respect to the most recent fiscal year (or other most recent shorter measuring periods which in the aggregate cover a twelve (12) month period), or the minimum guaranteed bonus for 2001, whichever is greater.              4.          “Cause” means any of the following: (i) conviction of a felony under the laws of the United States or any state thereof, or (ii) Executive’s willful malfeasance or willful misconduct in connection with Executive’s duties hereunder, or (iii) Executive’s repeated willful refusal to perform Executive’s duties (not including any duties in excess of Executive’s duties immediately prior to a Change of Control, if any) which, in each case, results in demonstrable material harm to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates, which Executive fails to cure within fifteen days after being provided with written notification of such willful action or inaction as determined by resolution of the Board of Directors.              5.          “Change of Control” means the first to occur of any of the following during the Term: a.          any “person” or “group” (as described in the Act) becomes the beneficial owner of 50% or more of the combined voting power of the then outstanding voting securities with respect to the election of the Company’s Board of Directors, and also holds more than any group or person who is the beneficial owner of Company common shares.  “Person” does not include any Company employee benefit plan, any company the shares of which are held by the Company’s shareholders in substantially the same proportion as they held the Company’s stock, or any testamentary trust or estate; b.          any merger, consolidation, amalgamation, plan or arrangement, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which Company shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than 50.1% of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity; c.          any change in a majority of the Company’s Board of Directors within a 24-month period unless the change was approved by a majority of the Incumbent Directors; d.          any liquidation, sale, exchange, lease or other transfer of all or substantially all of the assets of the Company; or e.          any other transaction so denominated by the Company’s Board of Directors.              6.          “Code” means the Internal Revenue Code of 1986, as amended.              7.          “Company” means Juno Online Services, Inc. and any successor or successors thereto.              8.          “Good Reason” means any of the following actions taken without Executive’s express prior written approval, other than due to Executive’s Permanent Disability or death: a.          any decrease of more than five percent over a twelve consecutive month period in, or any failure to increase in accordance with an agreement between Executive and the Company, Base Salary, Bonus, or minimum guaranteed bonus; b.          any material decrease in Executive’s pension benefit opportunities or any material diminution in the aggregate employee benefits (in each case, if applicable, as afforded to Executive immediately prior to a Change of Control, if any); for this purpose employee benefits shall include, but not be limited to life insurance, medical and disability benefits, flexible perquisites and matching gifts; c.          any diminution in Executive’s title or reporting relationship, or substantial diminution in duties or responsibilities; or d.          any relocation of Executive’s principal place of business of 20 miles or more, including travel inconsistent (as to frequency and/or distance) with Executive’s normal practice as of the date of the Agreement. Executive shall have six months from the time Executive first becomes aware of the existence of Good Reason (but not more than eighteen months following the Change of Control) to resign for Good Reason.              9.          “Incumbent Director” means a member of the Company’s Board of Directors at the beginning of the period in question, including any director who was not a member of the Company’s Board of Directors at the beginning of such period but was elected or nominated to the Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).              10.        “Permanent Disability” means inability, by reason of any physical or mental impairment, to substantially perform the significant aspects of Executive’s regular duties, which inability has lasted for six months and is reasonably expected to be permanent.  Permanent Disability shall be determined by a qualified physician who is acceptable to both the Company and Executive. Schedule B NON-COMPETITION Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees as follows.  Unless otherwise indicated, capitalized terms shall have the meaning set forth in the Agreement to which this Schedule B is a part, including the terms of Schedule A.              1.          For a period of _______ months following the Termination Date (the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly solicit or assist in soliciting in competition with the Company, the business of any client of the Company: a.          with whom Executive had personal contact or dealings on behalf of the Company during the six-month period immediately preceding the Termination Date; or b.          for whom Executive had direct or indirect responsibility during the six-month period immediately preceding the Termination Date.              2.          During the Restricted Period, Executive will not directly or indirectly: a.          provide services comparable to those Executive performed for the Company for any company, the primary business of which is the provision of dial-up or broadband Internet access or for the Internet access provider unit or subsidiary of any company whose primary business is other than the provision of Internet access (a “Competitive Business”); or b.          acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant.              3.          Notwithstanding anything to the contrary in the Agreement, Executive may, directly or indirectly, own, solely as an investment, securities of any person engaged in the business of the Company or its affiliates, including a Competitive Business, if Executive (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 5% or more of any class of equity securities of such person.              4.          During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, company, business entity or other organization whatsoever, directly or indirectly, solicit or encourage any employee of the Company or its affiliates to provide services to a Competitive Business. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Schedule B and the Agreement to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Schedule B and the Agreement is an unenforceable restriction against Executive, the provisions of this Schedule B and the Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable.  Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Schedule B or the Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. EXHIBIT 1 FORM OF RELEASE              THIS RELEASE (“Release”) is made by ___________ (“you”) as of the date set forth below.              WHEREAS, Juno Online Services, Inc. and you have entered into a Termination Protection Agreement dated as of __________________, 2001 (the “Agreement”); and              IN CONSIDERATION OF the protection and benefits provided for under the Agreement, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, you hereby agree as follows:              a.          You hereby agree on behalf of yourself, your agents, assignees, attorneys, successors, assigns, heirs and executors, to, and you do hereby, fully and completely forever release the Company and its affiliates, predecessors and successors and all of their respective past and/or present officers, directors, partners, members, managing members, managers, employees, agents, representatives, administrators, attorneys, insurers and fiduciaries in their individual and/or representative capacities (hereinafter collectively referred to as the “Company Releasees”), from any and all causes of action, suits, agreements, promises, damages, disputes, controversies, contentions, differences, judgments, claims, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, variances, trespasses, extents, executions and demands of any kind whatsoever, which you or your heirs, executors, administrators, successors and assigns ever had, now have or may have against the Company Releasees or any of them, in law, admiralty or equity, whether known or unknown to you, for, upon, or by reason of, any matter, action, omission, course or thing in connection with or in relationship to your employment or other service relationship with the Company or its affiliates, the termination of any such employment or service relationship and any applicable employment, compensatory or equity arrangement with the Company or its affiliates occurring up to the date this Release is signed by you; provided that such released claims shall not include any claims to enforce your rights under, or with respect to, the Agreement, any claims relating to indemnification as described further in Section 7 of the Agreement, or any claims which arise out of the relationship with the Company or its affiliates other than that as an employee or other service provider (e.g., a shareholder) (such released claims are collectively referred to herein as the "Released Claims").              b.          Notwithstanding the generality of clause (a) above, the Released Claims include, without limitation, (i) any and all claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1971, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and any and all other federal, state or local laws, statutes, rules and regulations pertaining to employment or otherwise, and (ii) any claims for wrongful discharge, breach of contract, fraud, misrepresentation or any compensation claims, or any other claims under any statute, rule or regulation or under the common law, including compensatory damages, punitive damages, attorney’s fees, costs, expenses and all claims for any other type of damage or relief.              c.          To ensure that the foregoing release is fully enforceable in accordance with its terms, you agree to waive any and all rights of Section 1542 of the California Civil Code (to the extent applicable) as it exists from time to time or a successor provision thereto, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. In addition, to ensure that the foregoing release is fully enforceable in accordance with its terms, you agree to waive any protection that may exist under any comparable or similar statute and under any principle of common law of the United States or any and all States.              d.          You represent that you have read carefully and fully understand the terms of this Release, and that you have been advised to consult with an attorney and have had the opportunity to consult with an attorney prior to signing this Release.  You acknowledge that you are executing this Release voluntarily and knowingly and that you have not relied on any representations, promises or agreements of any kind made to you in connection with your decision to accept the terms of this Release, other than those set forth in this Release.  You acknowledge that you have been given at least twenty-one (21)(1) days to consider whether you want to sign this Release and that the Age Discrimination in Employment Act gives you the right to revoke this Release within seven (7) days after it is signed, and you understand that you will not receive any payments due you under the Agreement before such seven (7) day revocation period (the “Revocation Period”) has passed and then, only if you have not revoked this Release.  To the extent you have executed this Release within less than twenty-one (21) days after its delivery to you, you hereby acknowledge that your decision to execute this Release prior to the expiration of such twenty-one (21) day period was entirely voluntary.              THIS the ___ day of ___________________, 200_.   [Name]               -------------------------------------------------------------------------------- ACCEPTED AND AGREED: Juno Online Services, Inc. -------------------------------------------------------------------------------- (1) Note:  A 45-day period instead may apply in certain cases where a release is requested in connection with an exit incentive or other termination program offered to a group or class of employees.  In that case, additional disclosure must be provided to Executive.   By: -------------------------------------------------------------------------------- Name -------------------------------------------------------------------------------- Title: --------------------------------------------------------------------------------  

EXHIBIT 10.34 Acquisition Agreement, dated October 2, 2000, by and among Larry Raymond, Carlson Paving Products, Inc. and Astec Industries, Inc.                       ACQUISITION OF CARLSON PAVING PRODUCTS, INC. BY ASTEC INDUSTRIES, INC. OCTOBER 2, 2000 TABLE OF CONTENTS Headings Page No. ARTICLE 1: DEFINITIONS * Section 1.1 Specific Definitions. * Section 1.2 Other Terms. * Section 1.3 Other Definitional Provisions. * ARTICLE 2: PURCHASE AND SALE OF SHARES AND THE PREMISES * Section 2.1 Purchase and Sale of Shares and the Premises. * Section 2.2 Purchase Price and Payment Terms. * Section 2.3 Purchase Price Adjustment. * Section 2.4 Closing; Delivery and Payment. * ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER * Section 3.1 Organization and Authority of Company. * Section 3.2 Capitalization of Company. * Section 3.3 Financial Statements. * Section 3.4 Absence of Certain Changes, Events or Liabilities. * Section 3.5 Litigation. * Section 3.6 Compliance with Law; Permits. * Section 3.7 Consents and Approvals. * Section 3.8 Tax Matters. * Section 3.9 Material Contracts. * Section 3.10 Labor Matters. * Section 3.11 Benefit Plans. * Section 3.12 Environmental Matters. * Section 3.13 Brokers and Finders. * Section 3.14 Tangible Assets. * Section 3.15 Intangible Assets. * Section 3.16 Employees. * Section 3.17 Insurance. * Section 3.18 Inventory. * Section 3.19 Completeness of Statements; Effect of Representations and Warranties. * ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER * Section 4.1 Brokers and Finders. * Section 4.2 Real Property. * Section 4.3 Environmental Matters. * Section 4.4 Legal Proceedings. * Section 4.5 Consents and Approvals. * Section 4.6 Completeness of Statements; Effect of Representations and Warranties. * ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF BUYER * Section 5.1 Organization and Authority of Buyer. * Section 5.2 Legal Proceedings. * Section 5.3 SEC Documents; Absence of Changes. * Section 5.4 Consents and Approvals. * ARTICLE 6: ASTEC STOCK AND LOCK-UP AGREEMENT * Section 6.1 Astec Stock Not Registered. * Section 6.2 Legend. * Section 6.3 Removal of Legend. * Section 6.4 Examination and Investment Representation. * Section 6.5 Lock-Up. * ARTICLE 7: TAX MATTERS * Section 7.1 Tax Indemnification. * Section 7.2 Tax Returns. * Section 7.3 Contest Provisions. * Section 7.4 Assistance and Cooperation. * Section 7.5 Transfer Taxes. * Section 7.6 Survival of Obligations. * ARTICLE 8: CERTAIN COVENANTS AND AGREEMENTS OF SELLERS * Section 8.1 Access and Information. * Section 8.2 Registrations, Filings and Consents. * Section 8.3 Conduct of Business. * Section 8.4 Best Efforts. * Section 8.5 Retention of Books and Records. * Section 8.6 Further Assurances. * ARTICLE 9: CONDITIONS TO THE PURCHASE AND SALE * Section 9.1 General Conditions to the Purchase and Sale Relating to Parties. * Section 9.2 Conditions to Purchase by Buyer. * Section 9.3 Conditions to Sale by the Shareholder. * ARTICLE 10: INDEMNIFICATION * Section 10.1 Survival; Rights and Remedies Not Affected by Knowledge. * Section 10.2 Indemnification and Payment of Damages By The Shareholder. * Section 10.3 Indemnification By Buyer. * Section 10.4 Indemnity Claims. * Section 10.5 No Liability of Company. * ARTICLE 11: TERMINATION * Section 11.1 Termination. * ARTICLE 12: MISCELLANEOUS * Section 12.1 Expenses. * Section 12.2 Best Efforts; Further Assurances. * Section 12.3 Public Disclosure. * Section 12.4 Assignment. * Section 12.5 Amendments and Waivers. * Section 12.6 Entire Agreement. * Section 12.7 Schedules. * Section 12.8 Notices. * Section 12.9 Governing Law. * Section 12.10 Severability. * Section 12.11 Section Headings. * Section 12.12 Counterparts. * Section 12.13 Representation By Counsel; Interpretation. * Section 12.14 Arbitration Clause. * ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (this "Agreement") is made and entered into by and among Lawrence Raymond (the "Shareholder"), Carlson Paving Products, Inc., a Washington corporation (the "Company"), and Astec Industries, Inc., a Tennessee corporation (the "Buyer"). R E C I T A L S: WHEREAS, the Shareholder owns all of the issued and outstanding shares of capital stock of the Company (the "Shares"); and WHEREAS, the Shareholder desires to sell and transfer to Buyer, and Buyer desires to purchase from the Shareholder, the Shares, as more specifically provided herein; and WHEREAS, the Shareholder owns real property and improvements located in Tacoma, Washington, which constitutes all the real property and improvements used in connection with the business operations of the Company (the "Premises"); and WHEREAS, the Shareholder desires to sell and transfer the Premises to the Company, as more specifically provided herein. NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the parties intending to be legally bound hereby agree as follows: ARTICLE : DEFINITIONS Section Specific Definitions. As used in this Agreement and any Exhibits, Schedules, or certificates delivered pursuant hereto, the following terms shall have the following meanings: "Agreement" means this Agreement and all Exhibits and Schedules. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For the purposes of this definition, "control" of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether by ownership of securities, contract, law or otherwise and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. "Astec SEC Documents" has the meaning set forth in Section 5.3. "Astec Stock" means the shares of Buyer's common stock, par value $.20 per share, that are to be received by the Shareholder as part of the Purchase Price. "Baseline Net Worth" has the meaning set forth in Section 2.3. "Benefit Plans" has the meaning set forth in Section 3.11. "Breach" has the meaning set forth in Section 10.2. "Buyer" means Astec Industries, Inc., a Tennessee corporation. "Buyer's Indemnitees" has the meaning set forth in Section 10.2. "Claim" has the meaning set forth in Section 10.4. "Claim Notice" has the meaning set forth in Section 10.4. "Closing" has the meaning set forth in Section 2.4. "Closing Date" means the date of the Closing. "Code" means the Internal Revenue Code of 1986, as amended to the date hereof. "Company" means Carlson Paving Products, Inc., a Washington corporation. "Damages" means debts, obligations, losses, claims, damages (including incidental and consequential damages), liabilities, deficiencies, proceedings, demands, assessments, orders, judgments, writs, decrees, costs and other expenses (including costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third-party claim, of any nature and of any kind whatsoever that exceed or could reasonably be expected to exceed One Thousand Dollars ($1,000) in value. Provided, however, that Damages shall not be recoverable by an Indemnitee under this Agreement unless, and then only to the extent that, the aggregate Damages recoverable by the respective Indemnitee exceed Ten Thousand Dollars ($10,000). "EEOC" has the meaning set forth in Section 3.10. "Encumbrances" means any charges, claims, community property interests, conditions, equitable interests, liens, mortgages, easements, rights-of way, options, pledges, security interests, rights of first refusal or restrictions of any kind, including any restrictions on use, voting, transfer, receipt of income or exercise of any other attribute of ownership. "Environmental Laws" has the meaning set forth in Section 3.12. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Financial Statements" has the meaning set forth in Section 3.3. "GAAP" means generally accepted accounting principles in the United States of America, as in effect from time to time. "Hazardous Activity" means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Premises or any part thereof into the environment, and any other act, business, operation, or a thing that increases the danger, or a risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Premises, or that may affect the value of the Premises or the Company. "Hazardous Materials" means any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminate under or pursuant to any Environmental Law, including any mixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substance therefor and asbestos or asbestos-containing materials. "Indemnitee" has the meaning set forth in Section 10.4. "Indemnifying Party" has the meaning set forth in Section 10.4. "Interim Financial Statements" has the meaning set forth in Section 3.3. "IRS" means the Internal Revenue Service. "Material Adverse Effect" means an adverse effect on the business, operations, properties, assets, prospects or condition (financial or otherwise) of Company, taken as a whole, the Premises, or on any Seller's ability to perform any of their obligations under this Agreement and consummate the transactions contemplated hereby, the subject matter of which exceeds (or could be reasonably expected to exceed) Ten Thousand Dollars ($10,000) in value on an individual basis or Fifty Thousand Dollars ($50,000) in the aggregate. "Material Contracts" has the meaning set forth in Section 3.9. "NLRB " has the meaning set forth in Section 3.10. "Pension Plan" has the meaning set forth in Section 3.11. "Person" means an individual, corporation, partnership, trust or unincorporated organization or government or any agency or political subdivision thereof. "Premises" has that meaning set forth in the recitals. "Premises Consideration" has the meaning set forth in Section 2.2(a). "Purchase Price" has the meaning set forth in Section 2.2. "Securities Act" means the Securities Act of 1933, as amended. "Sellers" has that meaning set forth in Section 8.1. "Shareholder" has the meaning set forth in the recitals. "Shareholder Indemnitees" has the meaning set forth in Section 10.4. "Share Consideration" has the meaning set forth in Section 10.4. "Shares" has the meaning set forth in the recitals. "Tax" or "Taxes" means any federal, state, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, stock transfer, conveyance, intangible, stamp, duty, transfer, reporting, recording, license, excise, franchise or similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties. "Tax Returns" means all federal, state, local and foreign Tax returns, Tax reports, and declarations of estimated Tax, including without limitation federal income tax returns that include the Company. "Third Party Claim" has the meaning set forth in Section 10.4. "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of Washington. Section Other Terms. Other terms may be defined elsewhere in the text of this Agreement and shall have the meanings indicated throughout this Agreement. Section Other Definitional Provisions. For all purposes of this Agreement, except as otherwise expressly provided: All accounting terms not otherwise defined herein having the meanings assigned under GAAP; The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter; For the purposes of this Agreement, "knowledge" means actual knowledge or knowledge that would exist upon reasonable inquiry. A Person's knowledge shall specifically include the actual knowledge of any officer or trustee thereof, if applicable, or knowledge that would exist upon reasonable inquiry by any officer or trustee thereof, if applicable. The terms "known" and "knowing" and other words incorporating the concept of "knowledge" shall be construed consistent with this Section. For purposes of this Agreement, the term "ordinary course of business" shall mean an action that is consistent with the past practices of the applicable party and is taken in the ordinary course of the normal day-to-day operations of the applicable party, is not required to be authorized by the board of directors or similar governing body of the applicable party and is similar in nature and magnitude to actions customarily taken without any authorization by the board of directors of a corporation in the same line of business as the applicable party. ARTICLE : PURCHASE AND SALE OF SHARES AND THE PREMISES Section Purchase and Sale of Shares and the Premises. Upon the terms and subject to the conditions of this Agreement, Buyer agrees to purchase from the Shareholder, and the Shareholder agrees to sell, transfer and assign to Buyer, the Shares for the Share Consideration determined pursuant to Section 2.2. Upon the terms and subject to the conditions of this Agreement, Buyer and Shareholder agree that Shareholder shall transfer, sell and assign the Premises to Company and Buyer shall pay the Premises Consideration determined pursuant to Section 2.2 to Shareholder for such transfer, sale and assignment. Section Purchase Price and Payment Terms. Subject to the adjustment as set forth below, the total purchase price for the Shares and the Premises shall be Nine Million Four Hundred Thousand Dollars ($9,400,000) (the "Purchase Price") payable as follows: At Closing Buyer shall pay to Shareholder Two Million Eight Hundred Thirty Thousand Dollars ($2,830,000) (the "Premises Consideration") in immediately available funds pursuant to wire transfer instructions delivered to Buyer prior to Closing. At Closing Buyer shall pay to Shareholder Four Million One Hundred Seventy Thousand Dollars ($4,170,000) in immediately available funds pursuant to wire transfer instructions delivered to Buyer prior to Closing. As soon as reasonably possible following the completion of the post-closing adjustment set forth in Section 2.3, Buyer shall issue to Shareholder shares of the common stock of Buyer representing the remaining Purchase Price, if any, owed to Shareholder. Buyer shall retain such shares pursuant to the terms and conditions of the Stock Lock-Up and Pledge Agreement to be executed at Closing and attached in the form of Exhibit A hereto. For the purpose of calculating the appropriate number of shares to be issued to Shareholder, the shares shall be deemed to have a value equal to the market price of Buyer's common stock as of the close of the NASDAQ market on the trading day prior to Closing. If the post-closing adjustment results in the Purchase Price being adjusted downward by more than Two Million Four Hundred Thousand Dollars ($2,400,000), then the Shareholder shall pay the excess in immediately available funds to the Buyer within ten (10) days after the final determination of the post-closing adjustment. The aggregate amount paid pursuant to Section 2.2(b) and (c) shall be referred to as the "Share Consideration." Section Purchase Price Adjustment. The Purchase Price will be adjusted downward if (i) the net worth of the Company determined as of the Closing Date calculated in accordance with GAAP (including, without limitation, GAAP standards for contingent sales) and subject to a confirming inventory observed by the Buyer and conducted in a manner acceptable to the Buyer (the "Baseline Net Worth") is less than (ii) Two Million Five Hundred Thousand Dollars ($2,500,000). The Purchase Price will be adjusted upward if (i) the Baseline Net Worth is greater than (ii) Two Million Five Hundred Thousand Dollars ($2,500,000). Prior to the time such inventory is conducted, Shareholder and Company shall have disposed of or moved to a separate area any inventory determined to be valueless or obsolete during the May 31, 2000 inventory conducted by the Company. The Baseline Net Worth shall be calculated by the Shareholder with the participation of Buyer's representatives and such calculation shall be delivered to Buyer as soon as practicable, but in no event later than forty-five (45) days after the Closing Date. The Buyer shall have thirty (30) days from receipt of the Shareholder's calculation of the Baseline Net Worth to review, analyze, audit and propose changes to the Baseline Net Worth. If any changes are proposed, Buyer and the Shareholder shall in good faith as soon as reasonably possible reach agreement on the Baseline Net Worth and determine the adjustment, if any, to the Purchase Price. If they are unable to do so, the specific matters in dispute shall be submitted to Arthur Andersen's Seattle, Washington office or to another national, independent accounting firm (other than Ernst & Young, L.L.P.) approved by the Shareholder and Buyer. As expeditiously as possible, and in any event within ten (10) days of submission, Arthur Andersen (or such other independent accounting firm) will deliver to the Shareholder and Buyer its determination of the specified matters in dispute, which determination shall be final and binding on the parties hereto. The fees and expenses of Arthur Andersen (or such other independent accounting firm) shall be borne one-half by the Shareholder and one-half by Buyer. Section Closing; Delivery and Payment. The closing of the sale and purchase of the Shares and the Premises contemplated herein (the "Closing") shall take place at the offices of Roller, Vernon, Powers & Larson, 1001 S. 38th Street, Tacoma, Washington 98418 at 10:00 a.m. on October 2, 2000, or at such other time or place as is mutually agreed to by the parties hereto. ARTICLE : REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER The Company and the Shareholder jointly and severally represent and warrant to Buyer as follows: Section Organization and Authority of Company. The Company is duly formed and validly existing as a corporation under the laws of the State of Washington. Company has all necessary corporate power, capacity and authority to execute, deliver and perform this Agreement. This Agreement has been duly authorized by all requisite corporate action on the part of the Company, executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting creditors' rights generally and by general principles of equity. Neither the execution and delivery by the Company of this Agreement nor consummation of the transactions contemplated hereby will violate any provision of the articles or certificate of incorporation or bylaws of the Company; or any contract provision, license, franchise or permit to which Company is a party or by which it is bound; or any law, statute or regulation or any injunction, order or decree of any government agency or authority or court to which the Company is subject except to the extent, in each case, that such a violation would not prohibit or materially impair the Company's ability to perform its obligations under this Agreement. Section Capitalization of Company. The authorized capital stock of Company consists of 50,000 shares of $1.00 par value common stock of which 500 shares are outstanding. The Shareholder is the only shareholder of the Company and owns, beneficially and of record, 500 shares which, at the Closing, will be free and clear of any Encumbrances. The Shares are duly authorized, validly issued, fully paid and nonassessable. Except as set forth on Schedule 3.2, there are no outstanding options, warrants or other rights to subscribe for or purchase from the Company, or any plans, contracts, or commitments providing for the issuance of, or the granting of rights to acquire, any capital stock of the Company or securities convertible into or exchangeable for capital stock of the Company and there are no shares of capital stock reserved for issuance by the Company. There are no unsatisfied preemptive rights in respect of capital stock of the Company. Immediately after the sale of the Shares by the Shareholder pursuant to this Agreement, upon the registration of the Shares in the name of Buyer in the stock records of the Company and assuming that Buyer does not have any "notice" of any "adverse claim" to the Shares (as such terms are defined in the UCC), Buyer shall be a "protected purchaser" (as such term is defined in the UCC). Section Financial Statements. Company or the Shareholder have heretofore furnished to Buyer copies of the following financial statements: unaudited balance sheets of the Company as at May 31 in each of the years 1995 through 2000, and the related unaudited statements of income and changes in stockholders' equity for each of the fiscal years then ended, and an unaudited balance sheet of the Company as at May 31, 2000 and the related unaudited statements of income and changes in stockholders' equity as at such date, including in each case the notes thereto (the "Interim Financial Statements"; all of those items in (a) and (b) above are referred to herein collectively as the "Financial Statements"). The Financial Statements represent actual, bona fide transactions, and the results of operations and changes in stockholders' equity of the Company for such periods are consistent with the books and records of the Company and do not contain any items of special or material non-recurring nature. Such Financial Statements fairly present in all material respects the financial position of the Company as at the respective date thereof and the results of operations and cash flows of the Company for the periods then ended. Section Absence of Certain Changes, Events or Liabilities. Except as set forth on Schedule 3.4(a), since May 31, 2000, and restated again through the Closing Date, the Company has not: issued, sold, purchased or redeemed any stock, bonds, debentures, notes or other corporate securities, or issued, sold or granted any option, warrant or right to acquire any thereof; waived or released any debts, claims or rights of value or suffered any extraordinary loss or written down the value of any inventories or other assets or written down or off any receivable in excess of the amounts reflected in the Interim Financial Statements; except as reflected in the Interim Financial Statements, made any capital expenditures or capital commitments in excess of $20,000 for any single transaction or any series of related transactions or in excess of $50,000 in the aggregate; made any change in the business or operations or the manner of conducting business or operations of the Company, other than changes in the ordinary course of business, none of which has, and which in the aggregate have not had, a Material Adverse Effect; terminated, placed on probation, disciplined, or warned any officer or supervisory employee of the Company; experienced any resignations of, or had any disputes involving the employment or agency relationship with any of, the employees or agents of the Company which could have a Material Adverse Effect; suffered any casualty, damage, destruction or loss to any of its assets or properties in excess of $25,000 for any one event or in excess of $100,000 in the aggregate; declared, set aside or paid any dividends or distributions in respect of the Shares (except as reflected on the Interim Financial Statements); paid or obligated itself to pay any bonuses or extraordinary compensation to, or made any increase (except increases in the ordinary course of business) in the compensation payable (or to become payable by it) to, any of its directors, officers, employees, agents or other representatives of the Company (except as reflected on the Interim Financial Statements); terminated or amended or suffered the termination or amendment of any contract, lease, agreement, license or other instrument to which it is or was a party which could have a Material Adverse Effect; adopted, modified or amended any plan or agreement so as to increase the benefits due the employees of the Company under any such plan or agreement; made any loan or advance to any person (except normal travel or other reasonable expense advances to its officers and employees); suffered a Material Adverse Effect; subjected any of its assets or properties to any Encumbrances; paid any funds to any of its officers or directors, or to any family member of any of them, or any person in which any of the foregoing has any direct or indirect interest, except for the payment of installments of annual salaries and the bonuses reflected on the Interim Financial Statements; disposed of or agreed to dispose of any of its properties or assets other than in the ordinary course of business; entered into any transactions other than in the ordinary course of business; made any change in accounting principles, methods or practices; entered into any agreement, contract, lease or license (or series of related agreements, contracts, leases or licenses) involving more than $25,000 or made outside the ordinary course of business; delayed or postponed the payment of any accounts payable or other liabilities outside the ordinary course of business; been a party to any other occurrence, event, action, failure to act, or transaction outside the ordinary course of business involving the Company; or entered into any agreement or commitment (whether or not in writing) to do any of the above. Except as set forth on Schedule 3.4(b), since May 31, 2000, and restated again through the Closing Date, the Company has: used its reasonable best efforts to preserve the business and organization of the Company, and to keep available, without entering into any binding agreement, the services of the Company's employees, and to preserve the goodwill of the Company's customers and others having business relationships with the Company; and continued its business and maintained its operations and equipment, books of account, records and files in the ordinary course of business. Except as set forth on Schedule 3.4(c), the Company does not have any liabilities of a material nature of the type required to be reflected as known liabilities on a balance sheet prepared in accordance with GAAP, whether accrued or unaccrued, absolute or contingent or otherwise, except such liabilities that are reflected or disclosed in the financial statements referred to in Section 3.3 or were incurred after May 31, 2000 in the ordinary course of business. Section Litigation. Except as set forth in Schedule 3.5, there are no actions, suits, proceedings or investigations pending or, to the best of the Company's and the Shareholder's knowledge, overtly threatened against Company at law, in equity or otherwise in, before, or by, any court or governmental agency or authority. Section Compliance with Law; Permits. The Company has conducted its business in compliance with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which would have a Material Adverse Effect. The Company has all permits, governmental licenses, registrations and approvals necessary or required by law or rules or regulations of any governmental entity having jurisdiction over the Company to carry on its business as presently conducted, except for such permits, governmental licenses, registrations and approvals the lack of which has not had and will not have a Material Adverse Effect. Section Consents and Approvals. Except as set forth in Schedule 3.7, the execution, delivery and performance of this Agreement by the Shareholder and the Company will not require any consent, waiver, authorization or approval of, or the making of any filing with or giving of notice to, any person, entity or governmental authority. Section Tax Matters. The Company or the Shareholder has provided true and complete copies of the Company's Tax Returns filed for the period ending May 31, 1999. Except as set forth in Schedule 3.8, all Tax Returns that are required to be filed on or before the Closing Date by or with respect to the Company have been filed, all Taxes shown to be due on the Tax Returns referred to in clause (i) have been paid in full, any deficiencies asserted or assessments made as a result of any examinations of the Tax Returns referred to in clause (i) by the IRS or the relevant state, local or foreign taxing authority have been paid in full, no issues that have been raised by the relevant taxing authority in connection with any such examination of any of the Tax Returns referred to in clause (i) are currently pending, no waivers of statutes of limitations have been given or requested by or with respect to any Taxes of the Company, no event has taken place that would cause termination of the Company's S Corporation election, and the Company is not and has not been required to make any payments under Code Section 444 because the Company qualifies for the natural business year exception to the requirements of Code Section 444. Section Material Contracts. Schedule 3.9 lists all contracts or arrangements of the Company which obligate the Company to pay more than $50,000 in any fiscal year or entitle the Company to receive more than $50,000 in any fiscal year, in each case including arrangements under which the Company would be obligated to purchase or sell pursuant to a purchase order; financing documents, loan agreements, capital leases or agreements providing for the guaranty of such obligations of any party other than the Company (in each case in excess of $50,000); distributorship, dealer or sales representative agreements or other agreements of the Company resulting in the marketing of products or services which individually involved the distribution of more than $50,000 of products or services in fiscal 1999 or the payment of more than $50,000 in commissions in fiscal 1999, respectively, or may be reasonably expected to do so in fiscal 2000; and employment or consulting contracts pursuant to which the Company paid more than $50,000 in fiscal 1999, or may be reasonably expected to do so in fiscal 2000, or which include change in control provisions (all of the foregoing are collectively referred to herein as the "Material Contracts"). The Company is not in default under, or in violation of, any Material Contract, except to the extent such violation or default would not reasonably be expected to have a Material Adverse Effect. True, correct and complete copies of all of the Material Contracts have been made available to Buyer. Section Labor Matters. The Company is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or employment practice. Except as set forth in Schedule 3.10 there is no: (a) unlawful employment practice discrimination charge pending before the Equal Employment Opportunity Commission (the "EEOC") or any EEOC recognized state "referral agency" or, to the best of Company's and the Shareholder's knowledge, threatened against or involving or affecting the Company; (b) unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board (the "NLRB") or, to the best of Company's and the Shareholder's knowledge, threatened against or involving or affecting the Company; (c) labor strike, dispute, slow down or stoppage actually pending or, to the best of Company's and the Shareholder's knowledge, threatened against or involving or affecting the Company and no NLRB representation question exists respecting any of the employees of the Company; (d) grievance or arbitration proceeding pending and no written claim therefor exists; or (e) collective bargaining agreement that is binding on the Company. To the best of Company's and the Shareholder's knowledge, no organizational efforts are presently being made involving any of the Company's employees and, for the past five years, none have been made. No union or other collective bargaining unit has been certified or recognized by the Company as representing any of the Company's employees during the past five years. During the past five years, no union or collective bargaining unit has sought such certification or recognition, and, to the best of Company's and the Shareholder's knowledge, no union or collective bargaining unit is seeking or currently contemplating seeking such certification or recognition. Section Benefit Plans. Schedule 3.11 lists each "employee benefit pension plan", as such term is defined in Section 3(2) of ERISA (a "Pension Plan"), and each "employee welfare benefit plan", as such term is defined in Section 3(1) of ERISA (together with the Pension Plans, the "Benefit Plans"), which is maintained by or contributed to by the Company and which is subject to ERISA. Each Benefit Plan has been from its inception and remains in compliance in all material respects with such Plan's terms and, where applicable, with ERISA and the Code. All informational and tax filings required with respect to all such Benefit Plans have been timely made. Except as set forth in Schedule 3.11, the Company has no incentive compensation, bonus, deferred compensation, stock option, stock ownership, stock bonus, stock purchase, savings, retirement, pension, profit-sharing, severance or other similar plan or arrangement with or for the benefit of any officer or employee. Each Pension Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS that it is a qualified plan for purposes of Section 401(a) of the Code, and there has been no amendment to any Pension Plan subsequent to the determination letter which would reasonably be expected to materially adversely affect such Plan's qualified status. To the best of the Company's and the Shareholder's knowledge, nothing has occurred during the administration of any Pension Plan that would materially adversely affect such Plan's qualified status. All contributions required to be made to any Benefit Plan have been timely made or reflected in the Financial Statements in all material respects. No Pension Plan has an "accumulated funding deficiency", as such term is defined in Section 302 of ERISA and Section 412 of the Code (whether or not waived). The Company has not incurred any liability to the Pension Benefit Guaranty Corporation under Title IV of ERISA, other than for the payment of premiums, if any, all of which have been paid when due. The Company has never contributed or been required to contribute to any "multiemployer plan", as such term is defined in Section 3(37) of ERISA. The Company has not engaged in any "prohibited transaction", as such term is defined in Section 4975 of the Code, or a transaction prohibited by Section 406 of ERISA, for which a statutory or administrative exemption is not available and that would result in a material tax or a material penalty under Section 4975 of the Code or Section 502(i) of ERISA. Section Environmental Matters. Except as set forth in Schedule 3.12: (a) the Company is in compliance with all applicable federal, state, foreign and local laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or sub-surface strata) (collectively, "Environmental Laws"), except for instances of non-compliance that individually or in the aggregate do not, and would not reasonably be expected to, have a Material Adverse Effect; (b) the Company has not received written notice of and is not the subject of, any actions, causes of actions, claims, investigations, demands or notices by any person or entity alleging liability or non-compliance with any Environmental Law; (c) there are no conditions existing which would reasonably be expected to form the basis of a claim against the Company for the violation or non-compliance with any Environmental Law which would have a Material Adverse Effect; and (d) there are no circumstances which would reasonably be expected to prevent or interfere in the future with the Company's material compliance with all Environmental Laws. Section Brokers and Finders. The Company has not employed any broker, finder, consultant or intermediary in connection with the transactions contemplated by this Agreement who would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. Section Tangible Assets. The Company has valid leasehold interests in (in the case of leasehold interests in real or personal property), or good and marketable title to (in the case of all other personal property), all of their respective properties and assets reflected in the Financial Statements free and clear of all liens, security interests and other encumbrances, except liens, security interests and other encumbrances that: are reflected in the Financial Statements, are not material in amount, are incurred or made in the ordinary course of business and which do not materially adversely impair the usefulness of such properties or assets in the conduct of the business of the Company; constitute statutory liens of landlords, carriers, warehousemen, mechanics, repairman, workmen and materialmen and other liens imposed by law, in each case in the ordinary course of business; are liens for taxes, assessments, water or sewer rents or governmental charges or claims which are not yet delinquent or can be paid without penalty or are being contested in good faith and by appropriate proceedings; are covenants, easements, rights of ways, restrictions, encroachments and other imperfections or defects in title, in each case which do not interfere in any material respect with the ordinary conduct of the business of the Company or result in a material diminution in value of such assets; or are set forth on Schedule 3.14. Section Intangible Assets. The Company owns, or holds adequate licenses or other rights to use, all trademarks, service marks, tradenames, copyrighted material, patents, and other intangible personal property (including the tradenames set forth on Schedule 3.15) necessary to the conduct of its business as presently conducted, and such use does not infringe or violate any rights of any third parties. Section Employees. Schedule 3.16 is a true and complete list of all officers and employees of the Company including the amount of the current annual salary or hourly rate, date of birth, job title, vacation accrued, along with a description of any commitments to such officers and employees with respect to compensation payable hereafter. The Company has not, because of past practices or previous commitments with respect to the Company's officers or employees, established any rights or expectations on the part of such officers or employees to receive additional compensation inconsistent with past practices with respect to any period after the date hereof. Except as set forth in Schedule 3.16, none of the Company's officers or employees has given notice to the Company that he or she intends to leave the Company's employment. Except as set forth on the schedule, the Company has no reason to believe that any of the Company's officers or employees shall leave such employment. Set forth on Schedule 3.16 is a description of all claims made against the Company by officers or employees of the Company within the last twelve (12) months. Except as set forth in Schedule 3.16, the Company is not a party to or bound by any oral or written: employee collective bargaining agreement, employment agreement (other than employment agreements terminable by the Company without premium or penalty on notice of thirty (30) days or less under which the only monetary obligation of the Company is to make current wage or salary payments and provide current employee benefits), consulting, advisory or service agreement, deferred compensation agreement, confidentiality agreement or covenant not to compete; or contract or agreement with any officer or employee (other than employment agreements disclosed in response to clause (i) or excluded from the scope of clause (i)), agent, or attorney in fact of the Company; or obligation to provide, presently or in the future, retiree medical insurance coverage, retiree life insurance coverage, and other benefits for retired employees or directors of the Company, or their dependents. No officer, employee or director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such officer, employee or director and any other Person that in any way has or will have a Material Adverse Effect. Section Insurance. As of the Closing the following information will have been provided by the Company with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past three (3) years: the name, address, and telephone number of the agent; the name of the insurer, the name of the policyholder, and the name of each covered insured; the policy number and the period of coverage; the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and description of any retroactive premium adjustments or other loss sharing arrangements. With respect to each such insurance policy which is in force as of the Closing: (1) the policy is legal, valid, binding, enforceable, and in full force and effect; (2) the policy shall continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the contemplated transactions under this Agreement; (3) to the best of Company's and the Shareholder's knowledge, the policy has been issued by an insurer that is financially sound and reputable; (4) the Company is not in breach or default (including with respect to the payment of premiums or the giving of notices), and to the best of Company's and the Shareholder's knowledge, no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; (5) the policy does not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company; (6) to the best of Company's and the Shareholder's knowledge, the policies collectively provide adequate insurance coverage for the assets and the operations of the Company; and (7) to the best of Company's and the Shareholder's knowledge, no party to the policy has repudiated any provision thereof. To the best of Company's and the Shareholder's knowledge, the Company has been covered during the past five (5) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Section Inventory. All inventory of the Company, whether or not reflected in the Interim Financial Statements, consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of below-standard quality which have been written off or written down to net realizable value in the Interim Financial Statements. All inventories not written off have been priced at the lower of average cost or net realizable value. To the best of Company's and the Shareholder's knowledge, the quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Company. The inventory obsolescence policies of the Company are appropriate for the nature of the products sold and the marketing methods used by the Company, the reserve for inventory obsolescence contained in the Interim Financial Statements fairly reflects the amount of obsolete inventory as of the date of the Interim Financial Statements and the reserve for inventory obsolescence to be contained in the accounting records of the Company as of the Closing Date shall fairly reflect the amount of obsolete inventory as of the Closing Date. No items included in the inventories are pledged as collateral or held by the Company on consignment from another. Section Completeness of Statements; Effect of Representations and Warranties. To the best of Company's and the Shareholder's knowledge, no representation or warranty of the Company or the Shareholder in the Agreement contains any untrue statement of a material fact, omits any material fact necessary to make such representation or warranty, under the circumstances which it was made, not misleading, or contains any misstatement of a material fact. The Company and the Shareholder have made due inquiry and investigation concerning the matters to which the representations and warranties of the Company and the Shareholder under this Agreement pertain and neither the Company nor the Shareholder know of any facts, events or circumstances which have not been disclosed to Buyer which are material to the Company or its business. ARTICLE : REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER The Shareholder represents and warrants to Buyer as follows: Section Brokers and Finders. Shareholder has not employed any broker, finder, consultant or intermediary in connection with the transactions contemplated by this Agreement who would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof Section Real Property. The attached Schedule 4.2 lists and describes briefly the Premises that is or will be owned by the Shareholder as of the date of Closing (the "Premises") and any rights that Shareholder may have in adjacent real property. With respect to the real property comprising the Premises: The Shareholder has, or will have as of the date of Closing, good and marketable title to the Premises, free and clear of any Encumbrances, except as set forth on Schedule 4.2, except for installments of special assessments not yet delinquent and recorded easements, covenants, and other restrictions, none of which individually or together impair the current use, occupancy, value or marketability of title of the property subject thereto; there are no pending, or to the best of the Shareholder's knowledge, threatened, condemnation proceedings relating to the Premises or other matters affecting the current use, occupancy, or value thereof; the legal description for the Premises contained in the deed thereof describes the Premises fully and adequately, the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, zoning laws, and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted nonconforming use" or "permitted nonconforming structure" classifications), and do not encroach on any easement which may burden the land, and the land does not serve any adjoining property for any purpose inconsistent with the use of the land, and the Premises is not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; all properties and facilities have received all licenses, permits, consents, titles or registrations required in connection with the ownership or operation thereof and have been operated and maintained in accordance with all applicable federal, state, local, municipal, foreign, international, multinational or other administrative orders, constitutions, laws, ordinances, principles of common law, regulations, statutes or treaties; except as set forth in Schedule 4.2, there are no leases, subleases, licenses, concessions, or other agreements, written or oral, granting to any party or parties the use or occupancy of any portion of the Premises; there are no outstanding options or rights of first refusal to purchase the Premises, or any portion thereof or interest therein; there are no parties (other than the Shareholder or the Company) in possession of the Premises, other than tenants under any leases disclosed in the schedule who are in possession of space to which they are entitled; all facilities located on the Premises are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are adequate in accordance with all applicable laws, ordinances, rules, and regulations and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting the Premises; and Premises abuts on and has direct vehicular access to a public road, or has access to a public road via a permanent, irrevocable, appurtenant easement benefiting the Premises, and access to the property is provided by paved public right-of-way with adequate curb cuts available. Section Environmental Matters. Except as set forth in Schedule 4.3, with respect to the Premises: (a) the Shareholder is in compliance with all applicable Environmental Laws, except for instances of non-compliance that individually or in the aggregate does not, and would not reasonably be expected to, have a Material Adverse Effect; (b) the Shareholder has not received written notice of and is not the subject of, any actions, causes of actions, claims, investigations, demands or notices by any person or entity alleging liability or non-compliance with any Environmental Law; (c) there are no conditions existing which would reasonably be expected to form the basis of a claim against the Shareholder for the violation or non-compliance with any Environmental Law which would have a Material Adverse Effect; and (d) there are no circumstances which would reasonably be expected to prevent or interfere in the future with the Company's material compliance with all Environmental Laws. Section Legal Proceedings. There are no actions, suits, proceedings or investigations pending or, to the best of the Shareholder's knowledge, overtly threatened against the Shareholder at law, in equity or otherwise in, before, or by, any court or governmental agency or authority which individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. Section Consents and Approvals. Except as set forth in Schedule 4.5 annexed hereto, the execution, delivery and performance of this Agreement by the Shareholder will not require any consent, waiver, authorization or approval of, or the making of any filing with or giving of notice to, any Person, entity or governmental authority, except for such consent, waivers, authorizations or approvals which the failure to obtain would not reasonably be expected to have a Material Adverse Effect. Section Completeness of Statements; Effect of Representations and Warranties. To the best of the Shareholder's knowledge, no representation or warranty of the Shareholder in the Agreement contains any untrue statement of a material fact, omits any material fact necessary to make such representation or warranty, under the circumstances which it was made, not misleading, or contains any misstatement of a material fact. The Shareholder has made due inquiry and investigation concerning the matters to which the representations and warranties of the Shareholder under this Agreement pertain and the Shareholder does not know of any facts, events or circumstances which have not been disclosed to Buyer which are material to the Premises. ARTICLE : REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Shareholder and the Company as follows: Section Organization and Authority of Buyer. Buyer has been duly incorporated and is validly existing under the laws of Tennessee, with the corporate power and authority to enter into this Agreement and perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws affecting creditors' rights generally and to general principles of equity. No other proceedings on the part of Buyer are necessary to authorize this Agreement and the consummation of transactions contemplated hereby. Neither the execution and delivery of this Agreement nor compliance by Buyer with its terms and provisions will violate any provision of the charter or bylaws of Buyer; or any contract provision, license, franchise or permit to which Buyer is a party or by which it is bound; or any law, statute or regulation or any injunction, order or decree of any government agency or authority or court to which Buyer is subject except to the extent, in each case, that such a violation would not have a Material Adverse Effect. Section Legal Proceedings. There are no actions, suits, proceedings or investigations pending or, to Buyer's knowledge, overtly threatened against Buyer at law, in equity or otherwise in, before, or by, any court or governmental agency or authority which individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. Section SEC Documents; Absence of Changes. Buyer has delivered to the Shareholder Buyer's Quarterly Report on Form 10-Q for the quarter ended [June 30, 2000], its Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and its Proxy Statement with respect to its 2000 Annual Meeting of Stockholders (collectively, the "Astec SEC Documents"). The Astec SEC Documents were true and complete in all material respects as at their respective dates, did not contain any untrue statement of a material fact nor omit to state any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. Since the filing of its Quarterly Report on Form 10-Q for the quarter ended [June 30, 2000], there has not been any material adverse change in Buyer's business condition (financial or otherwise), results of operations or liabilities not reflected in the Astec SEC Documents. Section Consents and Approvals. Except as set forth in Schedule 5.4, the execution, delivery and performance of this Agreement by Buyer will not require any consent, waiver, authorization or approval of, or the making of any filing with or giving of notice to, any Person, entity or governmental authority, except for such consent, waivers, authorizations or approvals which the failure to obtain would not have a Material Adverse Effect. ARTICLE : ASTEC STOCK AND LOCK-UP AGREEMENT Section Astec Stock Not Registered. The Shareholder acknowledges that the issuance of Astec Stock has not been registered under the Securities Act or any state securities laws and cannot be sold, transferred, pledged or otherwise distributed by the Shareholder unless a registration statement registering such Astec Stock has been filed and becomes effective or unless the Astec Stock is sold or distributed in a transaction in respect of which Buyer has previously received an opinion of counsel, reasonably satisfactory to Buyer, as the issuer of such Astec Stock, stating that such transaction is exempt from the registration requirement of the Securities Act. Section Legend. Any certificate or certificates representing Astec Stock will bear the following legend unless and until removal thereof is permitted pursuant to the terms of this Agreement: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT FOR THESE SHARES, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ASTEC INDUSTRIES, INC. THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES ARE SUBJECT TO THE RESTRICTIONS SPECIFIED IN THE LOCK-UP AGREEMENT DATED AS OF OCTOBER 2, 2000 BETWEEN ASTEC INDUSTRIES, INC. AND THE INITIAL HOLDER OF THE SECURITIES NAMED THEREIN, A COPY OF WHICH WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE AGREES TO BE BOUND THEREBY. Section Removal of Legend. Upon any transfer permitted by Section 6.1 above, which transfer does not require the legend in Section 6.2 above, Buyer agrees to cause the removal of such legend for any Astec Stock so transferred upon its reissuance to the transferee. Section Examination and Investment Representation. The Shareholder represents and warrants to Buyer that it: is acquiring the Astec Stock for his own account for investment within the contemplation of the Securities Act and not with a view to the transfer or resale thereof, except to the extent otherwise expressly permitted by the Securities Act; has been advised by counsel of the legal implications and effect of the foregoing Sections 6.1, 6.2 and 6.3 under the Securities Act and of the circumstances under which he or she may dispose of his or her Astec Stock under the Securities Act; has examined Buyer's Annual Report on Form 10-K for the year ended December 31, 1999, including the financial statements contained therein, and its most recent quarterly report on Form 10-Q. prior to signing this Agreement, was given access to and information regarding Buyer and the Astec Stock to the extent the Shareholder believes is necessary in connection with the Shareholder's decision to invest in the Astec Stock and was given the opportunity to ask detailed questions and receive satisfactory answers concerning (i) the terms and conditions of this Agreement pursuant to which Buyer is offering to sell Astec Stock to the Shareholder, and (ii) Buyer, its business and the risks associated with Buyer and an investment in the Astec Stock. All such questions have been answered to the Shareholder's satisfaction, and the Shareholder has been supplied with all additional information and documents requested and deemed necessary by the Shareholder to make an investment decision with respect to the Astec Stock being acquired pursuant to this Agreement; and prior to signing this Agreement, the Shareholder had the opportunity to consult with Shareholder's legal counsel or other advisors to the extent desired by the Shareholder as to the Shareholder's investment in the Astec Stock. Section Lock-Up. The Shareholder agrees that he will not sell, transfer, pledge, or otherwise dispose of the Astec Stock (or any derivative security thereof) included in the Purchase Price except in compliance with Section 144 of the Securities Act of 1933 and in no event earlier than one (1) year from the Closing. ARTICLE : TAX MATTERS Section Tax Indemnification. Except to the extent disclosed on Schedule 3.8, or as otherwise provided for in the Financial Statements, the Shareholder shall be liable for, indemnify and hold the Buyer harmless against any Taxes imposed on the Company (including, without limitation, any Taxes imposed on the Company in connection with any Benefit Plans) or the Premises for any taxable year or period (or portion thereof) that ends on or before the Closing Date to the extent such Taxes in the aggregate exceed the aggregate reserve amounts for Taxes shown on the Interim Financial Statements, which shall be a good faith estimate of such Tax liabilities of the Company as of the Closing Date, prepared in accordance with GAAP; provided, however, that the Shareholder shall not be liable for, and shall not indemnify Buyer or the Company for, any Taxes resulting from any actual or deemed election pursuant to Section 338 of the Code in connection with the purchase of the Shares. The Shareholder shall be entitled to any refund of Taxes of the Company that are allocable to such periods. Buyer shall be liable for, indemnify and hold the Shareholder harmless against any Taxes imposed on the Company that are allocable or attributable to any taxable year or period that begins after the Closing Date and, with respect to any taxable year or period beginning before and ending after the Closing Date, the portion of such taxable year or period beginning after the Closing Date. Buyer shall be entitled to any refund of such Taxes that are allocable to such periods. For purposes of paragraphs (a) and (b) of this Section 7.1, in order to apportion appropriately any Taxes relating to any taxable year or period that begins before and ends after the Closing Date, the parties hereto shall, to the extent permitted by applicable law, elect with the relevant taxing authority to treat for all purposes the Closing Date as the end of the taxable year of the Company. In any case where applicable law does not permit the Company to treat the Closing Date as the end of a taxable year of the Company, then whenever it is necessary to determine the liability of the Company for Taxes for a portion of a taxable year or period that begins before and ends after the Closing Date, the determination of the Taxes of the Company for the portion of the year or period ending on, and the portion of the year or period beginning after, the Closing Date shall be determined by assuming that the Company had a taxable year or period which ended with the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned on a time basis. Section Tax Returns. Tax Returns that are required to be filed by or with respect to the Company shall be filed as follows: The Shareholder shall file or cause to be filed when due (taking into account extensions) all Tax Returns that are required to be filed by or with respect to the Company for taxable years or periods ending on or before the Closing Date. Except as otherwise agreed, such Tax Returns shall be completed in a manner consistent with past practice and filed only after they have been approved by King Copler of Ernst & Young's Chattanooga office (or such other person identified in writing by Buyer). Buyer shall file or cause to be filed when due (taking into account extensions) all Tax Returns that are required to be filed by or with respect to the Company for taxable years or periods ending after the Closing Date. Except as otherwise agreed, such Tax Returns shall be completed in a manner consistent with past practice. Section Contest Provisions. Buyer shall promptly notify the Shareholder in writing upon receipt by Buyer, the Company or any of their respective Affiliates of notice of any pending or threatened federal, state, local or foreign audits or assessments which may materially affect the liabilities for Taxes of the Company for which the Shareholder would be required to indemnify Buyer pursuant to Section 7.1; provided that failure to comply with this provision shall not affect Buyer's right to indemnification hereunder except to the extent the Shareholder is prejudiced by such failure. The Shareholder shall have the sole right to represent the interests of the Company in any such audit or administrative or court proceeding relating to taxable periods for which they may be required to indemnify Buyer pursuant to Section 7.1, and to employ counsel of their choice at their expense. Neither Buyer nor Company may agree to settle any such claim for the portion of a taxable year or period which may be the subject of indemnification by the Shareholder under Section 7.1 without the prior written consent of the Shareholder, which consent shall not be unreasonably withheld. Section Assistance and Cooperation. After the Closing Date, each of the Shareholder and Buyer shall: assist (and cause their respective affiliates to assist) the other party in preparing any Tax Returns which such other party is responsible for preparing and filing; cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns of the Company; make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the Company; provide timely notice to the other in writing of any pending or threatened tax audits or assessments of the Company for taxable periods for which the other may have a liability under Section 7.1; and furnish the other with copies of all correspondence received from any taxing authority in connection with any tax audit or information request with respect to any such taxable period. Section Transfer Taxes. Buyer shall be liable for any sales, use, stock transfer, conveyance, intangible, stamp, duty, transfer, reporting, recording and similar fees, charges and Taxes applicable in connection with the transfer of the Shares or the Premises, together with any interest or penalties thereon. Section Survival of Obligations. The obligations of the parties set forth in this Article 7 shall remain in effect until the expiration of the applicable statute of limitations (including any waivers thereof). ARTICLE : CERTAIN COVENANTS AND AGREEMENTS OF SELLERS Section Access and Information. The Shareholder and Company (the "Sellers") shall permit Buyer and its representatives after the date of execution of this Agreement to have reasonable access, during regular business hours and upon reasonable advance notice, to any financial and operating data and other information that is available with respect to the business and assets of the Company, the Shares and the Premises as Buyer shall from time to time reasonably request. In the event of the termination of this Agreement, Buyer shall promptly deliver (without retaining any copies thereof) to all applicable parties, or (at such parties' option) certify to such parties that it has destroyed, all documents, workpapers and other material obtained by Buyer or on its behalf from the Sellers or from any of their respective advisors, agents, employees or representatives as a result hereof or in connection with the matters contemplated by this Agreement, and all documents, workpapers and other materials prepared by Buyer or its advisors, agents, employees or representatives in connection with the matters contemplated by this Agreement, in each case whether so obtained or prepared before or after the execution hereof. Buyer shall at all times prior to the Closing Date, and in the event of termination of this Agreement, cause any information so obtained or prepared to be kept confidential and will not use, or permit the use of, such documents, workpapers and other materials in its business or in any other manner or for any other purpose except as contemplated hereby. Section Registrations, Filings and Consents. Prior to the Closing, the Sellers and Buyer shall cooperate and use their respective best efforts to make all registrations, filings and applications, to give all notices and to obtain any governmental or other consents, transfers, approvals, orders, qualifications and waivers necessary or desirable for the consummation of the transactions contemplated hereby. Section Conduct of Business. Prior to the Closing, and except as otherwise contemplated by this Agreement or consented to or approved by Buyer, the Shareholder covenants and agrees that the Shareholder shall cause the Company: To operate its business in the ordinary course consistent with past practices and to use its commercially reasonable best efforts to preserve the business and goodwill of customers and suppliers; Not to change or amend its articles or certificates of incorporation or bylaws, issue, sell or redeem any shares of its capital stock, or issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe to, any shares of its capital stock or enter into any agreement obligating it to do any of the foregoing, enter into any amendment of any Material Contract which materially adversely affects the rights of the Company thereunder or enter into any new, or make any amendment to any existing, collective bargaining agreement or Benefit Plan which materially adversely affects the rights of the Company thereunder, except as required by law, in which case the Shareholder shall give prompt notice to Buyer; and Not to make, or enter into any agreement to make, any acquisition or sale of property or assets (tangible or intangible) other than in the ordinary course of business consistent with past practices. Section Best Efforts. Prior to Closing, each of the parties hereto shall use its commercially reasonable best efforts to fulfill or obtain the fulfillment of the conditions to Closing, including, without limitation, the execution and delivery of all agreements or other documents contemplated hereunder to be so executed and delivered. Section Retention of Books and Records. After the Closing Date, Buyer shall cause the Company to retain all books, records and other documents pertaining to the Company in existence on the Closing Date and to make the same available after the Closing Date for inspection and copying by the Shareholder or their agents at such parties' expense, upon reasonable request and upon reasonable notice, for a period of three years after the Closing Date. No such books, records or documents shall be destroyed by Buyer or the Company without first advising the Shareholder in writing and giving the Shareholder a reasonable opportunity to obtain possession thereof. Section Further Assurances. At any time after the Closing Date, the Shareholder and Buyer shall, and Buyer shall cause the Company to, promptly execute, acknowledge and deliver any other assurances or documents reasonably requested by Buyer or the Shareholder, as the case may be, and necessary for Buyer or the Shareholder, as the case may be, to satisfy its obligations hereunder. ARTICLE : CONDITIONS TO THE PURCHASE AND SALE Section General Conditions to the Purchase and Sale Relating to Parties. The obligations of the parties to consummate the sale and purchase of the Shares and the Premises at the Closing as contemplated by this Agreement shall be subject to the satisfaction or waiver by the parties on or prior to the Closing Date of the following conditions: No action or proceeding shall have been instituted and remain pending on the Closing Date before any court or governmental body or authority pertaining to the acquisition by Buyer of the Shares, or the result of which could prevent or make illegal the consummation of such acquisition. Any required consents of third parties disclosed on Schedule 3.7, Schedule 4.5, and Schedule 5.4 annexed hereto shall have been obtained. Section Conditions to Purchase by Buyer. The obligation of Buyer to consummate the purchase of the Shares and the Premises at the Closing as contemplated by this Agreement shall be subject to the satisfaction or waiver by Buyer on or prior to the Closing Date of each of the following conditions: Each of the representations and warranties of the Sellers contained in this Agreement shall be true in all material respects when made and as of the Closing Date, with the same effect as though such representations and warranties had been made on and as of the Closing Date (except representations and warranties that are made as of a specific date need be true in all material respects only as of such date); each of the covenants and agreements of the Sellers in this Agreement to be performed on or prior to the Closing Date shall have been duly performed in all material respects; and Buyer shall have received at the Closing a certificate of a duly authorized officer of the Company as to the satisfaction of the Company's conditions set forth in clause (i) and clause (ii) of this Section 9.2, dated as of the Closing Date. During the period from the date hereof to the Closing Date, no event or condition shall have occurred which results in a Material Adverse Effect. Buyer shall have received certificates representing the Shares duly endorsed in blank for transfer or accompanied by duly signed stock powers in blank. Buyer shall have had delivered to it warranty deeds conveying to the Company good and marketable fee simple title to the Premises effective as of the Closing Date in form reasonably acceptable to Buyer. At least ten (10) days prior to the Closing Date, Buyer shall have had delivered to it a real estate title abstract or a commitment for an owner's title insurance policy in an amount acceptable to Buyer issued by a title insurance company acceptable to Buyer covering the Premises and containing only exceptions which would not adversely affect the use or marketability of the Premises. The Shareholder shall have entered into a Stock Lock-Up and Pledge Agreement in the form of Exhibit A hereto. Buyer shall have received a certified copy of resolutions of the board of directors of the Company approving the transaction set forth in and execution of this Agreement. The directors of the Company shall have tendered their written resignations effective as of the Closing Date. The Company shall have entered into employment agreements with Lawrence Raymond substantially in the form of Exhibit B attached hereto, Ray Erickson substantially in the form of Exhibit C attached hereto, David Nolan substantially in the form of Exhibit D attached hereto and Jeffrey Cartwright substantially in the form of Exhibit E attached hereto. Buyer shall have received evidence satisfactory to Buyer that either Nancy Raymond has approved this transaction in accordance with that certain Stock Pledge Agreement between her and Shareholder dated December 18, 1997 or such approval is unnecessary. The Company shall have terminated its 401(k) plan effective as of the day prior to Closing, and all amounts properly owed to participants under such 401(k) plan shall have been accurately accrued on the books of the Company. Buyer shall have received an opinion from legal counsel to the Company in form and substance satisfactory to the Buyer and its counsel. Buyer shall have received a reasonable analysis and explanation of the condition whereby the Company's accounts payable are out of balance, and the accounts payable computer system shall have been corrected so that it will operate in a manner reasonably acceptable to Buyer. Buyer shall have received such other documents as may be reasonably necessary to effect the Closing as anticipated in this Agreement. Section Conditions to Sale by the Shareholder. The obligation of the Shareholder to consummate the sale of the Shares and the Premises at the Closing as contemplated by this Agreement shall be subject to the satisfaction or waiver by the Shareholder on or prior to the Closing Date of each of the following conditions: Each of the representations and warranties of Buyer contained in this Agreement shall be true in all material respects when made and as of the Closing Date, with the same effect as though such representations and warranties had been made on and as of the Closing Date (except representations and warranties that are made as of a specific date need be true in all material respects only as of such date); each of the covenants and agreements of Buyer in this Agreement to be performed on or prior to the Closing Date shall have been duly performed in all material respects; and the Shareholder shall have received at the Closing a certificate of a duly authorized officer of Buyer as to the satisfaction of the conditions set forth in clause (i) and clause (ii) of this Section 8.3, dated as of the Closing Date. The Shareholder shall have received certified copies of resolutions of the executive committee of the board of directors of the Buyer approving the transaction set forth in and execution of this Agreement. The Shareholder shall have received the cash portion of the Purchase Price as set forth in Section 2.2(a). The Shareholder shall have received an opinion from legal counsel to Buyer in form and substance satisfactory to the Shareholder and their counsel. The Shareholder shall have received such other documents as may be reasonably necessary to effect the Closing as anticipated in this Agreement. ARTICLE : INDEMNIFICATION Section Survival; Rights and Remedies Not Affected by Knowledge. The representations and warranties in this Agreement, the Schedules, any supplements to the Schedules, any other certificate or document delivered pursuant to this Agreement and any other Closing Document will survive the Closing. The rights to indemnification and payment of Damages and all other rights or remedies provided herein, including those relating to any representations, warranties, covenants and obligations, will not be affected by any investigation conducted with respect to, or any knowledge acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants and obligations. Section Indemnification and Payment of Damages By The Shareholder. The Shareholder shall indemnify and hold the Company, Buyer and their respective officers, directors, governors, members, managers, Affiliates, successors and assigns ("Buyer Indemnitees") harmless for, and shall pay to the Buyer Indemnitees the amount, to the extent not covered by insurance, of all Damages arising, directly or indirectly, from or in connection with: any breach or nonfulfillment of or failure to comply with in any respect ("Breach") any representation or warranty made by the Sellers; any Breach by the Sellers of any covenant, agreement or obligation of the Sellers; any Damages arising out of the ownership, use or conduct of the business or operations of the Company on or prior to the Closing Date or any act, omission, transaction, circumstance, fact, agreement, or other condition relating to the Company, known to the Sellers, which existed on or prior to the Closing Date and was not fully and properly disclosed to Buyer in the Financial Statements, the Schedules, the Exhibits or any other part of the Agreement; (i)(A) the ownership, operation, or condition at any time on or prior to the Closing Date of any properties (including without limitation the Premises) and assets (whether real, personal, or mixed and whether tangible or intangible) in which the Company or the Shareholder have or had an interest, or (B) any Hazardous Materials or other contaminants (including any tanks, equipment or other personal property or materials relating thereto) that were at any time prior to the Closing Date or are as of the Closing Date present on such properties or assets (including without limitation the Premises); or (ii)(A) any Hazardous Materials or other contaminants (and including any tanks, equipment or other personal property or materials relating thereto), wherever located, that were, or were allegedly, generated, transported, stored, treated, released or otherwise handled by the Company or the Shareholder or by any other Person for whose conduct the Company or the Shareholder are or may be held responsible at any time on or prior to the Closing Date, or (B) any Hazardous Activities that were, or were allegedly, conducted by the Company or the Shareholder or by any other Person for whose conduct the Company or the Shareholder are or may be held responsible; or any bodily injury (including illness, disability, and death, and regardless of when any such bodily injury occurred, was incurred, or manifested itself), personal injury, property damage (including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or other damage of or to any Person, including any employee or former employee of the Company or the Shareholder or any other Person for whose conduct the Company or the Shareholder are or may be held responsible, in any way arising from or allegedly arising from any Hazardous Activity conducted or allegedly conducted with respect to the Premises or properties or other assets of or leased or subleased or used or operated by the Company or the operations of the Company prior to the Closing Date, or from Hazardous Material that was (1) present or suspected to be present on or before the Closing Date on or at such Premises or properties (or present or suspected to be present on any other property, if such Hazardous Material emanated or allegedly emanated from any of such Premises or properties and was present or suspected to be present on any of such Premises or properties on or prior to the Closing Date) or (2) released or allegedly released by the Shareholder or the Company or any other Person for whose conduct the Company or the Shareholder are or may be held responsible, at any time on or prior to the Closing Date. Buyer will be entitled to control any cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response action, any related proceeding, and any other proceeding with respect to which indemnity may be sought under this Section 10.2. Section Indemnification By Buyer. Buyer shall indemnify and hold the Shareholder and their successors and assigns ("Shareholder Indemnitees") harmless for, and will pay to the Shareholder Indemnitees the amount of, all Damages, to the extent not covered by insurance, arising directly or indirectly from or in connection with: any Breach of any representation or warranty made by Buyer; any Breach by Buyer of any covenant, agreement or obligation of the Buyer; any Damages arising out of the ownership, use or conduct of the business or operations of the Company after the Closing Date or any act, omission, transaction, circumstance, fact, agreement, or other condition relating to the Company which exists after the Closing Date. Section Indemnity Claims. Claims. In the event that any claim ("Claim") is hereafter asserted by a party hereto as to which such party may be entitled to indemnification hereunder, such party ("Indemnitee") shall notify the party required by the terms of this Agreement to indemnify the Indemnitee ("Indemnifying Party") thereof ("Claim Notice") within 30 days after (1) receipt of notice of commencement of any third-party litigation against such Indemnitee, (2) receipt by such Indemnitee of written notice of any third-party claim pursuant to an invoice, notice of claim or assessment, against such Indemnitee, or (3) such Indemnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party. The Claim Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, shall include a copy of the Notice referred to in (1) and (2), above, shall indicate the amount, if known, or an estimate, if possible, of Damages that have been or may be incurred or suffered. Defense of Third Party Claim by Indemnifying Party. The Indemnifying Party may elect to defend or compromise any Claim by a third party ("Third Party Claim"), at its or his own expense and by its or his own counsel, who shall be reasonably acceptable to the Indemnitee. The election by the Indemnifying Party to defend or compromise a claim shall constitute an avowal by the Indemnifying Party that the Indemnifying Party is obligated to indemnify the Indemnitee with respect to such claim. The Indemnitee may participate, at its or his own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the approval of the Indemnitee, which approval shall not be unreasonably withheld or delayed, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party which would require the Indemnitee to perform or take any action or to refrain from performing or taking any action. Assumption of Defense by Indemnitee. Notwithstanding the foregoing, if an Indemnitee determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnitee may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise, or settle such proceeding, but the Indemnifying Party will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld or delayed). Defense of Claim by Indemnitee. If, within thirty (30) days of the Indemnifying Party's receipt of a Claim Notice involving a Third Party Claim, the Indemnifying Party shall not have notified the Indemnitee of its or his election to assume the defense, the Indemnitee shall have the right to assume control of the defense or compromise of such Claim, and the costs and expenses of such defense, including costs of investigation and reasonable attorneys' fees, shall be added to the Claim. The Indemnitee shall have the right to compromise such Claim without the consent of the Indemnifying Party. Cooperation of Parties. The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of the party's defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleading, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other, and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely notify the Indemnifying Party of the commencement of such actions in accordance with Section 10.4(a) shall relieve the Indemnifying Party from the obligation to indemnify but only to the extent the Indemnifying Party establishes by competent evidence that it is has been materially and adversely prejudiced thereby. Section No Liability of Company. In the event a Claim is made against the Shareholder, for Buyer's Damages, the Shareholder, shall not, nor shall they be entitled to, maintain, assert or make a claim against the Company, or the directors, officers, affiliates, successor or assigns of the Company for contribution, indemnity or for any other recovery, it being the intention of the parties hereto that after the Closing, the Company shall have no liability, obligation or responsibility for any Breach of the representations, warranties, covenants or obligations of the Sellers made in this Agreement. ARTICLE : TERMINATION Section Termination. Notwithstanding anything herein to the contrary, this Agreement shall terminate if the Closing does not occur on or before November 1, 2000, unless extended by mutual written agreement of the parties to this Agreement. This Agreement may be terminated by the mutual written consent of the parties to this Agreement, (x) by Buyer, if there has been a material misrepresentation or other material breach by Sellers of any of their representations, warranties, covenants and agreements set forth herein and there shall not have occurred and be continuing a breach or violation by Buyer, in any material respect, of any of its representations, warranties, covenants and agreements set forth herein and (y) by any of the Sellers if there has been a material misrepresentation or other material breach by Buyer of any of its representations, warranties, covenants and agreements set forth herein and there shall not have occurred and be continuing a breach or violation by any of the Sellers, in any material respect, of any of their representations, warranties, covenants and agreements set forth herein; provided, however, that if the breach by the non-terminating party is susceptible to cure, such party shall have 30 business days after receipt of written notice from the other party of its intention to terminate this Agreement in which to cure such breach, and by any party hereto, on or after October 2, 2000, by written notice to the other parties, if (A) the Closing shall then not have occurred for any reason other than the breach or violation by the notifying party, in any material respect, of any of its representations, warranties, covenants and agreements set forth in this Agreement and (B) there shall not have occurred and be continuing a breach or violation by the notifying party, in any material respect, of any of such representations, warranties, covenants and agreements. If this Agreement is terminated pursuant to Section 11.1, this Agreement, other than with respect to the obligations under Sections 8.1, 12.1 and 12.3 hereof, shall thereafter have no effect, except that termination of this Agreement will not relieve either party of any liability for breach of any covenants or agreements set forth herein occurring prior to such termination. ARTICLE : MISCELLANEOUS Section Expenses. Unless otherwise indicated, the parties shall bear their own respective expenses (including, but not limited to, all compensation and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with the preparation and execution of this Agreement and consummation of the transactions contemplated hereby. Section Best Efforts; Further Assurances. Commitment to Best Efforts. Subject to the rights of any Seller or the Buyer, as the case may be, under Section 11.1, each party hereto shall use its best efforts to cause all conditions to its obligations hereunder to be timely satisfied and to perform and fulfill all obligations on its part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be effected substantially in accordance with its terms as soon as reasonably practicable, each party shall cooperate with the other party in such actions and in securing requisite consents and each party shall execute and deliver such further documents and take such other actions as may be necessary or appropriate to consummate or implement the transactions contemplated hereby or to evidence such events or matters. Limitation. As used in this Agreement, the term "best efforts" shall not mean efforts which require the performing party to do any act that is commercially unreasonable under the circumstances, to make any capital contribution or to expend any funds other than in payment of reasonable out-of-pocket expenses incurred in satisfying obligations hereunder, including but not limited to the fees, expenses and disbursements of its accountants, counsel and other professional advisors. Exclusive Dealing. Until the Closing Date or the earlier termination of this Agreement, the Sellers will not, nor will any of them permit any officers, directors, employees or other advisors or representatives to (i) solicit, initiate or encourage submission of any proposal to purchase the Shares, the Premises or any of the Company's assets, other than in the ordinary course of business; or (ii) enter into any agreement with respect to any such proposal. Section Public Disclosure. Prior to the Closing Date, none of the parties will make any public release of information regarding any matters contemplated herein without the consent of the other parties, except for press releases issued by Buyer as required by law. Section Assignment. This Agreement may not be assigned by either party, by operation of law or otherwise. Section Amendments and Waivers. The provisions of this Agreement may not be amended, supplemented or changed orally, but only by writing signed by Buyer and Sellers and making specific reference to this Agreement. Section Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties, with respect to the subject matter hereof, except as otherwise contemplated herein; and is not intended to confer upon any other persons any rights or remedies hereunder. Section Schedules. The inclusion of any matter in any Schedule or Exhibit to this Agreement shall be deemed to be an inclusion for all purposes of this Agreement, including each representation to which it may relate. Section Notices. All notices, requests, demands or other communications herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have given when delivered in person, upon receipt of telecopy or telex (with confirmed answerback) or five business days after deposit in the United States mail, registered or certified, postage prepaid and properly addressed to the party's address as set forth on the signature pages hereof. Any party may change the address to which notices are to be addressed by giving the other party written notice in the manner herein set forth. Section Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Tennessee, without regard to conflicts of law principles. However, the sale, transfer and assignment of the Premises to Buyer shall be governed by and construed in accordance with the laws and local practice of Washington. Section Severability. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section Section Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Section Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be considered one and the same instrument. Section Representation By Counsel; Interpretation. Each party acknowledges that such party has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties. Section Arbitration Clause. Any dispute pertaining to this Agreement or the matters addressed herein shall be referred to arbitration at the request of any party before a single arbitrator. In any arbitration the parties shall be entitled to be legally represented. This matter shall be arbitrated pursuant to Title 9 United States Code, the Federal Arbitration Act. The Arbitration Rules of the Center for Public Resources, New York, New York for Non-Administered Arbitration of Business Disputes, as they exist on the date of this Agreement, are adopted as the rules governing this arbitration. Interpretation and enforcement of this instrument and all of this Agreement and all questions, issues or claims regarding the performance of the parties hereunder shall be controlled and governed by the law of the State of Tennessee except as otherwise specifically stated to the contrary in this Agreement. The arbitration shall take place in Tacoma, Washington, at a mutually agreeable site. [Signatures on Following Page] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers therein duly authorized as of the 2 day of October, 2000. BUYER: COMPANY: ASTEC INDUSTRIES, INC. CARLSON PAVING PRODUCTS, INC. By: F. McKamy Hall By: Lawrence Raymond Title: CFO, Vice President Title: President SHAREHOLDER: Lawrence Raymond

  EXHIBIT 10.1 AMENDMENT TWENTY-TWO TO MARKETING AGREEMENT This document is Amendment Twenty-Two to the Marketing Agreement, made and entered into effective June 1, 1993, and amended by Amendment One to Marketing Agreement dated September 16, 1993; Amendment Two to Marketing Agreement dated June 4, 1998; Amendment Three to Marketing Agreement dated September 25, 1998; Amendment Four to Marketing Agreement dated October 19, 1998; and Amendment Five to Marketing Agreement dated December 15, 1998; Amendment Six to Marketing Agreement dated March 25, 1999, Amendment Seven to Marketing Agreement dated May 10, 1999, Amendment Eight to Marketing Agreement dated June 24, 1999, Amendment Nine to Marketing Agreement dated August 5, 1999, Amendment Ten to Marketing Agreement dated October 1, 1999, Amendment Eleven to Marketing Agreement dated January 31, 2000, Amendment Twelve to Marketing Agreement dated March 1, 2000, Amendment Thirteen to Marketing Agreement dated April 19, 2000, Amendment Fourteen to Marketing Agreement dated July 31, 2000, Amendment Fifteen to Marketing Agreement dated September 25, 2000, Amendment Sixteen to Marketing Agreement dated October 31, 2000, Amendment Seventeen dated November 29, 2000, Amendment Eighteen to Marketing Agreement dated January 24, 2001, Amendment Nineteen to Marketing Agreement dated March 14, 2001, Amendment Twenty to Marketing Agreement dated May 4, 2001, and Amendment Twenty-One to Marketing Agreement dated June 28, 2001 (the “Agreement”), by and between American National Insurance Company (“American National”) a Texas corporation, and Legacy Marketing Group (“LMG”), a California corporation. In consideration of mutual covenants contained herein, the parties agree as follows: 1.   Section 3.1 of the Agreement is hereby deleted in its entirety and the following new Section 3.1 shall be substituted therefore:   “3.1 Subject to termination as hereinafter provided, this Agreement shall remain in force and effect until the close of business on October 15, 2001, the term of this Agreement. This Agreement may be renewed by mutual agreement for successive terms of one (1) year unless terminated by either party by prior written notice to the other at least one hundred eighty (180) days prior to the end of the initial term or the renewal term.” Except as specifically amended hereby, all terms and provisions of the Marketing Agreement shall remain in full force and effect. IN WITNESS HEREOF, the parties hereto have executed this Agreement.       LEGACY MARKETING GROUP AMERICAN NATIONAL INSURANCE COMPANY By: /s/ R. Preston Pitts By: /s/ Kelly M. Collier Title: President Title: Vice President Witness: /s/ Anne Sedleniek Witness: /s/ Jynx Yucra Date: September 4, 2001 Date: August 30, 2001  

EXHIBIT 10.24 CREDIT AGREEMENT* dated as of May 1, 2001 among WILLIS LEASE FINANCE CORPORATION, as Borrower and CERTAIN BANKING INSTITUTIONS NAMED HEREIN with NATIONAL CITY BANK, as Administrative Agent, FORTIS BANK [NEDERLAND] N.V., as Structuring Agent and FORTIS BANK [NEDERLAND] N.V., as Security Agent   --------------------------------------------------------------------------------              *           Portions of the material in this Exhibit have been redacted pursuant to a request for confidential treatment, and the redacted material has been filed seperately with the Securities and Exchenge Commission (the "Commission").  An asterix has been placed in the precise places in this Agreement where we have redacted information, and the asterix is keyed to a legend which states that the material has been omitted pursuant to a request for confidential treatment. TABLE OF CONTENTS SECTION 1.     CERTAIN DEFINITIONS     1.1 Definitions     1.2 Accounting Terms     1.3 Construction     SECTION 2.     THE CREDIT     2.1 The Revolving Loans   (a) Revolving Loans; Revolving Loan Commitment   (b) Interest Rate Options   (c) Maximum Loans Outstanding   (d) Minimum Loan Amount   (e) Prepayment and Reborrowing   (f) Revolving Loan Commitment Percentages   (g) Several Obligations       2.2 The Revolving Credit Notes     2.3 [Reserved]     2.4 Funding Procedures   (a) Request for Advance   (b) Actions by the Administrative Agent   (c) Availability of Funds   (d) Funding Assumptions   (e) Proceeds of Loan Being Repaid       2.5 Facility Fee; Extension Fee     2.6 Reduction or Termination of Revolving Loan Commitments   (a) Voluntary   (b) Revolving Loan Commitment Termination       2.7 Mandatory Prepayments     2.8 [Reserved]     2.9 Payment of Additional Amount     2.10 Interest   (a) Base Rate Loans   (b) LIBO Rate Loans     (c) Conversion to Base Rate   (d) Renewals and Conversions   (e) Interim Payments At Base Rate   (f) Reinstatements     2.11 Voluntary Prepayments   (a) Base Rate Loans   (b) LIBO Rate Loans     2.12 Payments   (a) Accrued Interest   (b) Form of Payments, Application of Payments, Payment Administration, Etc.   (c) Demand Deposit Account   (d) Net Payments   (e) Commitment Fee     2.13 Change in Circumstances, Yield Protection   (a) Certain Regulatory Changes   (b) Capital Adequacy   (c) Ability to Determine LIBO Rate   (d) Yield Protection   (e) [Reserved]   (f) Notice of Events     2.14 Illegality     2.15 Discretion of each Bank as to Manner of Funding     2.16 Appraisals     SECTION 3.     REPRESENTATIONS AND WARRANTIES   3.1 Organization, Standing     3.2 Corporate Authority, Validity, Etc     3.3 Validity of Loan Documents     3.4 Litigation     3.5 ERISA     3.6 Financial Statements     3.7 No Material Adverse Change   3.8 Not in Default, Judgments, Etc     3.9 Taxes     3.10 Permits, Licenses, Etc     3.11 No Materially Adverse Contracts, Etc     3.12 Compliance with Laws, Etc   (a) Compliance Generally   (b) Hazardous Wastes, Substances and Petroleum Products       3.13 Solvency     3.14 Subsidiaries, Etc     3.15 Title to Properties, Leases     3.16 Public Utility Holding Company; Investment Company     3.17 Margin Stock     3.18 Use of Proceeds     3.19 Depreciation Policies     3.20 Disclosure Generally     SECTION 4.     CONDITIONS PRECEDENT     4.1 All Loans   (a) Request For Advance   (b) Asset Base Certificate   (c) Guaranty   (d) Additional Documents   (e) Covenants; Representations   (f) Defaults   (g) Material Adverse Change   (h) Owner Trustee Documents       4.2 Conditions to Effectiveness of the Agreement   (a) Articles, Bylaws   (b) Evidence of Authorization   (c) Legal Opinions   (d) Incumbency   (e) Notes     (f) Documents   (g) Consents   (h) Other Agreements   (i) Security Interest   (j) Appraisals   (k) Financial Statements   (l) Litigation   (m) [Reserved]   (n) Fees   (o) Fees, Expenses   (p) Lien Searches   (q) Other Documents and Information   (r) Existing Facility   (s) Final Date for Effectiveness       SECTION 5.     AFFIRMATIVE COVENANTS   5.1 Financial Statements and Reports   (a) Annual Statements   (b) Quarterly Statements   (c) No Default   (d) ERISA   (e) Material Changes   (f) Other Information   (g) Asset Base Certificates; Monthly Lease Report   (h) Monthly Lease Portfolio and Receivables Report   (i) Maintenance of Current Depreciation Policies       5.2 Corporate Existence     5.3 ERISA     5.4 Compliance with Regulations     5.5 Conduct of Business; Permits and Approvals, Compliance with Laws     5.6 Maintenance of Properties     5.7 Maintenance of Insurance     5.8 Payment of Taxes, Etc     5.9 Notice of Events     5.10 Inspection Rights   5.11 Generally Accepted Accounting Principles     5.12 Compliance with Material Contracts     5.13 Use of Proceeds     5.14 Further Assurances     5.15 Restricted Subsidiaries     5.16 Placards     5.17 Certain Subsidiaries     SECTION 6.     NEGATIVE COVENANTS   6.1 Consolidation and Merger     6.2 Liens     6.3 Guarantees     6.4 Margin Stock     6.5 Acquisitions and Investments     6.6 Transfer of Assets; Nature of Business     6.7 Accounting Change     6.8 Transactions with Affiliates of the Borrower     6.9 Indebtedness     6.10 Restricted Payments     6.11 Restriction on Amendment of this Agreement     6.12 Investments in Unrestricted Subsidiaries     6.13 No Adverse Selection     SECTION 7.     FINANCIAL COVENANTS   7.1 No Losses   7.2 Minimum Tangible Net Worth     7.3 Leverage Ratio     7.4 Adjusted Total Debt to Adjusted Tangible Net Worth     7.5 Minimum Interest Coverage Ratio     7.6 Asset Base     SECTION 8.     DEFAULT   8.1 Events of Default   (a) Payments   (b) Covenants   (c) Representations, Warranties   (d) Bankruptcy   (e) Certain Other Defaults   (f) Judgments   (g) Attachments   (h) Change in Control of the Borrower   (i) Security Interests   (j) WLFC Funding Facility       SECTION 9.     COLLATERAL   9.1 Collateral     9.2 Security Documents     9.3 Release of Collateral     SECTION 10.     THE AGENTS   10.1 Appointment and Authorization     10.2 Duties and Obligations     10.3 The Agents as Banks     10.4 Independent Credit Decisions     10.5 Indemnification     10.6 Successor Agents   10.7 Allocations Made By the Administrative Agent     SECTION 11.     MISCELLANEOUS   11.1 Waiver     11.2 Amendments     11.3 GOVERNING LAW     11.4 Participations and Assignments     11.5 Captions     11.6 Notices     11.7 Sharing of Collections, Proceeds and Set-Offs: Application of Payments     11.8 Expenses; Indemnification     11.9 Survival of Warranties and Certain Agreements     11.10 Severability     11.11 Banks’ Obligations Several; Independent Nature of Banks’ Rights     11.12 No Fiduciary Relationship     11.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS     11.14 WAIVER OF JURY TRIAL     11.15 Counterparts; Effectiveness     11.16 Use of Defined Terms     11.17 Offsets     11.18 Entire Agreement     11.19 Confidentiality   Exhibit A – Revolving Loan Commitments Exhibit B – Applicable Margin; Commitment Fee Exhibit C – Form of Revolving Credit Note Exhibit D – Form of Mortgage Exhibit E – Form of Asset Base Certificate Exhibit F – Form of Security Agreement Exhibit G – Form of Compliance Certificate Exhibit H – Depreciation Policies Exhibit I – Form of Owner Trustee Mortgage Exhibit J – Form of Subsidiary Guaranty Exhibit K – Form of Trust Agreement Exhibit L – Form of Beneficial Interest Pledge Agreement Exhibit M – Form of Owner Trustee Guarantee Exhibit N – Form of  Share Pledge Agreement Exhibit O – Form of WLFC (Ireland) Security Agreement Exhibit P – Form of Consent and Intercreditor Agreement       Schedule 1 – Disclosure Schedule Schedule 2 – Excepted Collateral Schedule 3 – Existing Leases in Nonrecognition of Rights Jurisdictions Schedule 4 – List of Permissible Airlines of Nonrecognition of Rights Jurisdictions Schedule 5 – Geographic Limitations Schedule 6 – Existing Engines, Equipment and Leases              *           This redacted material has been omitted pursuant to a request for confidential treatment, and the material has been filed separately with the Commission.   CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of May 1, 2001 (this “Agreement”), is entered into by and among WILLIS LEASE FINANCE CORPORATION, a Delaware corporation (successor by merger to Willis Lease Finance Corporation, a California corporation) (“Willis” or the “Borrower”), the banking institutions signatories hereto and named in Exhibit A attached hereto and such other institutions that hereafter become a “Bank” pursuant to Section 11.4 hereof (collectively the “Banks” and individually a “Bank”), NATIONAL CITY BANK, as Administrative Agent for the Banks under this Agreement (“Administrative Agent,” which shall mean in its capacity as administrative agent unless specifically stated otherwise), FORTIS BANK [NEDERLAND] N.V. (“Fortis”), as Structuring Agent (the “Structuring Agent”), and FORTIS BANK [NEDERLAND] N.V., as Security Agent (the “Security Agent”).  The Administrative Agent, the Structuring Agent and the Security Agent are sometimes hereinafter referred to collectively as the “Agents”, and individually as an “Agent.” PRELIMINARY STATEMENT WHEREAS, the Borrower desires to have available to it a revolving credit facility (the “Credit Facility”) which will be used for the purchase or refinance of Engines and Equipment (defined below), the majority of which will be held for sale or for lease to unaffiliated persons and for working capital and general corporate purposes. WHEREAS, the Banks are willing to establish such Credit Facility and make loans to the Borrower under the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and promises hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. CERTAIN DEFINITIONS 1.1        Definitions              “Acceptable Manufacturer” shall mean CFM International, General Electric, Pratt & Whitney, Rolls Royce, and International Aero Engines.              “Adjusted Tangible Net Worth” shall mean Tangible Net Worth of the Willis Companies, less any stockholder’s equity in any Unrestricted Subsidiaries where the Debt of such Unrestricted Subsidiary is nonrecourse to the Borrower.              “Adjusted Total Debt” shall mean all Debt of the Willis Companies, less any Debt to the extent such Debt is nonrecourse to the Borrower.              “Administrative Agent” shall have the meaning set forth in the Preamble to this Agreement, and shall also mean and include any successor Administrative Agent appointed pursuant to Section 10.6 hereto.              “Affiliate” shall mean, with respect to any Person, any other Person:  (i) which directly or indirectly controls, or is controlled by, or is under common control with such Person; (ii) which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock of such Person; or (iii) ten percent (10%) or more of whose voting stock is directly or indirectly beneficially owned or held by such Person.  The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.              “Aggregate Revolving Loan Commitment” shall have the meaning set forth in Section 2.1(a).              “Agreement” shall mean this Credit Agreement, as amended, supplemented, modified, replaced, substituted for or restated from time to time and all exhibits and schedules attached hereto.              “Applicable Margin.”  With respect to Base Rate Loans and LIBO Rate Loans, the term “Applicable Margin” shall have the meaning set forth on Exhibit B hereto.              “Asset Base” shall mean the amount equal to the sum of:              (a)         ___% of the Net Book Value of Eligible Engines which are not Off-Lease for a period of more than 180 consecutive days; plus*              (b)        ___% of the Net Book Value of all the Eligible Engines which are Off-Lease for a period of more than 180 consecutive days; plus*              (c)         ___% of the Net Book Value of the Eligible Equipment which is not Off-Lease for a period of more than 180 consecutive days; plus*              (d)        ___% of the Net Book Value of the Eligible Equipment which is Off-Lease for a period of more than 180 but less than 365 consecutive days but only to the extent the Eligible Equipment consists of (i) Stage II  engines outfitted with hushkits, (ii) turboprop engines and (iii) Parts Packages.* If an Eligible Engine or an item of Eligible Equipment is subject to a Lease, the Eligible Engine or item of Eligible Equipment will be included in the Asset Base only if such Lease is an Eligible Lease.  The Asset Base shall also be subject to the following concentration limits:              (i)          No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment subject to Leases which mature within any 12-month period (determined on a rolling 12-month basis);*              (ii)         No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment which are Off-Lease;*              (iii)        No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment subject to Leases to a single lessee;*              (iv)       No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment subject to Leases to the Three Primary Lessees;*              (v)        No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment (other than Parts Packages) manufactured by the same Acceptable Manufacturer and of the same make and model;*              (vi)       No more than ___% of the Asset Base shall consist of Eligible Equipment constituting Stage II engines not outfitted with hushkits and turboprop engines;*              (vii)      No more than ___% (which percentage, for the avoidance of doubt, shall include the Eligible Equipment subject to the ___% limitation set forth in clause (vi) above) of the Asset Base shall consist of Eligible Equipment constituting Stage II engines and turboprop engines;*              (viii)     No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment used on a single make and model of narrow-body aircraft;*              (ix)        No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment used on a single make and model of wide-body aircraft;*              (x)         No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment used on wide-body aircraft;*              (xi)        No more than the lesser of (a) ___% of the Aggregate Revolving Loan Commitment or (b) ___% of the Net Book Value of the Eligible Engines and Eligible Equipment included in the Asset Base shall consist of Eligible Parts Packages (based on Net Book Value); and*              (xii)       No more than ___% of the Asset Base shall consist of Eligible Engines and Eligible Equipment subject to Leases with lessees domiciled or principally located in Nonrecognition of Rights Jurisdictions, provided, however, that any concentration in excess of ___% solely due to the Leases set forth in Schedule 3 hereto or due to the removal by the Majority Banks of a lessee (or in the case of a Lease to WLFC (Ireland) Limited, a sublessee) listed in Schedule 4 hereto shall be included in the Asset Base but, in no event, shall the Borrower be entitled to include in the Asset Base additional Leases with Lessees domiciled or principally located in Nonrecognition of Rights Jurisdictions during any period in which this proviso shall be applicable; and*              (xiii)      No more than the percentage of the Net Book Value of the Eligible Engines and Eligible Equipment subject to Leases included in the Asset Base set forth in Schedule 5 attached hereto for a particular country or geographic region shall in the aggregate be with lessees domiciled or principally located in such countries or geographic regions. Notwithstanding the foregoing, (A)       If (a) any Engine, any item of Equipment or any Lease of any Engine or any item of Equipment shall fail to constitute an “Eligible Engine” or item of “Eligible Equipment” or “Eligible Lease,” as the case may be, or (b) the Security Agent shall not receive a perfected, first priority security interest in an Engine or an item of Equipment (as and to the extent contemplated in Section 9.1) subject to Permitted Liens, the Security Agent, in its sole discretion, may nevertheless include such Engine, such item of Equipment or Lease in the Asset Base, provided that at no time will the aggregate amount of the Asset Base comprised of such non-eligible Engines, non-eligible items of Equipment, non-eligible Leases and such Engines or Equipment regarding which the security interest is not fully perfected exceed $__________.  Promptly following a determination by the Security Agent to include in the Asset Base such non-eligible Engines, non-eligible items of Equipment, non-eligible Leases, or such Engines or Equipment regarding which the security interest is not fully perfected (which determination may be made prospectively), the Security Agent will notify the Banks of its decision and the basis therefor and request that the Banks either confirm or reject such determination.  If the Required Banks confirm such determination in writing within ten days from delivery of the notice, such Engine, item of Equipment or Lease shall be deemed to be an “Eligible Engine,” an item of “Eligible Equipment” or an “Eligible Lease”, as the case may be, and will no longer count towards the $__________ limit for non-eligible Engines, items of non-eligible Equipment, non-eligible Leases and Engines and non-eligible Equipment regarding which the security interest is not fully perfected.  If Banks sufficient to constitute the Required Banks fail to confirm such determination in writing within ten days from delivery of the notice, such determination by the Security Agent will be deemed not approved by the Required Banks, unless or until otherwise approved by the Required Banks in writing and such Engine, item of Equipment or Lease shall continue to count towards the $__________ limit and shall continue to be included in the Asset Base.* (B)        If more than ___% (determined in the aggregate) of (a) the Engines and Equipment included in the Asset Base, and (b) the engines and equipment subject to the WLFC Funding Facility is Off-Lease, then Stage III Engines which have been Off-Lease for more than 12 consecutive months shall not constitute “Eligible Engines;” and* (C)        All of the Engines, Equipment and Leases listed on Schedule 6 shall be deemed to constitute Eligible Engines, Eligible Equipment or Eligible Leases and shall be deemed to meet the Eligibility Criteria.              “Asset Base Certificate” shall mean a certificate in substantially the form attached hereto as Exhibit E hereto which shall be signed by the chief financial officer, chief administrative officer or chief executive officer of the Borrower.              “Base Rate” shall mean the higher of (x) the Prime Rate, and (y) the Federal Funds Rate plus _____ per annum.  Any change in such interest rate shall be effective on the date of such change.*              “Base Rate Loan” shall mean a Loan, or any portion thereof, made at the Base Rate plus the Applicable Margin pursuant to a Request for Advance made under Section 2.4 herein or as otherwise provided in Section 2.10 or in any other provision hereof or in any other Loan Document.              “Beneficial Interest” shall mean a beneficial interest in a trust which owns one or more Engines or items of Equipment.              “Beneficial Interest Pledge Agreement” shall mean a Beneficial Interest Pledge and Security Agreement substantially in form and substance attached hereto as Exhibit L.              “Business Day” shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Rotterdam, The Netherlands, San Francisco, California, U.S.A. or Cleveland, Ohio, U.S.A. are authorized or required to close under the laws of either The Netherlands, the State of California, or the State of Ohio and, if the applicable day relates to a LIBO Rate Loan, or notice with respect to a LIBO Rate Loan, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London (“London Business Day”).              “Capitalized Lease” shall mean all lease obligations of any Person for any property (whether real, personal or mixed) which have been or should be capitalized on the books of the lessee in accordance with Generally Accepted Accounting Principles.              “Capitalized Lease Obligations” with respect to any Person, shall mean the aggregate amount which, in accordance with GAAP, is required to be reported as a liability on the balance sheet of such Person at such time in respect of such Person’s interest as lessee under a Capitalized Lease.              “Change of Control” shall mean, with respect to the Borrower, any action occurring or set of circumstances existing that would result in any Person or group (other than Charles F. Willis IV, his trusts, family limited partnerships or heirs and other than any member of the SwissAir Group pursuant to the exercise of options outstanding on the date of this Agreement) beneficially owning (as defined in Rule 13(d)–3 promulgated under the Securities Exchange Act of 1934, as amended), directly or indirectly, an amount of the outstanding capital stock of the Borrower entitling such Person or group to 30% or more of the voting power of all the outstanding capital stock of the Borrower.  The percentage of voting power shall be determined based on the number of votes a holder of capital stock can cast in the election of directors, compared to the total number of votes that all shareholders can cast in such election.              “Closing Date” shall mean the date on which the Credit Agreement shall become effective as determined in accordance with Section 4.2.              “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations with respect thereto in effect from time to time.              “Collateral” shall mean, collectively, the “Collateral” (as such term is defined in the Security Agreement), the “Collateral” (as such term is defined in the Beneficial Interest Pledge Agreements executed, delivered and outstanding from time to time), “Collateral” (as such term is defined in the Mortgage), “Collateral” (as such term is defined in the Owner Trustee Mortgages executed, delivered and outstanding from time to time), the “Pledged Collateral” (as such term is defined in the Master Share Pledge Agreement), and the “Assigned Property” (as such term is defined in the WLFC (Ireland) Limited Lease Security Assignments.              “Commitment Fee” shall mean the commitment fee payable by the Borrower pursuant to Section 2.12(e).              “Compliance Certificate” shall mean a certificate in substantially the form attached hereto as Exhibit G which shall be signed by the chief financial officer, chief administrative officer or chief executive officer of Borrower.              “Consent and Intercreditor Agreement” shall mean that certain Consent and Intercreditor Agreement among the Security Agent, the Administrative Agent, the Borrower, First Union Securities, Inc., as deal agent, Variable Funding Capital Corporation, as control party, First Union National Bank, as liquidity agent, and Fortis Bank [Nederland] N.V., as control party, in the form attached hereto as Exhibit P.              “Contribution Agreement” shall have the meaning ascribed thereto in the definition of “WLFC Funding Facility”, as amended, waived, restated and supplemented from time to time.              “Debt” shall mean, as to any Person at any time (without duplication) and, for the Borrower, determined on a consolidated basis:  (i) all obligations of such Person for borrowed money; (ii) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable of such Person arising in the ordinary course of business which are not past due by more than ninety days unless such trade accounts payable are being contested in good faith by appropriate proceedings; (iv) all Capitalized Lease Obligations of such Person; (v) all obligations of such Person under guaranties, letters of credit, endorsements (other than for collection or deposit in the ordinary course of business), assumptions or other contingent obligations, in respect of, or to purchase or otherwise acquire, any obligation or indebtedness of any other Person, or any other obligation, contingent or otherwise, of such Person directly or indirectly protecting the holder of any obligation or indebtedness of any other Person, contingent or otherwise, against loss (whether by partnership arrangements, agreements to keep-well, to purchase assets, goods, securities, or services, to take-or-pay or otherwise); (vi) all obligations of any other Person secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person; (vii) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; (viii) the net present value of Operating Leases for engines, aircraft and parts packages, using a 10% discount rate; and (ix) all obligations with respect to deposits or maintenance reserves to the extent not supported by cash reserved specifically therefor.              “Debt Service” shall mean actual payments of principal on Debt and Capitalized Lease Obligations (including any Debt or Capitalized Lease Obligations paid from the sale of Engines or Equipment during the period), plus interest expense incurred during the period.              “Default Rate” on any Loan shall mean two percent (2.0%) per annum above the interest rate then applicable to each Loan or portion thereof.              “Dollars” shall mean the lawful currency of the United States of America.              “EBIT” shall mean the sum of (i) Net Income less any extraordinary gain or loss included in the calculation thereof, plus (ii) amounts deducted for interest expense and income taxes.              “Eligibility Criteria” shall mean the applicable criteria set forth below to be used to determine whether Engines, Equipment and Leases are eligible for inclusion in the Asset Base.              The Eligibility Criteria for Engines are as follows:  __________*              The Eligibility Criteria for Equipment (other than Parts Packages) are as follows:  __________*              The Eligibility Criteria for Parts Packages are as follows:  __________*              The Eligibility Criteria for Leases are as follows:  __________*              “Eligible Engines” shall mean Engines which meet all of the Eligibility Criteria for Engines.              “Eligible Equipment” shall mean Equipment which meets all of the Eligibility Criteria applicable thereto.              “Eligible Lease” shall mean a Lease of an Engine or an item of Equipment which meets all of the Eligibility Criteria for Leases and in which __________*              “Eligible Parts Packages” shall mean Parts Packages which meet all of the Eligibility Criteria for Parts Packages.              “Engine” shall mean any Stage III engine owned by Borrower or an Owner Trustee (acting pursuant to a Trust Agreement) designed or suitable for use to propel an aircraft, whether or not subject to a Lease.              “Environmental Control Statutes” shall mean each and every applicable federal, state, county or municipal environmental statute, ordinance, rule, regulation, order, directive or requirement, together with all successor statutes, ordinances, rules, regulations, orders, directives or requirements, of any Governmental Authority, including without limitation laws in any way related to Hazardous Substances.              “Equipment” shall mean all Stage II engines (whether or not outfitted with hushkits), turboprop engines, and Parts Packages owned by Borrower or an Owner Trustee (acting pursuant to a Trust Agreement), whether or not such items are subject to a Lease.              “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.              “ERISA Affiliate” shall mean any corporation which is a member of the same controlled group of corporations as the Borrower within the meaning of Section 414(b) of the Code, or any trade or business which is under common control with the Borrower within the meaning of Section 414(c) of the Code.              “Event of Default” shall have the meaning set forth in Section 8.1.              “Excepted Collateral” shall have the meaning set forth in Section 8.1(i).              “Existing Debt” shall mean the existing Debt (excluding guarantees) of the Borrower or any of its Restricted Subsidiaries to certain Persons described on Schedule 1 to this Agreement.              “Existing Lease Transactions” shall mean those Leases of any Engine or any item of Equipment, which Leases shall, as of the Closing Date, be included in the Asset Base.              “Extension Fee” shall mean the extension fee payable by the Borrower pursuant to Section 2.5.              “Facility Fee” shall mean the facility fee payable by the Borrower pursuant to Section 2.5.              “Fair Market Value” shall mean with respect to an Engine or item of Equipment, an amount as determined by an appraiser to be the amount that would be obtained in an arm’s-length cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable time period available for marketing, adjusted to account for the maintenance status of such Engine or item of Equipment (which shall reflect any existing maintenance reserves).  In determining such value, it will be assumed that (i) no value will be attributed to lease payments made under the related Lease and (ii) no value shall be attributed to any security deposit under the related Lease.  The appraiser shall be retained by the Security Agent and shall be reasonably acceptable to the Borrower (with reasonable appraisal fees to be paid by the Borrower).              “FAR” means the Federal Aviation Regulations issued by the Federal Aviation Administration as in effect from time to time.              “Federal Funds Rate” shall mean the daily rate of interest announced from time to time by the Board of Governors of the Federal Reserve System in publication H.15 as the “Federal Funds Rate,” or if such publication is unavailable, such rate as is available to the Administrative Agent on such day.              “Fiscal Quarter” shall mean a fiscal quarter of the Borrower, which shall be any quarterly period ending on March 31, June 30, September 30 or December 31 of any year.              “Fiscal Year” shall mean a fiscal year of the Borrower, which shall end on the last day of December.              “Funding Corp. Guaranty” shall have the meaning ascribed thereto in the definition of “WLFC Funding Facility”, as amended, waived, restated and supplemented from time to time.              “Generally Accepted Accounting Principles” or “GAAP” shall mean generally accepted accounting principles as in effect from time to time in the United States of America, consistently applied.              “Governmental Authority” shall mean any federal, state, county or municipal government, or any department, agency, bureau or other similar type body obtaining authority therefrom or created pursuant to any laws, including, without limitation, Environmental Control Statutes.              “Guarantors” shall mean all present and future Restricted Subsidiaries.              “Guaranty” shall mean (i) the Subsidiary Guaranty executed by each Guarantor, and (ii) any Subsidiary Guaranty in the form and substance attached hereto as Exhibit J to be executed by a Guarantor.              “Hazardous Substances” shall mean without limitation, any regulated substance, toxic substance, hazardous substance, hazardous waste, pollution, pollutant or contaminant, as defined or referred to in the Resource Conservation and Recovery Act, as amended, 15 U.S.C., § 2601 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act, 33 U.S.C. § 1251 et seq.; the federal underground storage tank law, Subtitle I of the Resource Conservation and Recovery Act, as amended, P.L. 98–616, 42 U.S.C. § 6901 et seq.; together with any amendments thereto, regulations promulgated thereunder and all substitutions thereof, as well as words of similar purport or meaning referred to in any other federal, state, county or municipal environmental statute, ordinance, rule or regulation.              “Indebtedness for Borrowed Money” shall mean (i) all indebtedness, liabilities, and obligations, now existing or hereafter arising, for money borrowed by the Borrower or its Restricted Subsidiaries, whether or not evidenced by any note, indenture, or agreement (including, without limitation, the Notes and any indebtedness for money borrowed from an Affiliate of the Borrower) and (ii) all indebtedness of others for money borrowed (including indebtedness of an Affiliate of the Borrower) with respect to which the Borrower or its Restricted Subsidiaries have become liable by way of a guarantee or indemnity.              “Intangible Assets” shall mean all assets which would be classified as intangible assets under GAAP consistently applied, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises, and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs, and research and development costs).  For purposes of this definition, prepayments of taxes, license fees and other expenses shall not be deemed Intangible Assets.              “Interest Coverage Ratio” shall mean the ratio of EBIT of the Willis Companies plus rent expenses of the Willis Companies to interest expense of the Willis Companies plus rent expenses of the Willis Companies.              “Interest Period” shall mean a period commencing on the date of a LIBO Rate Loan or with respect to a LIBO Rate Loan being renewed, the last day of the preceding Interest Period and ending one, two, three or six months thereafter, as requested by the Borrower at the time of its Request for Advance; provided also that (i) an Interest Period which would otherwise expire on a day which is not a London Business Day shall be extended to the next succeeding London Business Day unless such London Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding London Business Day, (ii) any Interest Period which begins on the last London Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to the next succeeding clause, end on the last London Business Day of a calendar month; and (iii) no Interest Period shall end later than the Revolving Loan Termination Date.              “Investment” in any Person shall mean, without duplication, (i) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person; (ii) any deposit with, or advance, loan or other extension of credit to, such Person (other than any such deposit, advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies purchased in the ordinary course of business) or guarantee or assumption of, or other contingent obligation with respect to, Indebtedness for Borrowed Money or other liability of such Person (other than unsecured (except for a pledge of Shares (as defined in the Share Pledge Agreement) and records related to such Shares of any Unrestricted Subsidiary) guaranties of the obligations of Restricted or Unrestricted Subsidiaries); (iii) any transfer or contribution of assets to an Unrestricted Subsidiary to the extent that the net book value of such assets is not paid in full at the time of transfer; and (iv) any amount that may, pursuant to the terms of such investment, be required to be paid, deposited, advanced, lent or extended to or guaranteed (other than the guaranties described above) or assumed on behalf of such Person.              “Lease” shall mean a written operating lease agreement assigned to or entered into between Borrower or an Owner Trustee (acting pursuant to a Trust Agreement), as lessor, and a third party (including WLFC (Ireland) Limited and any member of the SwissAir Group) as lessee, pursuant to which Borrower or such Owner Trustee, as applicable, leases to the third party for a fixed period of time one or more Engines or items of Equipment.              “Leverage Ratio” shall mean the ratio of all Debt of the Willis Companies to their Tangible Net Worth calculated based on the most recent financial statements furnished to the Banks in accordance herewith.              “LIBO Rate” shall mean the arithmetic average of the rates of interest per annum (rounded upwards, if necessary to the next 1/16 of 1%) at which the Administrative Agent, individually, is offered deposits of United States Dollars by leading banks in the interbank eurodollar or eurocurrency market on or about eleven o’clock (11:00) a.m., London time, two London Business Days prior to the commencement of the requested Interest Period in an amount substantially equal to the outstanding principal amount of the LIBO Rate Loan requested for a maturity of comparable duration to the Interest Period; provided, however that if for any such period or comparable period, the Administrative Agent is not offered deposits of United States Dollars by leading banks as described above, the LIBO Rate in respect of such period shall mean the rate per annum (rounded upwards, if necessary to the next 1/16 of 1%) for deposits in United States Dollars for a period equal or comparable to such period which appears on Page 3750 on the Dow Jones Telerate Service (the “Telerate Page 3750”) (or such other page as may replace such Telerate Page 3750 for the purpose of displaying London interbank offered rates for United States Dollar deposits), on or about eleven o’clock (11:00) a.m., London time, two (2) London Business Days prior to the commencement of the requested Interest Period in an amount substantially equal to the outstanding principal amount of the LIBO Rate Loan requested for a maturity of comparable duration to the Interest Period; provided further, that if for any such period or comparable period no such rate appears on the Telerate Page 3750 (or such other page as may replace such Telerate Page 3750 for the purpose of displaying London interbank offered rates for United States Dollar deposits), the LIBO Rate in respect of such period shall be the arithmetic mean, as determined by the Administrative Agent, of the rates per annum (rounded upwards, if necessary to the next 1/16 of 1%) appearing on the Reuters Screen “LIBO” page in respect of amounts denominated in Dollars, on or about eleven o’clock (11:00) a.m., London time, two (2) London Business Days prior to the commencement of the requested Interest Period in an amount substantially equal to the outstanding principal amount of the LIBO Rate Loan requested for a maturity of comparable duration to the Interest Period.              “LIBO Rate Loan” shall mean a Loan bearing interest at the LIBO Rate plus the Applicable Margin.              “Lien” shall mean any lien, mortgage, security interest, chattel mortgage, pledge or other encumbrance (statutory or otherwise) of any kind securing satisfaction of an obligation, including any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States of America.              “Loan” or “Loans” shall mean the Revolving Loan or Loans.              “Loan Documents” shall mean this Agreement, the Notes, the Mortgage, the Security Agreement, each Guaranty, each Owner Trustee Mortgage, each Owner Trustee Guarantee, each Beneficial Interest Pledge Agreement, the Share Pledge Agreement, each WLFC (Ireland) Document, the Consent and Intercreditor Agreement and all other documents directly related or incidental to said documents, the Loans or the Collateral.              “Majority Banks” shall mean the Banks holding Loans and Revolving Loan Commitments representing more than 50% of the aggregate amount of Loans and Revolving Loan Commitments under this Credit Facility.              “Material Adverse Change” shall mean any event or condition which, in the reasonable determination of the Majority Banks, would result in a material adverse change in the financial condition, business, properties or profits of the Borrower or which gives reasonable grounds to conclude that the Borrower would likely not be able to perform or observe (in the normal course) its obligations under the Loan Documents to which it is a party, including but not limited to the Notes.              “Material Adverse Effect” shall mean a material adverse effect on (i) the financial condition, business, properties, or profits of the Borrower, (ii) the ability of the Borrower to perform its obligations under this Agreement, the Notes and the other Loan Documents, or (iii) the legality, validity or enforceability of this Agreement or the Notes or the rights and remedies of the holders of the Loans.              “Monthly Lease Portfolio and Receivables Report” shall mean a report in summary form of the status of accounts receivable in respect of all Leases which are part of the Collateral in form and substance reasonably satisfactory to the Administrative Agent.              “Mortgage” shall mean the Mortgage and Security Agreement by Borrower in favor of the Security Agent in substantially the form attached hereto as Exhibit D, as amended and supplemented from time to time.              “Multiemployer Plan” shall mean a multiemployer plan as defined in ERISA Section 4001(a)(3), which covers employees of the Borrower or any ERISA Affiliate.              “Net Book Value” of an Engine or an item of Equipment shall be calculated as the lesser of:  (i) the cost to Borrower of such Engine or item of Equipment or (ii) such Engine’s or item of Equipment’s Fair Market Value.  In any event, the Net Book Value will be reduced utilizing depreciation methods consistent with current practice and Generally Accepted Accounting Principles.              “Net Income” shall mean net income of the Willis Companies after taxes, determined in accordance with GAAP.              “Net Worth” shall mean, at any particular time, all amounts, in conformity with GAAP, that would be included as stockholder’s equity on a consolidated balance sheet of the Willis Companies excluding other comprehensive income or loss resulting from the implementation of SFAS 133.              “Nonrecognition of Rights Jurisdictions” shall mean, in connection with each Lease involving a lessee (or, in the case of a Lease to WLFC (Ireland) Limited, involving a sublessee) domiciled or principally located in a non-U.S. jurisdiction, any non-U.S. jurisdiction of such domicile or location unless (a) the Borrower shall have obtained a legal opinion in form and substance reasonably satisfactory to the Security Agent from local counsel in such jurisdiction (a copy of which shall have been provided to the Security Agent) to the effect that under and in accordance with applicable local law, an aircraft engine, upon its installation on an aircraft, should remain the property of the Owner Trustee and not become an accession to such aircraft (thereby vesting a superior right to title in the owner of such aircraft) or (b) the Borrower or the applicable Owner Trustee shall have become a party to or otherwise obtained the benefit of recognition of rights arrangements sufficient to protect its interests as reasonably determined by the Security Agent or (c) the lessee (or, in the case of a Lease to WLFC (Ireland) Limited, the sublessee) under such Lease (or sublease) is a lessee (or in the case of a Lease to WLFC (Ireland) Limited, a sublessee) listed in Schedule 4 hereto; provided, however, that a lessee (or in the case of a Lease to WLFC (Ireland) Limited, a sublessee) may be added or removed from Schedule 4 upon the determination of the Majority Banks (such determination to be made in their sole discretion), with such addition or removal to become effective for all purposes of this agreement upon written notice to the Borrower.  Upon the removal of a lessee (or in the case of a Lease to WLFC (Ireland) Limited, a sublessee) from Schedule 4 hereto, any existing Lease (or sublease) with such lessee (or in the case of a Lease to WLFC (Ireland) Limited, a sublessee) shall be applied to paragraph (xii) of the definition of Asset Base.              “Note” or “Notes” shall mean Revolving Credit Note or Notes.              “Obligations” shall mean all now existing or hereafter arising debts, obligations, covenants, and duties of payment or performance of every kind, matured or unmatured, direct or contingent, owing, arising, due, or payable to the Banks or the Administrative Agent or the Security Agent by the Borrower or any Owner Trustee arising out of this Agreement or any other Loan Document, including, without limitation, all obligations to repay principal of and interest on the Loans and all obligations related to any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement related to the foregoing, and to pay interest, fees, costs, charges, expenses, professional fees, and all sums chargeable to the Borrower or any Owner Trustee or for which the Borrower or any Owner Trustee is liable as indemnitor under the Loan Documents, whether or not evidenced by any note or other instrument.              “Off-Lease” shall mean, at the time of determination, not subject to a Lease.              “Operating Lease” shall mean, with respect to any Person, the aggregate amount which, in accordance with GAAP, is not required to be reported as a liability on the balance sheet of such Person at such time in respect of such Person’s interest as lessee under an operating lease.              “Other Indebtedness” shall mean Indebtedness for Borrowed Money (i) with a final maturity not less than the final maturity of this Credit Facility; (ii) with an average life no less than the remaining average life of this Credit Facility; (iii) with terms, covenants and conditions no more restrictive than those in this Agreement; and (iv) with respect to which the initial advance rates on the assets financed with such Indebtedness for Borrowed Money are not less than those under this Credit Facility.              “Owner Trustee” shall mean Wells Fargo Bank Northwest, National Association (formerly known as First Security Bank, National Association) or another bank or trust company reasonably satisfactory to the Security Agent acting as trustee under a Trust Agreement.              “Owner Trustee Guarantee” shall mean an Owner Trustee Guaranty in the form and substance attached hereto as Exhibit M.              “Owner Trustee Mortgage” shall mean an Owner Trustee Mortgage and Security Agreement substantially in the form attached hereto as Exhibit I.              “Parts” shall mean components of an aircraft or an Engine or any systems within an aircraft or an Engine that have either been removed from an aircraft or an Engine or have not yet been incorporated into an aircraft or an Engine.              “Parts Packages” shall mean a grouping of Parts owned by Borrower or an Owner Trustee (acting pursuant to a Trust Agreement) which are to be sold or leased by Borrower or such Owner Trustee (acting pursuant to a Trust Agreement) to a third party.              “PBGC” shall mean the Pension Benefit Guaranty Corporation and any successor thereto.              “Pension Plan” shall mean, at any time, any Plan (including a Multiemployer Plan), the funding requirements of which (under Section 302 of ERISA or Section 412 of the Code) are, or at any time within the six years immediately preceding the time in question, were in whole or in part, the responsibility of the Borrower or any ERISA Affiliate of the Borrower.              “Permitted Liens” shall mean (i) any Liens for current taxes, assessments and other governmental charges not yet due and payable or being contested in good faith by the Borrower (or by a lessee) by appropriate proceedings and for which adequate reserves have been established by the Borrower as reflected in the Borrower’s financial statements (or by the lessee as reflected in such lessee’s financial statements); (ii) any mechanic’s, materialman’s, carrier’s, warehousemen’s or similar Liens for sums not yet due or being contested in good faith by the Borrower (or by a lessee) by appropriate proceedings and for which adequate reserves have been established by the Borrower as reflected in the Borrower’s financial statements (or by the lessee as reflected in such lessee’s financial statements); (iii) easements, rights-of-way, restrictions and other similar encumbrances on the real property or fixtures of the Borrower incurred in the ordinary course of business which individually or in the aggregate are not substantial in amount and which do not in any case materially detract from the value or marketability of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower; (iv) Liens (other than Liens imposed on any property of the Borrower pursuant to ERISA or Section 412 of the Code) incurred or deposits made in the ordinary course of business, including Liens in connection with workers’ compensation, unemployment insurance and other types of social security and Liens to secure performance of tenders, statutory obligations, surety and appeal bonds (in the case of appeal bonds such Lien shall not secure any reimbursement or indemnity obligation in an amount greater than $2,500,000), bids, leases that are not Capitalized Leases, performance bonds, sales contracts and other similar obligations, in each case, not incurred in connection with the obtaining of credit or the payment of a deferred purchase price, and which do not, in the aggregate, result in a Material Adverse Effect;(v) Liens, if any, existing on the Closing Date and listed in Schedule 1 hereto; (vi) Liens in favor of Fortis, as Security Agent, in the Collateral as contemplated by this Agreement and the other Loan Documents; (vii) the rights of a lessee or sublessee to utilize the Collateral pursuant to the terms of a Lease; (viii) Liens securing Other Indebtedness (but such Liens shall be limited to the assets of the Borrower being financed with the proceeds of such Other Indebtedness); (ix) purchase money Liens securing Debt not to exceed $500,000 in the aggregate, as permitted under Section 6.9(c) hereof; (x) Liens against the Shares (as defined in the Security Agreement) and records relating to such Shares of Unrestricted Subsidiaries as contemplated by Section 6.9(i) hereof; (xi) Liens consisting solely of U.C.C. financing statements that reflect the sale of accounts and chattel paper by the Borrower to an Unrestricted Subsidiary; (xii) Liens arising from the following types of liabilities of a lessee or any other operator of an Engine or item of Equipment, so long as such liabilities are either not yet due or are being contested in good faith through appropriate proceedings that do not give rise to any reasonable likelihood of the sale, forfeiture or other loss of such Engine or item of Equipment, title thereto or the Security Agent’s security interest therein or of criminal or unindemnified civil liability on the part of Borrower, any Bank or any Agent and with respect to which the lessee maintains adequate reserves (in the reasonable judgment of Borrower):  (A) fees or charges of any airport or air navigation authority, (B) judgments, or (C) salvage or other rights of insurers; (xiii) Liens permitted in accordance with Section 8.1(i) hereof; (xiv) Liens on “Contributed Assets” as defined in the Contribution Agreement; and (xv) Liens evidenced by UCC financing statements which are expressly permitted under the terms of this Credit Agreement and the other Loan Documents.              “Person” shall mean any individual, corporation, partnership, joint venture, association, company, business trust or entity, or other entity of whatever nature.              “Plan” shall mean an employee benefit plan as defined in Section 3(3) of ERISA, other than a Multiemployer Plan, whether formal or informal and whether legally binding or not.              “Potential Default” shall mean an event, condition or circumstance that with the giving of notice or lapse of time or both would become an Event of Default.              “Prime Rate” shall mean, for any day, the prime commercial lending rate of the Administrative Agent, as established from time to time at its head office.  The “Prime Rate” is a reference rate and is not necessarily the best rate offered by the Administrative Agent to any one of its customers.              “Prohibited Transaction” shall mean a transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 4.08 of ERISA.              “Regulation” shall mean any statute, law, ordinance, regulation, order or rule of any United States of America or foreign, federal, state, local or other government or governmental body, including, without limitation, those covering or related to banking, financial transactions, securities, public utilities, environmental control, energy, safety, health, transportation, bribery, record keeping, zoning, antidiscrimination, antitrust, wages and hours, employee benefits, and price and wage control matters.              “Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as it may be amended from time to time.              “Regulatory Change” shall mean any change after the date of this Agreement in any Regulation (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests of or under any Regulation (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof applying to a class of banks including any one of the Banks but excluding any foreign office of any Bank.              “Release” shall mean without limitation, the presence, leaking, leaching, pouring, emptying, discharging, spilling, using, generating, manufacturing, refining, transporting, treating, or storing of Hazardous Substances at, into, onto, from or about the property or the threat thereof, regardless of whether the result of an intentional or unintentional action or omission, and which is in violation of applicable law.              “Reportable Event” shall mean, with respect to a Pension Plan:  (i) Any of the events set forth in Sections 4043(b) (other than a reportable event as to which the provision of 30 days’ notice to the PBGC is waived under applicable regulations) or 4063(a) of ERISA or the regulations thereunder, (ii) an event requiring the Borrower or any ERISA Affiliate to provide security to a Pension Plan under Section 401(a)(29) of the Code and (iii) any failure by the Borrower or any ERISA Affiliate to make payments required by Section 412(m) of the Code.              “Request for Advance” shall have the meaning set forth in Section 2.4.              “Required Banks” shall mean the Administrative Agent and the Banks holding Loans and Revolving Loan Commitments representing at least two-thirds (2/3) of the aggregate amount of Loans and Revolving Loan Commitments under this Credit Facility.              “Restricted Subsidiary” shall mean any Subsidiary, direct or indirect, of the Borrower that is not an Unrestricted Subsidiary.  Without limiting the foregoing, and notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, each of (i) T–4 Inc., (ii) T–7 Inc., (iii) T–8 Inc., (iv) T–10 Inc., (v) WLFC (Ireland) Limited, (vi) WLFC Engine Pooling Company and (vii) Terandon Leasing Corporation shall constitute a “Restricted Subsidiary.”              “Revolving Loan” shall have the meaning set forth in Section 2.1.              “Revolving Loan Commitment” shall have the meaning set forth in Section 2.1.              “Revolving Loan Commitment Percentage” shall mean with respect to each Bank the percentage set forth in column (2) opposite its name in Exhibit A hereto.              “Revolving Loan Termination Date” shall have the meaning set forth in Section 2.1.              “Revolving Credit Note” or “Revolving Credit Notes” shall have the meaning set forth in Section 2.2.              “Security Agent” shall have the meaning set forth in the Preamble to this Agreement, and shall also mean and include any successor Security Agent appointed pursuant to Section 10.6 hereto.              “Security Agreement” shall mean the Security Agreement between the Borrower and the Security Agent in substantially the form attached hereto as Exhibit F, as amended and supplemented from time to time.              “Share Pledge Agreement” shall mean the Master Share Pledge Agreement in substantially the form attached hereto as Exhibit N.              “Solvent” shall mean, with respect to any Person, that the aggregate present fair saleable value of such Person’s assets is in excess of the total amount of its probable liabilities on its existing debts as they become absolute and matured, such Person has not incurred debts beyond its foreseeable ability to pay such debts as they mature, and such Person has capital adequate to conduct the business in which it is presently engaged or in which is about to engage.              “Stage II” as it relates to any aircraft or engine, shall mean any aircraft or engine which, at the time of its manufacture, was noncompliant with the noise regulations set forth in FAR Part 36.              “Stage III” as it relates to any aircraft or engine, shall mean any aircraft or engine which, at the time of its manufacture, was compliant with the noise regulations set forth in FAR Part 36.              “Structuring Agent” shall have the meaning set forth in the Preamble to this Agreement, and shall also mean and include any successor Structuring Agent appointed pursuant to Section 10.6 hereto.              “Subsidiary” shall mean a corporation or other entity the shares of stock or other equity interests of which having ordinary voting power (other than stock or other equity interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or both, by the Borrower.              “SwissAir Group” shall mean SwissAir Group, a Swiss corporation, and its Affiliates, including without limitation (but in each case only so long as such Person is an Affiliate of SwissAir Group), FlightTechnics, LLC, Flightlease AG, SRT Group America, Inc., SR Technics Group, and SR Technics Switzerland f/k/a SR Technics AG.              “Tangible Net Worth” shall mean Net Worth minus Intangible Assets.              “Termination Event” shall mean, with respect to a Pension Plan:  (i) a Reportable Event, (ii) the termination of a Pension Plan, or the filing of a notice of intent to terminate a Pension Plan, or the treatment of a Pension Plan amendment as a termination under Section 4041(c) of ERISA, (iii) the institution of proceedings to terminate a Pension Plan under Section 4042 of ERISA or (iv) the appointment of a trustee to administer any Pension Plan under Section 4042 of ERISA.              “Three Primary Lessees” shall mean the three lessees under Leases which, at the time of determination, have leased (whether under one or more Leases) the highest percentages, based on Net Book Value, of all Eligible Engines and Eligible Equipment.              “Trust Agreement” shall mean a Trust Agreement in the form and substance attached hereto as Exhibit K, to be executed by each Owner Trustee having the Borrower as the sole beneficiary.              “Unfunded Pension Liabilities” shall mean, with respect to any Pension Plan at any time, the amount determined by taking the accumulated benefit obligation, as disclosed in accordance with Statement of Accounting Standards No. 87, over the fair market value of Pension Plan assets.              “Unrecognized Retiree Welfare Liability” shall mean, with respect to any Plan that provides post-retirement benefits other than pension benefits, the amount of the accumulated post-retirement benefit obligation, as determined in accordance with Statement of Financial Accounting Standards No. 106, as of the most recent valuation date.  Prior to the date such statement is applicable to the Borrower, such amount of the obligation shall be based on an estimate made in good faith.              “Unrestricted Subsidiary” shall mean WLFC Funding Corporation or any other Subsidiary of Borrower established to facilitate securitizations and any Subsidiary of the Borrower designated as an unrestricted subsidiary by the Borrower.  In no event shall WLFC (Ireland) Limited be designated as an Unrestricted Subsidiary.              “Willis Companies” shall mean the Borrower and its consolidated Subsidiaries.              “WLFC Funding Facility” shall mean the transactions contemplated by (i) that certain Indenture dated as of September 1, 1997 between WLFC Funding Corporation and the Bank of New York, as indenture trustee (the “Indenture”), as supplemented by (ii) that certain amended and restated Supplement dated as of February 11, 1999 (the “Supplement”), (iii) that certain Note Purchase Agreement dated as of February 11, 1999 (the “Note Purchase Agreement”), by and among WLFC Funding Corporation, Borrower, Variable Funding Capital Corporation, the investors named therein, First Union Securities, Inc. (f/k/a First Union Capital Markets Corp.), and First Union National Bank, (iv) that certain amended and restated Contribution and Sale Agreement between WLFC Funding Corporation and Borrower dated as of January 29, 2001 (the “Contribution Agreement”), (v) that certain Servicing Agreement between Borrower and WLFC Funding Corporation dated as of September 1, 1997 (the “Servicing Agreement”), (vi) that certain Third Amended and Restated Guaranty dated as of February 7, 2001 (the “Funding Corp. Guaranty”) made by Borrower in favor of First Union Securities, Inc. (f/k/a First Union Capital Markets Corp.) and (vii) certain other documents and agreements ancillary thereto; in each of cases (i), (ii), (iii), (iv), (v), (vi), and (vii), as amended, waived, restated and supplemented from time to time (including without limitation any such amendments, waivers, restatements and supplements effective on or prior to the date hereof).              “WLFC (Ireland) Documents” shall mean each Lease, sublease and all other documents directly related or incidental to the Loans or the Collateral entered into by WLFC (Ireland) Limited.              “WLFC (Ireland) Limited Security Assignments” shall mean those certain Lease Security Assignments between WLFC (Ireland) Limited, as Assignor, and Fortis Bank [Nederland] N.V., as Security Agent. 1.2        Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with Generally Accepted Accounting Principles consistent with those applied in the preparation of the financial statements referred to in Section 3.6, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.3        Construction.  Words and defined terms importing the plural include the singular and visa versa. SECTION 2. THE CREDIT 2.1        The Revolving Loans.              (a)         Revolving Loans; Revolving Loan Commitment.  Subject to the terms and conditions herein set forth and in reliance upon the representations, warranties and covenants contained herein, each Bank agrees, severally and not jointly, to make revolving credit loans (collectively, the “Revolving Loans” and, individually, a “Revolving Loan”) to the Borrower during the period beginning on the Closing Date and ending on May 31, 2004 or on the earlier date of termination in full, pursuant to Section 2.6, Section 2.7 or Section 8.1 hereof, of the obligations of such Bank under this Section 2.1 (May 31, 2004 or such earlier date of termination or if the Revolving Loan Commitment is renewed the anniversary date thereof being herein called the “Revolving Loan Termination Date”) in amounts not to exceed at any time outstanding, in the aggregate, the commitment amount set forth in column (1) opposite the name of such Bank on Exhibit A hereto (each such amount, as the same may be reduced pursuant to Section 2.6 hereof or increased pursuant to the last sentence of this Section 2.1(a) being hereinafter called such Bank’s “Revolving Loan Commitment”).  Subsequent to the execution of this Agreement and prior to the Closing Date, a Bank may increase its Revolving Loan Commitment.  Any such increase shall be noted in column (1) opposite the name of the relevant Bank on Exhibit A hereto and the Banks’ Revolving Loan Commitment Percentages shall be adjusted to reflect such increased Revolving Loan Commitment.  The Banks’ collective commitment to make Revolving Loans under this Credit Facility shall be the “Aggregate Revolving Loan Commitment”.  All Revolving Loans shall be made by the Banks simultaneously and pro rata in accordance with their respective Revolving Loan Commitments.  All Revolving Loans shall be made to the Borrower at the office of the Administrative Agent in Cleveland, Ohio located at 1900 East Ninth Street.  The Revolving Loan Commitment may be renewed annually at the Borrower’s request and the sole discretion of the Banks.  Notwithstanding the foregoing, the Aggregate Revolving Loan Commitment may be increased to not more than two hundred million Dollars ($200,000,000) within 90 days after the Closing Date through the acceptance of (x) new Revolving Loan Commitments from financial institutions which are not “Banks” on the Closing Date and are acceptable to both the Borrower and the Structuring Agent and/or (y) an increased Revolving Loan Commitment from any Bank(s) (and, in such event, Exhibit A hereto shall be amended accordingly).              (b)        Interest Rate Options.  Revolving Loans shall bear interest at (i) the Base Rate plus the Applicable Margin for Revolving Loans, or (ii) the LIBO Rate plus the Applicable Margin for Revolving Loans, provided that, in the case of LIBO Rate Loans (a) not more than five such Loans may be outstanding at any one time, and (b) no LIBO Rate Loan may have an Interest Period extending beyond the Revolving Loan Termination Date.              (c)         Maximum Loans Outstanding.  The Borrower shall not be entitled to any new Revolving Loan if, after giving effect to such Loan, the unpaid amount of the then- outstanding Loans would exceed the lesser of (i) the then-current Aggregate Revolving Loan Commitment or (ii) the then-current Asset Base as stated in the most recent Asset Base Certificate furnished to the Banks as provided herein.              (d)        Minimum Loan Amount.  Except for Loans which exhaust the full remaining amount of the Aggregate Revolving Loan Commitment and conversions which result in the conversion of all Loans subject to a particular interest rate option, each of which may be in lesser amounts, (i) each LIBO Rate Loan when made (and each conversion of Base Rate Loans into LIBO Rate Loans) shall be in an amount at least equal to $3,000,000 or, if greater, then in such minimum amount plus $100,000 multiples, and (ii) each Base Rate Loan when made (and each conversion of LIBO Rate Loans into Base Rate Loans) shall be in an amount at least equal to $150,000.              (e)         Prepayment and Reborrowing.  Prior to the Revolving Loan Termination Date and within the limits of the Aggregate Revolving Loan Commitment and the Asset Base, the Borrower may borrow, prepay and reborrow Revolving Loans.  All Revolving Loans shall mature and be due and payable on the Revolving Loan Termination Date.              (f)         Revolving Loan Commitment Percentages.  The obligation of each Bank to make a Revolving Loan to the Borrower at any time shall be limited to its percentage (the “Revolving Loan Commitment Percentage”) as set forth in column (2) opposite its name on Exhibit A hereto multiplied by the aggregate principal amount of the Revolving Loan requested.  The principal amounts of the respective Revolving Loans made by the Banks on the occasion of each borrowing shall be pro rata in accordance with their respective Revolving Loan Commitment Percentages.  No Bank shall be required or permitted to make any Loan if, immediately after giving effect to such Loan, and the application of the proceeds of a Loan to the extent applied to the repayment of the Loans, the sum of such Bank’s Loans outstanding would exceed such Bank’s Revolving Loan Commitment.              (g)        Several Obligations.  The failure of any one or more Banks to make Revolving Loans in accordance with its or their obligations shall not relieve the other Banks of their several obligations hereunder, but in no event shall the aggregate amount at any one time outstanding which any Bank shall be required to lend hereunder exceed its Revolving Loan Commitment. 2.2        The Revolving Credit Notes.  The Revolving Loans made by each Bank shall be evidenced by a single promissory note of the Borrower (each such promissory note as it may be amended, extended, modified or renewed, a “Revolving Credit Note” and, together, the “Revolving Credit Notes”) in principal face amount equal to such Bank’s Revolving Loan Commitment, payable to the order of such Bank and otherwise in the form attached hereto as Exhibit C.  The Revolving Credit Notes shall be dated the Closing Date, shall bear interest at the rate per annum and be payable as to principal and interest in accordance with the terms hereof.  Each outstanding Revolving Loan shall be due and payable as set forth in Section 2.1 hereof unless the maturity of said Loans is accelerated as provided in Section 2.6 or Section 8.1 hereof.  Notwithstanding the stated amount of any Revolving Credit Note, the liability of the Borrower under each Revolving Credit Note shall be limited at all times to the outstanding principal amount of the Revolving Loans by each Bank evidenced thereby, plus all interest accrued thereon and the amount of all costs and expenses then payable hereunder, as established by each such Bank’s books and records, which books and records shall be conclusive absent manifest error. 2.3        [Reserved]. 2.4        Funding Procedures.              (a)         Request for Advance.  Each request for a Revolving Loan or the conversion or renewal of an interest rate with respect to a Loan shall be made not later than 2:00 p.m. Eastern prevailing time on a Business Day by delivery to the Administrative Agent of a written request signed by the Borrower or, in the alternative, a telephone request followed promptly by written confirmation of the request (a “Request for Advance”), specifying the date and amount of the Loan to be made, converted or renewed, selecting the interest rate option applicable thereto, and in the case of LIBO Rate Loans, specifying the Interest Period applicable to such Loans.  The form of request to be used in connection with the making, conversion or renewal of Loans shall be that form provided to the Borrower by the Administrative Agent.  Each request shall be received not less than one Business Day prior to the date of the proposed borrowing, conversion or renewal in the case of Base Rate Loans and three London Business Days prior to the date of the proposed borrowing, conversion or renewal in the case of LIBO Rate Loans.  No request shall be effective until actually received in writing by the Administrative Agent.  The Borrower may not request more than three advances per week.  Each Request for Advance shall be for Loans at a single interest rate option.              (b)        Actions by the Administrative Agent.  Upon receipt of a Request for Advance and if the conditions precedent provided herein shall be satisfied at the time of such request, the Administrative Agent promptly shall notify each Bank of such request and of such Bank’s ratable share of such Loan.  Upon receipt by the Administrative Agent of a Request for Advance, the request shall not be revocable by the Borrower.              (c)         Availability of Funds.  Not later than 1:00 p.m. Eastern prevailing time on the date of each Loan, each Bank shall make available (except as provided in clause (d) below) its ratable share of such Loan, in immediately available Dollars, to the Administrative Agent at the address set forth opposite its name on the signature page hereof or at such account in London as the Administrative Agent shall specify to the Borrower and the Banks.  Unless the Administrative Agent knows that any applicable condition specified herein has not been satisfied, it will make the funds so received from the Banks immediately available to the Borrower on the date of each Loan by a credit to the account of the Borrower at the Administrative Agent’s aforesaid address.              (d)        Funding Assumptions.  Unless the Administrative Agent shall have been notified by any Bank at least one Business Day prior to the date of the making, conversion or renewal of any LIBO Rate Loan, or by 3:00 p.m. Eastern prevailing time on the date a Base Rate Loan is requested, that such Bank does not intend to make available to the Administrative Agent, such Bank’s portion of the total amount of the Loan to be made, converted or renewed on such date, the Administrative Agent may assume that such Bank has made such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  If and to the extent such Bank shall not have so made such funds available to the Administrative Agent, such Bank agrees to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at the Federal Funds Rate plus 50 basis points for three Business Days, and thereafter at the Base Rate.  If such Bank shall repay to the Administrative Agent such corresponding amount, such amounts so repaid shall constitute such Bank’s Loan for purposes of this Agreement.  If such Bank does not repay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent, without any prepayment penalty or premium, but with interest on the amount repaid, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at the rate of interest applicable at the time to such Loan.  Nothing herein shall be deemed to relieve any Bank of its obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder.              (e)         Proceeds of Loan Being Repaid.  If the Banks make a Loan on a day on which all or any part of an outstanding Loan from the Banks is to be repaid, each Bank shall apply the proceeds of its new Loan towards Borrower’s obligations to make such Bank’s proportionate share of such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Administrative Agent as provided in clause (c). 2.5        Facility Fee; Extension Fee.  The Borrower agrees to pay to the Administrative Agent the Facility Fee and the Extension Fee, in each case in the amounts and as described on Exhibit A. 2.6        Reduction or Termination of Revolving Loan Commitments.              (a)         Voluntary.  The Borrower may at any time, on not less than one Business Day’s written notice to the Administrative Agent, terminate or permanently reduce the Aggregate Revolving Loan Commitment pro rata among the Banks, provided that any reduction shall be in the minimum amount of $1,000,000 or a multiple thereof and that no such reduction shall cause the principal amount of Loans outstanding to exceed the reduced Aggregate Revolving Loan Commitment or the Asset Base, whichever is less.              (b)        Revolving Loan Commitment Termination.  In the event the Aggregate Revolving Loan Commitment is terminated, the Revolving Loan Termination Date shall be accelerated to the date of such termination and Borrower shall, simultaneously with such termination, repay the Revolving Loans in accordance with Section 2.12. 2.7        Mandatory Prepayments.  Subject to the terms set out in Section 7.6 hereof, if the aggregate principal amount of Loans outstanding under this Credit Facility at any time exceed the total Asset Base, the Borrower shall make immediate prepayments to reduce such outstanding Loans to an amount not to exceed the Asset Base. 2.8        [Reserved]. 2.9        Payment of Additional Amount.  If any principal of a LIBO Rate Loan shall be repaid (whether upon mandatory or voluntary prepayment, reduction of the Aggregate Revolving Loan Commitment after acceleration or for any other reason) or converted to a Base Rate Loan prior to the last day of the Interest Period applicable to such LIBO Rate Loan or if the Borrower fails for any reason to borrow a LIBO Rate Loan after giving irrevocable notice pursuant to Section 2.4, it shall pay to each Bank, in addition to the principal and interest then to be paid, such additional amounts as may be necessary to compensate each Bank for all direct and indirect costs and losses (including losses resulting from redeployment of prepaid or unborrowed funds at rates lower than the cost of such funds to such Bank, and including lost profits incurred or sustained by such Bank) as a result of such repayment or failure to borrow (the “Additional Amount”).  The Additional Amount (which each Bank shall take reasonable measures to minimize) shall be specified in a written notice or certificate delivered to the Borrower by the Administrative Agent in the form provided by each Bank sustaining such costs or losses.  Such notice or certificate shall contain a calculation in reasonable detail of the Additional Amount to be compensated and shall be conclusive as to the facts and the amounts stated therein, absent manifest error. 2.10      Interest.              (a)         Base Rate Loans.  Each Base Rate Loan shall bear interest on the unpaid principal balance thereof from day to day at a rate per annum which at all times shall be equal to the Base Rate plus the Applicable Margin.  Interest on Base Rate Loans shall be computed on the basis of a year of 360 days, for the actual days elapsed.              (b)        LIBO Rate Loans.  Each LIBO Rate Loan shall bear interest on the unpaid principal amount thereof at the LIBO Rate plus the Applicable Margin.  Interest on LIBO Rate Loans shall be computed on the basis of a year of 360 days, for the actual days elapsed.              (c)         Conversion to Base Rate.  Unless the Borrower shall have elected in accordance with the provisions of Section 2.4 or this Section 2.10 that LIBO Rate apply to the one, two, three or six-month period immediately succeeding a particular Interest Period, upon the termination of such Interest Period the applicable Loan shall bear interest at the Base Rate plus the Applicable Margin until such time as the Borrower elects to request a new LIBO Rate Loan for a subsequent Interest Period.              (d)        Renewals and Conversions.  The Borrower shall have the right to convert Base Rate Loans into LIBO Rate Loans, and vice versa, and to renew LIBO Rate Loans from time to time, provided that:  (i) the Borrower shall give the Administrative Agent notice of each permitted conversion or renewal; (ii) LIBO Rate Loans may be converted or renewed only as of the last day of the applicable Interest Period for such Loans; (iii) without the consent of the Majority Banks, no Base Rate Loan may be converted into a LIBO Rate Loan, and no Interest Period may be renewed if on the proposed date of conversion an Event of Default or Potential Default exists or would thereby occur.  The Administrative Agent shall use its best efforts to notify the Borrower and the Banks of the effectiveness of such conversion or renewal, and the new interest rate to which the converted or renewed Loan is subject, as soon as practicable after the conversion; provided, however, that any failure to give such notice shall not affect the Borrower’s obligations or the Banks’ rights and remedies hereunder in any way whatsoever.              (e)         Interim Payments At Base Rate.  If at any time the Borrower requests that the LIBO Rate plus the Applicable Margin be applicable to a Loan for a particular Interest Period and a payment of principal is due within such period (other than on the last day of such Interest Period), only that portion of that Loan equal to the outstanding principal amount of the Loan less the principal installment due during such period shall bear interest at the LIBO Rate plus the Applicable Margin for such Interest Period.  The portion of that Loan equal to the principal installment due during such period shall bear interest at the Base Rate plus the Applicable Margin.              (f)         Reinstatements.  The liability of the Borrower under this Section 2.10 shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the payments to the Banks is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Borrower or any other Person or any substantial part of its property, or otherwise, all as though such payment had not been made. 2.11      Voluntary Prepayments.              (a)         Base Rate Loans.  On one Business Day’s notice to the Administrative Agent, the Borrower may, without penalty, at its option, prepay any Base Rate Loan in whole at any time or in part from time to time, provided that each partial prepayment shall be in the minimum principal amount of $150,000 or, if greater, then in multiples thereof and, if less than $150,000 shall be outstanding, in principal amount equal to amount remaining outstanding.  Notwithstanding the foregoing, prepayments may be made in connection with the release of Collateral as provided in Section 9.3, which prepayments shall not be subject to the proviso contained in the previous sentence.              (b)        LIBO Rate Loans.  On one London Business Day’s notice to the Administrative Agent, the Borrower may, without penalty, at its option, prepay any LIBO Rate Loan in whole at any time or in part from time to time, provided that each partial prepayment shall be in the minimum principal amount of $1,000,000 or, if greater, then in multiples of $100,000 and, if less than $1,000,000 shall be outstanding, in principal amount equal to the amount remaining outstanding (not withstanding the foregoing, prepayments may be made in connection with the release of Collateral as provided in Section 9.3, which prepayments shall not be subject to the foregoing proviso), provided that if it shall prepay a LIBO Rate Loan prior to the last day of the applicable Interest Period, or shall fail to borrow any LIBO Rate Loan on the date such Loan is to be made, it shall pay to each Bank, in addition to the principal and interest then to be paid in the case of a prepayment, on such date of prepayment, the Additional Amount incurred or sustained by such Bank as a result of such prepayment or failure to borrow as provided in Section 2.9. 2.12      Payments.              (a)         Accrued Interest.  Accrued interest on all Base Rate Loans shall be due and payable in arrears on the last Business Day of each calendar month.  Interest on LIBO Rate Loans shall be payable in arrears on the last day of the applicable Interest Period, provided that if an Interest Period in respect of a LIBO Rate Loan exceeds three months, accrued interest shall be payable on the three-month anniversary of such LIBO Rate Loan.  Each Revolving Loan shall mature as provided in Section 2.1.              (b)        Form of Payments, Application of Payments, Payment Administration, Etc.  Subject to the provisions of Section 11.7(b) hereto, all payments of principal, interest, fees, or other amounts payable by the Borrower hereunder shall be applied to the Loans in such order and to such extent as shall be specified by the Borrower by written notice to the Administrative Agent at the time of such payment or prepayment.  Such payments shall be remitted in Dollars to the Administrative Agent on behalf of the Banks at the address set forth opposite its name on the signature page hereof or at such office or account as the Administrative Agent shall specify to the Borrower, in immediately available funds not later than 2:00 p.m. Eastern prevailing time on the day when due.  Whenever any payment is stated as due on a day which is not a Business Day, the maturity of such payment shall, except as otherwise provided in the definition of “Interest Period,” be extended to the next succeeding Business Day and interest and commitment fees shall continue to accrue during such extension.  The Borrower authorizes the Administrative Agent to deduct from any account of the Borrower maintained at the Administrative Agent or over which the Administrative Agent has control any amount payable under this Agreement, the Notes or any other Loan Document which is not paid in a timely manner.  The Administrative Agent’s failure to deliver any bill, statement or invoice with respect to amounts due under this Section or under any Loan Document shall not affect the Borrower’s obligation to pay any installment of principal, interest or any other amount under this Agreement when due and payable.              (c)         Demand Deposit Account.  The Borrower shall maintain at least one demand deposit account with the Administrative Agent for purposes of this Agreement.  The Borrower authorizes the Administrative Agent to deposit into said account all amounts to be advanced to the Borrower hereunder.  Further, the Borrower authorizes the Administrative Agent (but the Administrative Agent shall not be obligated) to deduct from said account, or any other account maintained by the Borrower at the Administrative Agent, any amount payable hereunder on or after the date upon which it is due and payable.  Such authorization shall include but not be limited to amounts payable with respect to principal, interest, fees and expenses.              (d)        Net Payments.  All payments made to the Banks by the Borrower hereunder, under any Note or under any other Loan Document will be made without set-off, counterclaim or other defense.              (e)         Commitment Fee.  Borrower agrees to pay to the Administrative Agent for the account of each Bank as compensation for the Aggregate Revolving Loan Commitment a fee based on the average daily unused committed amount of the Credit Facility (the “Commitment Fee”) computed as indicated on the chart set forth on Exhibit B hereto, based on the then applicable Leverage Ratio of the Borrower.  The Commitment Fee shall be payable quarterly in arrears on the first day of each January, April, July and October, commencing July 1, 2001 (for the three month period or portion thereof ended on the preceding day), and on the Revolving Loan Termination Date.  The Commitment Fee shall be calculated on the basis of the actual number of days elapsed in a 360-day year.  The Administrative Agent shall promptly distribute to the Banks their respective portions of the Commitment Fee. 2.13      Change in Circumstances, Yield Protection.              (a)         Certain Regulatory Changes.  If any Regulatory Change or compliance by any Bank with any request made after the date of this Agreement by the Board of Governors of the Federal Reserve System or by any Federal Reserve Bank or other central bank or fiscal, monetary or similar authority (in each case whether or not having the force of law) shall (i) impose, modify or make applicable any reserve, special deposit, Federal Deposit Insurance Corporation premium or similar requirement or imposition against assets held by, or deposits in or for the account of, or loans made by, or any other acquisition of funds for loans or advances by, any Bank; (ii) impose on any Bank any other condition regarding the Notes; (iii) subject any Bank to, or cause the withdrawal or termination of any previously granted exemption with respect to, any tax (including any withholding tax but not including any income tax not currently causing any Bank to be subject to withholding) or any other levy, impost, duty, charge, fee or deduction on or from any payments due from the Borrower; or (iv) change the basis of taxation of payments from the Borrower to any Bank (other than by reason of a change in the method of taxation of any Bank’s net income); and the result of any of the foregoing events is to increase the cost to any Bank of making or maintaining any Loan or to reduce the amount of principal, interest or fees to be received by any Bank hereunder in respect of any Loan, the Administrative Agent will immediately so notify the Borrower.  If any Bank determines in good faith that the effects of the change resulting in such increased cost or reduced amount cannot reasonably be avoided or the cost thereof mitigated, then upon notice by the Administrative Agent to the Borrower, the Borrower shall pay to such Bank on each interest payment date of the Loans, such additional amount as shall be necessary to compensate that Bank for such increased cost or reduced amount.              (b)        Capital Adequacy.  If any Bank shall determine that any Regulation regarding capital adequacy or the adoption of any Regulation regarding capital adequacy, which Regulation is applicable to banks (or their holding companies) generally and not such Bank (or its holding company) specifically, 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 such Bank (or its holding company) with any such request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has the effect of reducing the rate of return on such Bank’s capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank’s policies with respect to capital adequacy) by an amount deemed by such Bank to be material, the Borrower shall promptly pay to the Administrative Agent for the account of such Bank, upon the demand of such Bank, such additional amount or amounts as will compensate such Bank for such reduction.              (c)         Ability to Determine LIBO Rate.  If the Administrative Agent shall determine (which determination will be made after consultation with any Bank requesting same and shall be, in the absence of fraud or manifest error, conclusive and binding upon all parties hereto) that by reason of abnormal circumstances affecting the interbank eurodollar or applicable eurocurrency market adequate and reasonable means do not exist for ascertaining the LIBO Rate to be applicable to the requested LIBO Rate Loan or that eurodollar or eurocurrency funds in amounts sufficient to fund all the LIBO Rate Loans are not obtainable on reasonable terms, the Administrative Agent shall give notice of such inability or determination by telephone to the Borrower and to each Bank at least two Business Days prior to the date of the proposed Loan and thereupon the obligations of the Banks to make, convert other Loans to, or renew such LIBO Rate Loan shall be excused, subject, however, to the right of the Borrower at any time thereafter to submit another request.              (d)        Yield Protection.  Determination by a Bank for purposes hereof of the effect of any Regulatory Change or other change or circumstance referred to in this Section 2.13 on its costs of making or maintaining Loans or on amounts receivable by it in respect of the Loans and of the additional amounts required to compensate such Bank in respect of any additional costs, shall be made in good faith and shall be evidenced by a certificate, signed by an officer of such Bank and delivered to the Borrower, as to the fact and amount of the increased cost incurred by or the reduced amount accruing to such Bank owing to such event or events.  Such certificate shall be prepared in reasonable detail and shall be conclusive as to the facts and amounts stated therein, absent manifest error.  The Borrower shall pay such Bank the amount shown as due at the times required herein.              (e)         [Reserved].              (f)         Notice of Events.  The affected Bank will notify the Borrower of any event occurring after the date of this Agreement that will entitle such Bank to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation.  Said notice shall be in writing, shall specify the applicable Section or Sections of this Agreement to which it relates and shall set forth the amount or amounts then payable pursuant to this Section. 2.14      Illegality.  Notwithstanding any other provision in this Agreement, if the adoption of any applicable 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 Bank with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for any Bank to (a) maintain its Revolving Loan Commitment, then upon notice to the Borrower by the Administrative Agent, its Revolving Loan Commitment shall terminate; or (b) maintain or fund its LIBO Rate Loans, then upon notice to the Borrower of such event, the Borrower’s outstanding LIBO Rate Loans shall be converted into Base Rate Loans. 2.15      Discretion of each Bank as to Manner of Funding.  Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Bank had actually funded and maintained each LIBO Rate Loan during each Interest Period for such Loan through the purchase of deposits in the relevant interbank market having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBO Rate for such Interest Period; provided, however, that Borrower shall not be required to compensate such Bank for any Additional Amount (as described in Section 2.9) unless such Bank actually incurs or sustains or suffers the loss of such amount (provided further, however, that nothing contained in this Section 2.15 shall be deemed to limit or otherwise affect Borrower’s obligations under Section 2.9). 2.16      Appraisals.  Within 20 days following the receipt by the Banks of the Asset Base Certificate covering the last month of a Fiscal Quarter, the Majority Banks may request that an appraisal be conducted with respect to Eligible Engines or Eligible Equipment (other than Parts Packages) added to the Asset Base during the Fiscal Quarter just ended.  In addition, not more than once per each Fiscal Year, (i) the Majority Banks may request that an appraisal be conducted with respect to all Eligible Engines and Eligible Equipment (other than Parts Packages) included in the Asset Base, and (ii) the Banks may request that an appraisal be conducted with respect to any Engine or item of Equipment Off-Lease for more than 365 consecutive days.  Each such appraisal shall be a “desktop appraisal” (unless a Potential Default or an Event of Default then exists) and shall be conducted by an appraiser retained by the Security Agent on behalf of the Banks, and the cost of each such appraisal will be paid by the Borrower. SECTION 3. REPRESENTATIONS AND WARRANTIES              The Borrower represents and warrants to the Banks that: 3.1        Organization, Standing.  It (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority necessary to own its assets, carry on its business and enter into and perform its obligations hereunder, and under each Loan Document to which it is a party, and (c) is qualified to do business and is in good standing in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. 3.2        Corporate Authority, Validity, Etc.  The making and performance of the Loan Documents to which it is a party are within its power and authority and have been duly authorized by all necessary corporate action.  The making and performance of the Loan Documents do not and under present law will not require any consent or approval not obtained of any of its shareholders, or any other Person (including, without limitation, any Governmental Authority), do not and under present law will not violate any law, rule, regulation order, writ, judgment, injunction, decree, determination or award, do not violate any provision of its charter or by–laws, do not and will not result in any breach of any material agreement, lease or instrument to which it is a party, by which it is bound or to which any of its assets are or may be subject, and do not and will not give rise to any Lien upon any of its assets except the Lien in favor of the Security Agent contemplated hereby.  The number of shares and classes of the capital stock of the Borrower and the ownership thereof are accurately set forth on Schedule 1 attached hereto; all such shares are validly issued, fully paid and non-assessable, and the issuance and sale thereof are in compliance with all applicable federal and state securities and other applicable laws.  Further, the Borrower is not in default under any such agreement, lease or instrument except to the extent such default reasonably could not have a Material Adverse Effect.  No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Borrower of any Loan Document to which it is a party or for the validity or enforceability thereof, except any filings or registrations expressly contemplated by the Loan Documents. 3.3        Validity of Loan Documents.  The Loan Documents to which Borrower is a party, when executed and delivered by Borrower, will have been duly executed and delivered by the Borrower and constitute legal, valid, and binding obligations of the Borrower, enforceable in accordance with their respective terms. 3.4        Litigation.  Except as disclosed on Schedule 1, there are no actions, suits or proceedings pending or, to the Borrower’s knowledge, threatened against or affecting the Borrower or any of its assets before any court, government agency, or other tribunal which if adversely determined reasonably could have a Material Adverse Effect.  If there is any disclosure on Schedule 1, the status (including the tribunal, the nature of the claim and the amount in controversy) of each such litigation matter as of the date of this Agreement is set forth in Schedule 1. 3.5        ERISA.  (a) The Borrower and each ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA and the regulations promulgated thereunder; and, neither Borrower, nor any ERISA Affiliate maintains or contributes to or has maintained or contributed to any multiemployer plan (as defined in Section 4001 of ERISA) under which the Borrower or any ERISA Affiliate could have any withdrawal liability; (b) neither the Borrower nor any ERISA Affiliate, sponsors or maintains any Plan under which there is an accumulated funding deficiency within the meaning of Section 412 of the Code, whether or not waived; (c) the aggregate liability for accrued benefits and other ancillary benefits under each Plan that is or will be sponsored or maintained by the Borrower or any ERISA Affiliate (determined on the basis of the actuarial assumptions prescribed for valuing benefits under terminating single-employer defined benefit plans under Title IV of ERISA) does not exceed the aggregate fair market value of the assets under each such defined benefit pension Plan; (d) the aggregate liability of the Borrower and each ERISA Affiliate arising out of or relating to a failure of any Plan to comply with the provisions of ERISA or the Code, will not have a Material Adverse Effect; and (e) there does not exist any unfunded liability (determined on the basis of actuarial assumptions utilized by the actuary for the plan in preparing the most recent Annual Report) of the Borrower or any ERISA Affiliate under any plan, program or arrangement providing post-retirement life or health benefits. 3.6        Financial Statements.  The consolidated financial statements of Borrower as of and for the Fiscal Year ending December 31, 2000, consisting of a balance sheet, a statement of operations, a statement of shareholders’ equity, a statement of cash flows and accompanying footnotes furnished to the Banks in connection herewith, present fairly, in all material respects, the financial position, results of operations and operating statistics of the Borrower as of the dates and for the periods referred to, in conformity with GAAP.  Except as set forth on Schedule 1 hereto, there are no material liabilities, fixed or contingent, which are not reflected in such financial statements, the accompanying footnotes, or the Borrower’s Form 10K filed for the period ending December 31, 2000, other than liabilities which are not required to be reflected in such financial statements. 3.7        No Material Adverse Change.  Since December 31, 2000, there has been no Material Adverse Change. 3.8        Not in Default, Judgments, Etc.  No Event of Default or Potential Default under any Loan Document has occurred and is continuing.  The Borrower has satisfied all judgments (other than judgments which do not constitute an Event of Default under Section 8.1(f)), and is not in default under any order, writ, injunction, or decree of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board bureau, agency, or instrumentality, domestic or foreign. 3.9        Taxes.  The Borrower has filed all federal, state, local and foreign tax returns and reports which it is required by law to file and as to which its failure to file would have a Material Adverse Effect, and has paid all taxes, including wage taxes, assessments, withholdings and other governmental charges which are presently due and payable, other than those being contested in good faith by appropriate proceedings, if any, and disclosed on Schedule 1.  The tax charges, accruals and reserves on the books of the Borrower are adequate to pay all such taxes that have accrued but are not presently due and payable. 3.10      Permits, Licenses, Etc.  The Borrower possesses all permits, licenses, franchises, trademarks, trade names, copyrights and patents necessary to the conduct of its business as presently conducted or as presently proposed to be conducted, except where the failure to possess the same would not have a Material Adverse Effect. 3.11      No Materially Adverse Contracts, Etc.  To the best of its knowledge, the Borrower is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of its directors or officers has or is expected in the future to have a Material Adverse Effect.  The Borrower is not a party to any contract or agreement which in the judgment of its directors or officers has or is expected to have any Material Adverse Effect, except as otherwise reflected in adequate reserves. 3.12      Compliance with Laws, Etc.              (a)         Compliance Generally.  The Borrower is in compliance in all material respects with all Regulations applicable to its business (including obtaining all authorizations, consents, approvals, orders, licenses, exemptions from, and making all filings or registrations or qualifications with, any court or governmental department, public body or authority, commission, board, bureau, agency, or instrumentality), the noncompliance with which reasonably would likely have a Material Adverse Effect.              (b)        Hazardous Wastes, Substances and Petroleum Products.  The Borrower received all permits and filed all notifications necessary to carry on its business; and is in compliance in all material respects with all Environmental Control Statutes.  The Borrower has not given any written or oral notice, nor has it failed to give required notice, to the Environmental Protection Agency (“EPA”) or any state or local agency with regard to any actual or imminently threatened Release of Hazardous Substances on properties owned, leased or operated by it or used in connection with the conduct of its business and operations.  The Borrower has not received notice that it is potentially responsible for costs of clean-up or remediation of any actual or imminently threatened Release of Hazardous Substances pursuant to any Environmental Control Statute.  To the best of the Borrower’s knowledge, no real property owned or leased by it is in violation of any Environmental Laws and no Hazardous Substances are present on said real property in violation of applicable law.  The Borrower has not received any notice to the effect that it has been identified in any litigation, administrative proceedings or investigation as a potentially responsible party for any liability under any Environmental Laws.  In the event that the Borrower becomes aware of any information indicating that either (i) any real property owned or leased by the Borrower is in violation of any Environmental Laws or any Hazardous Substances are present on said real property in violation of applicable law, or (ii) the Borrower has been identified in any litigation, administrative proceedings or investigation as a potentially responsible party for liability under any Environmental Laws, then the Borrower shall update its representations, in accordance with the requirements of Section 3.20, and the Banks shall not be required to make further Loans under this Credit Facility until the Borrower establishes adequate reserves (in the reasonable judgment of the Majority Banks) for any liability (including cleanup costs) and deliver revised financial statements to the Banks showing such reserves; provided, however, that no reserve shall be required for any such liabilities to the extent that they aggregate to less than $1,000,000. 3.13      Solvency.  The Borrower is, and after giving effect to the transactions contemplated hereby, will be, Solvent. 3.14      Subsidiaries, Etc.  The Borrower does not have any Subsidiaries, except as set forth in Schedule 1 hereto and except for Subsidiaries established to facilitate securitizations.  Set forth in Schedule 1 hereto is a complete and correct list, as of the date of this Agreement, of all Investments held by the Borrower in any joint venture or other Person except Investments expressly permitted hereby.  With respect to Subsidiaries established after the Closing Date to facilitate securitizations, the Borrower shall not be obligated to update Schedule 1 to reflect such Subsidiary, but shall notify the Banks pursuant to Section 5.17 of the establishment of such Subsidiary. 3.15      Title to Properties, Leases.  The Borrower has good and marketable title to all assets and properties reflected as being owned by it in its financial statements as well as to all assets and properties acquired since said date (except property disposed of since said date in the ordinary course of business).  Except for the Liens existing on the Closing Date as set forth in Schedule 1 hereto and any other Permitted Liens, there are no Liens on any of such assets or properties.  It has the right to, and does, enjoy peaceful and undisturbed possession under all material leases under which it is leasing property as a lessee.  All such leases are valid, subsisting and in full force and effect, and none of such leases is in default, except where such default, either individually or in the aggregate, could not have a Material Adverse Effect. 3.16      Public Utility Holding Company; Investment Company.  The Borrower is not a “public utility company” or a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; or a “public utility” within the meaning of the Federal Power Act, as amended.  Further, the Borrower is not an “investment company” or an “affiliated person” of an “investment company” or a company “controlled” by an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended. 3.17      Margin Stock.  The Borrower is not and will not be engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying or trading in any margin stocks or margin securities (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System as amended from time to time).  It will not use or permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stocks or margin securities. 3.18      Use of Proceeds.  The Borrower will use the proceeds of any Loan to be made pursuant hereto for the purchase, financing and refinancing of Engines and Equipment as contemplated herein, as well as for working capital and general corporate purposes. 3.19      Depreciation Policies.  The Borrower’s depreciation policies with respect to the Engines and the Equipment are as set forth on Exhibit H.  These policies have been in effect substantially without change since January 1, 1997. 3.20      Disclosure Generally.  The representations and statements made by the Borrower or on its behalf in connection with this Credit Facility and the Loans, including representations and statements in each of the Loan Documents, do not and will not contain any untrue statement of a material fact or omit to state a material fact or any fact necessary to make the representations made not materially misleading.  No written information, exhibit, report, brochure or financial statement furnished by the Borrower to the Banks in connection with this Credit Facility, the Loans, or any Loan Document contains or will contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading.  Notwithstanding anything to the contrary in this Agreement, the Disclosure Schedule (Schedule 1) to this Agreement shall be promptly updated by the Borrower whenever necessary to reflect events that have occurred which would make the latest Disclosure Schedule delivered by the Borrower to the Banks inaccurate or misleading; provided, however, that no updating of the Disclosure Schedule shall operate to:  (i) cure a breach of a representation or warranty previously made by the Borrower or any Guarantor; (ii) modify any of the covenants or obligations of the Borrower or any Guarantor under this Agreement or any other Loan Document (including any affirmative covenants, negative covenants or financial covenants); (iii) prevent the occurrence of the disclosed event from constituting a Potential Default or Event of Default if the occurrence of such event otherwise constitutes a Potential Default or Event of Default under this Agreement or any other Loan Document; or (iv) expand the definitions of “Existing Debt” or “Permitted Liens” allowed under this Agreement. SECTION 4. CONDITIONS PRECEDENT 4.1        All Loans.  The obligation of each Bank to make any Loan is conditioned upon the following:              (a)         Request For Advance.  The Borrower shall have delivered and the Administrative Agent shall have received a Request for Advance, in such form as the Administrative Agent may request from time to time.              (b)        Asset Base Certificate.  The Borrower shall have delivered and the Banks shall have received an Asset Base Certificate dated the date of the Loan requested under this Agreement.              (c)         Guaranty.  Each Restricted Subsidiary shall have duly authorized, executed and delivered a Guaranty in the form of Exhibit J hereto, and such Guaranty shall be in full force and effect.              (d)        Additional Documents.  With respect to each Lease (other than an Existing Lease Transaction or a Lease to WLFC (Ireland) Limited) to a lessee domiciled or principally located in a non-U.S. jurisdiction which is to be included in the Asset Base, the Security Agent shall have received (x) the documentation (including, without limitation, the Owner Trustee Guarantees, Owner Trustee Mortgages, Trust Agreements and Beneficial Interest Pledge Agreements) set forth in the definition of “Eligible Lease,” and (y) if the Lease is to proceed on the basis that the limitation expressed in subclause (xii) of the definition of “Asset Base” is inapplicable because the lessee’s domicile or principal location is excluded from the definition of Nonrecognition of Rights Jurisdiction, evidence in each instance in form and substance reasonably satisfactory to the Security Agent of the basis upon which such domicile or principal location is to be excluded from the definition of “Nonrecognition of Rights Jurisdictions”.  With respect to each Lease (other than an Existing Lease Transaction) to WLFC (Ireland) Limited in which the sublessee is domiciled or principally located in a non-U.S. jurisdiction, and which is to be included in the Asset Base, the Security Agent shall have received, if the sublease is to proceed on the basis that the limitation expressed in subclause (xii) of the definition of “Asset Base” is inapplicable because the lessee’s domicile or principal location is excluded from the definition of Nonrecognition of Rights Jurisdiction, evidence in each instance in form and substance reasonably satisfactory to the Security Agent of the basis upon which such domicile or principal location is to be excluded from the definition of “Nonrecognition of Rights Jurisdictions”.              (e)         Covenants; Representations.  The Borrower, the Guarantors and each Owner Trustee shall be in compliance with all covenants, agreements and conditions in each Loan Document and each representation and warranty contained in each Loan Document and made by the Borrower, a Guarantor or an Owner Trustee shall be true with the same effect as if such representation or warranty had been made on the date such Loan is made or issued, except to the extent such representation or warranty relates to a specific prior date.              (f)         Defaults.  Immediately prior to and after giving effect to such transaction, no Event of Default or Potential Default shall exist.              (g)        Material Adverse Change.  Since December 31, 2000, there shall not have been any Material Adverse Change.              (h)        Owner Trustee Documents.  The Administrative Agent shall have received (i) a copy of the resolutions of the Board of Directors of the Owner Trustee, in its individual capacity, certified by the Secretary or an Assistant Secretary of the Owner Trustee, duly authorizing the execution, delivery and performance by the Owner Trustee of each of the Loan Documents to which the Owner Trustee is or will be a party and (ii) an incumbency certificate of Owner Trustee, as to the persons authorized to execute and deliver the Loan Documents to which it is or will be a party and the signatures of such person or persons. 4.2        Conditions to Effectiveness of the Agreement.  The effectiveness of this Credit Agreement as to each Bank is conditioned upon the following:              (a)         Articles, Bylaws.  The Administrative Agent shall have received copies of the Articles or Certificate of Incorporation and Bylaws of the Borrower certified by its Corporate Secretary or Secretary; together with Certificate of Good Standing from any jurisdiction where the nature of its business or the ownership of its properties requires such qualification except where the failure to be so qualified would not have a Material Adverse Effect.              (b)        Evidence of Authorization.  The Administrative Agent shall have received copies certified by the Secretary or Assistant Secretary of the Borrower or any other appropriate official (in the case of a Person other than the Borrower) of all corporate or other action taken by each Person other than the Banks who is a party to any Loan Document to authorize its execution and delivery and performance of the Loan Documents and to authorize the Loans, together with such other related papers as the Administrative Agent shall reasonably require.              (c)         Legal Opinions.  The Administrative Agent shall have received a favorable written legal opinion (i) from counsel to the Borrower dated the Closing Date in form and substance satisfactory, and from counsel reasonably acceptable, to the Banks which shall be addressed to the Banks and (ii) from counsel to the Owner Trustee dated the Closing Date in form and substance satisfactory, and from counsel reasonably acceptable, to the Banks which shall be addressed to the Banks with respect to due authorization, execution and delivery by the Owner Trustee of the Loan Documents to which it is a party; provided, however that if another bank or trust company serves as Owner Trustee (other than as the result of a succession by merger) under the Loan Documents it shall be required to provide such an opinion prior to serving as Owner Trustee.              (d)        Incumbency.  The Administrative Agent shall have received a certificate signed by the secretary or assistant secretary of the Borrower, together with the true signature of the officer or officers authorized to execute and deliver the Loan Documents and certificates thereunder, upon which the Banks shall be entitled to rely conclusively until they shall have received a further certificate of the secretary or assistant secretary of the Borrower amending the prior certificate and submitting the signature of the officer or officers named in the new certificate as being authorized to execute and deliver Loan Documents and certificates thereunder.              (e)         Notes.  Each Bank shall have received its Revolving Credit Note dated the Closing Date duly executed, completed and issued in accordance herewith.              (f)         Documents.  The Administrative Agent and the Security Agent, as the case may be, shall have received all certificates, instruments and other documents then required to be delivered to the Administrative Agent or the Security Agent pursuant to any Loan Documents, in each instance in form and substance reasonably satisfactory to it.              (g)        Consents.  The Borrower shall have provided to each Bank evidence satisfactory to the Banks that all governmental, shareholder and third party consents and approvals necessary in connection with the transactions contemplated hereby have been obtained and remain in effect.              (h)        Other Agreements.  The Borrower, WLFC (Ireland) Limited, and each Owner Trustee as applicable shall have executed and delivered each other Loan Document required hereunder including, without limitation, the Security Agreement, the Share Pledge Agreement, the Mortgage, the Owner Trustee Mortgage(s), the Beneficial Interest Pledge Agreements and the WLFC (Ireland) Limited Security Assignments.              (i)          Security Interest.  The Borrower shall furnish evidence satisfactory to the Banks that the Security Agent holds a perfected, first-priority lien against all Collateral subject to the provisos set forth in Section 9.1 and the exceptions contained in Section 8.1(i) or in any other Loan Document.  Without limiting the generality of the foregoing, all filings with the United States Patent and Trademark Office necessary or desirable to perfect the Security Agent’s Lien on all patents and trademarks of the Borrower shall have been completed (and the Security Agent shall have received evidence satisfactory to it of such completion).              (j)          Appraisals.  The Security Agent shall have received asset appraisals regarding the Engine and Equipment portfolio, in form and substance reasonably satisfactory to the Security Agent.              (k)         Financial Statements.  The Agents shall have received the consolidated financial statements of the Willis Companies for the Fiscal Year ended December 31, 2000, including balance sheets, income and cash-flow statements, audited by independent public accountants of recognized national standing, and prepared in conformity with GAAP.              (l)          Litigation.  There shall be no actions, suits, investigations or proceedings pending or threatened in any court or before any arbitrator or Governmental Authority that could have a Material Adverse Effect.              (m)        [Reserved].              (n)        Fees.  The Borrower shall have paid to the Administrative Agent the applicable Facility Fee and the applicable Extension Fee.  Promptly after receipt of the Facility Fee and the Extension Fee, the Administrative Agent shall distribute to the Banks their respective portions of the Facility Fee and the Extension Fee (in each case in the amounts described on Exhibit A).              (o)        Fees, Expenses.  The Borrower shall simultaneously pay or shall have paid all fees (in addition to those described in Section 4.2(n)) and expenses, if any, due hereunder or under any other Loan Document.              (p)        Lien Searches.  The Borrower shall have provided or caused to be provided to the Administrative Agent a certified lien search for the State of Delaware and the State of California, and the counties of Marin and San Diego therein, indicating that there are no Liens (other than Permitted Liens) on any property or assets of the Borrower or on any income or profits therefrom.              (q)        Other Documents and Information.  The Agents and the Banks shall have received copies of all other documents and information as they shall have reasonably requested, each in form and substance satisfactory to the Agents and the Banks.              (r)         Existing Facility.  The Obligations (as defined in that certain Amended and Restated Credit Agreement dated as of February 10, 2000, among the Borrower, Willis Aeronautical Services, Inc. and certain banking institutions named therein (the “Existing Facility”), other than Obligations in the nature of indemnity payments not yet due and owing, shall have been paid in full (or shall be paid simultaneously with the making of the first Loan hereunder), and the Security Agent shall have received evidence reasonably satisfactory to it of such payment.              (s)         Final Date for Effectiveness.  The parties hereto agree that if the Closing Date has not occurred on or prior to July 10, 2001, this Agreement shall thereafter be deemed null and void and without effect and the Banks shall be under no obligation whatsoever to advance any portion of their respective Revolving Loan Commitments, provided, however, that the Borrower’s obligations under Section 11.8 shall survive after such date as shall those of the parties under Section 11.19.              The parties hereto acknowledge that the Closing Date may occur subsequent to the date of this Agreement.  Without limiting the provisions of Section 3.20 or Section 4.1(g), the Security Agent and the Administration Agent may, in their discretion, permit the Borrower to update Schedule 1, Schedule 6 or both of them prior to the Closing Date. SECTION 5. AFFIRMATIVE COVENANTS              The Borrower covenants and agrees that, without the prior written consent of Majority Banks, from and after the date hereof and so long as the Revolving Loan Commitments are in effect or any Obligation remains unpaid or outstanding, it will: 5.1        Financial Statements and Reports.  Furnish to the Banks the following financial information:              (a)         Annual Statements.  No later than ninety (90) days after the end of each Fiscal Year, the consolidated and consolidating balance sheet of the Willis Companies as of the end of such year and the prior year in comparative form, and related statements of operations, shareholders’ equity, and cash flows for such Fiscal Year and the prior Fiscal Year in comparative form.  The financial statements shall be in reasonable detail with appropriate notes, and shall be prepared in accordance with GAAP.  The consolidated annual financial statements shall be certified (without any qualification or exception) by KPMG LLP or other independent public accountants reasonably acceptable to the Majority Banks.  Such financial statements shall be accompanied by a report of such independent certified public accountants stating that, in the opinion of such accountants, such financial statements present fairly, in all material respects, the financial position, and the results of operations and the cash flows of the Willis Companies for the period then ended in conformity with GAAP, except for inconsistencies resulting from changes in accounting principles and methods agreed to by such accountants and specified in such report, and that, in the case of such financial statements, the examination by such accountants of such financial statements has been made in accordance with generally accepted auditing standards and accordingly included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing the accounting principles used and significant estimates made, as well as evaluating the overall financial statement presentation.  Each financial statement provided under this subsection (a) shall be accompanied by a certificate signed by such accountants either stating that during the course of their examination nothing came to their attention which would cause them to believe that any event has occurred and is continuing which constitutes an Event of Default or Potential Default, or describing each such event.  In addition to the annual financial statements, the Borrower shall, promptly upon receipt thereof, furnish to the Banks a copy of the portion of each other report or management letter submitted to its board of directors by its independent accountants in connection with any annual, interim or special audit made by them of the financial records of the Borrower in which the Borrower’s accountants give any comment critical of the valuation of, or controls or procedures related to, the Collateral.              (b)        Quarterly Statements.  No later than forty-five (45) calendar days after the end of each Fiscal Quarter of each Fiscal Year, the consolidated and consolidating balance sheet and related statements of operations, shareholders’ equity and cash flows of the Willis Companies for such quarterly period and for the period from the beginning of such fiscal year to the end of such Fiscal Quarter and a corresponding financial statement for the same periods in the preceding Fiscal Year certified by the chief financial officer, chief administrative officer or  chief executive officer of the Willis Companies as having been prepared in accordance with GAAP (subject to changes resulting from audits, year-end adjustments, and the absence of footnotes).  Such quarterly statement shall be accompanied by a Compliance Certificate in the form attached hereto as Exhibit G or such other form as the Administrative Agent shall reasonably request.              (c)         No Default.  Within forty-five (45) calendar days after the end of each of the first three Fiscal Quarters of each Fiscal Year and within ninety (90) calendar days after the end of each Fiscal Year, a certificate signed by the chief financial officer, chief administrative officer or chief executive officer of the Willis Companies certifying that, to the best of such officer’s knowledge, after due inquiry, (i) the Borrower has complied with all covenants, agreements and conditions in each Loan Document and that each representation and warranty contained in each Loan Document is true and correct with the same effect as though each such representation and warranty had been made on the date of such certificate (except (A) to the extent such representation or warranty relates to a specific prior date, in which case the representation shall be updated by the Borrower to reflect any changes occurring since that prior date, or (B) to the extent that any events have occurred that require a change to the Disclosure Schedule, in which case an updated Disclosure Schedule will be delivered by the Borrower in accordance with the requirements of Section 3.20 hereof), and (ii) no event has occurred and is continuing which constitutes an Event of Default or Potential Default, or describing each such event and the remedial steps being taken by the Borrower, as applicable.              (d)        ERISA.  All reports and forms filed with respect to all Plans, except as filed in the normal course of business and that would not result in an adverse action to be taken under ERISA, and details of related information of a Reportable Event, promptly following each filing.              (e)         Material Changes.  Notification to the Administrative Agent and each other Bank of any litigation, administrative proceeding, investigation, business development, or change in financial condition which could reasonably have a Material Adverse Effect, promptly following its discovery.              (f)         Other Information.  Promptly, upon request by the Security Agent, the Administrative Agent or any of the Banks, from time to time (which may be on a monthly or other basis), the Borrower shall provide such other information and reports regarding its operations, business affairs, prospects and financial condition as the Security Agent, the Administrative Agent or any Bank may reasonably request.              (g)        Asset Base Certificates; Monthly Lease Report.  In the event the Borrower shall not have delivered an Asset Base Certificate to the Banks during any calendar month, it will deliver to the Banks, no later than 15 days after the end of such calendar month as of the last day of such calendar month, an Asset Base Certificate.  As part of the Asset Base Certificate, the Borrower shall deliver to the Banks a report setting forth the Eligible Engines and Eligible Equipment that are subject to an Eligible Lease.  The Asset Base Certificate shall also include a list of all Engines and Equipment acquired by the Borrower since the date of the last Asset Base Certificate delivered to the Banks.  The Asset Base Certificate shall also include any changes to the information contained in Section 1 of Schedule 1 to the Security Agreement.              (h)        Monthly Lease Portfolio and Receivables Report.  As soon as practicable and in any event within 15 days after the end of each calendar month, the Borrower shall deliver to the Banks a Lease portfolio listing and Lease receivables aging report (in form and substance reasonably satisfactory to the Administrative Agent).              (i)          Maintenance of Current Depreciation Policies.  The Borrower shall maintain its method of depreciating its assets substantially consistent with past practices as set forth in Exhibit H and will promptly notify the Banks of any deviation from such practices. 5.2        Corporate Existence.  Preserve its corporate existence and all material franchises, licenses, patents, copyrights, trademarks and trade names consistent with good business practice; and maintain, keep, and preserve all of its properties (tangible and intangible) necessary or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. 5.3        ERISA.  Comply in all material respects with the provisions of ERISA to the extent applicable to any Plan maintained for the employees of the Borrower or any ERISA Affiliate; do or cause to be done all such acts and things that are required to maintain the qualified status of each Plan and tax exempt status of each trust forming part of such Plan; not incur any material accumulated funding deficiency (within the meaning of ERISA and the regulations promulgated thereunder), or any material liability to the PBGC (as established by ERISA); not permit any event to occur as described in Section 4042 of ERISA or which may result in the imposition of a lien on its properties or assets; notify the Banks in writing promptly after it has come to the attention of senior management of the Borrower of the assertion or threat of any Reportable Event or other event described in Section 4042 of ERISA (relating to the soundness of a Plan) or the PBGC’s ability to assert a material liability against the Borrower or impose a lien on its, or any ERISA Affiliates’, properties or assets; and refrain from engaging in any Prohibited Transactions or actions causing possible liability under Section 5.02 of ERISA. 5.4        Compliance with Regulations.  Comply in all material respects with all Regulations applicable to its business, the noncompliance with which reasonably could have a Material Adverse Effect. 5.5        Conduct of Business; Permits and Approvals, Compliance with Laws.  Continue to engage in an efficient and economical manner in a business of the same general type as conducted by it on the date of this Agreement; maintain in full force and effect, its franchises, and all licenses, patents, trademarks, trade names, contracts, permits, approvals and other rights necessary to the profitable conduct of its business. 5.6        Maintenance of Properties.  The Borrower will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in its business and make all reasonable and necessary renewals, replacements, additions, betterments and improvements thereof and thereto, so that the business carried on in connection therewith may be conducted in the ordinary course at all times. 5.7        Maintenance of Insurance.  Maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. 5.8        Payment of Taxes, Etc.  Promptly pay and discharge (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income and profits, upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default; and (b) all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a lien or charge upon such property or any part thereof; provided, however, that so long as the Borrower first notifies the Administrative Agent of its intention to do so, it shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the failure to so pay or discharge does not constitute or result in an Event of Default or a Potential Default hereunder and so long as no foreclosure or other similar proceedings shall have been commenced against such property or any part thereof and so long as the validity thereof shall be contested in good faith by appropriate proceedings diligently pursued and it shall have set aside on its books adequate reserves with respect thereto. 5.9        Notice of Events.  Promptly upon discovery of any of the following events, the Borrower shall provide telephone notice to the Security Agent and the Administrative Agent (confirmed within three (3) calendar days by written notice from the Borrower to each Bank) describing the event and all action the Borrower propose to take with respect thereto:              (a)         an Event of Default or Potential Default under this Agreement or any other Loan Document;              (b)        any default or event of default under a contract or contracts and the default or event of default involves payments by the Borrower in an aggregate amount equal to or in excess of $1,000,000;              (c)         a default or event of default under or as defined in any evidence of or agreements for Indebtedness for Borrowed Money under which the Borrower’s liability is equal to or in excess of $1,000,000, singularly or in the aggregate, whether or not an event of default thereunder has been declared by any party to such agreement or any event which, upon the lapse of time or the giving of notice or both, would become an event of default under any such agreement or instrument or would permit any party to any such instrument or agreement to terminate or suspend any commitment to lend to the Borrower or to declare or to cause any such indebtedness to be accelerated or payable before it would otherwise be due;              (d)        the institution of, any material adverse determination in, or the entry of any default judgment or order or stipulated judgment or order in, any suit, action, arbitration, administrative proceeding, criminal prosecution or governmental investigation against the Borrower in which the amount in controversy is in excess of $1,000,000, singularly or in the aggregate;              (e)         any change in any Regulation, including, without limitation, changes in tax laws and regulations, which would have a Material Adverse Effect; or              (f)         any “Event of Default” or “Servicer Event of Default” (in each case as defined in the WLFC Funding Facility) under the WLFC Funding Facility. 5.10      Inspection Rights.  At any time during regular business hours and upon reasonable notice, Borrower shall permit the Security Agent or any authorized officer, employee, agent, or representative of the Security Agent to examine and make abstracts from the records and books of account of the Borrower, wherever located, and to visit the properties of the Borrower; and to discuss the affairs, finances, and accounts of the Borrower with its Chairman, President, any executive vice president, its chief financial officer, treasurer, controller or independent accountants.  In conducting each such examination, visit or discussion (each an “inspection”), the Security Agent and each of its officers, employees, agents and representatives shall take all reasonable action to minimize any disruption to the normal operations of the Borrower.  If no Event of Default or Potential Default shall be in existence, the Security Agent shall limit such inspection of each of the foregoing to once each calendar year.  If an inspection shall be made during the continuance of a Potential Default or an Event of Default, the Borrower shall reimburse the Security Agent for its reasonable out-of-pocket expense of such inspection.  If an inspection shall be made when no Event of Default or Potential Default shall be in existence, the Borrower shall reimburse the Security Agent for its reasonable out-of-pocket expense of such inspection up to $20,000 in the aggregate, any such expenses in excess of that amount shall be chargeable pro rata to each Bank, in accordance with its  respective Revolving Loan Commitment.  At all times, it is understood and agreed by the Borrower that all expenses in connection with any such inspection which may be incurred by the Borrower, any officers and employees thereof and the attorneys and independent certified public accountants therefor shall be expenses payable by the Borrower and shall not be expenses of the Banks or any of them. 5.11      Generally Accepted Accounting Principles.  Maintain books and records at all times in accordance with Generally Accepted Accounting Principles. 5.12      Compliance with Material Contracts.  The Borrower will comply in all material respects with all obligations, terms, conditions and covenants, as applicable, in all instruments and agreements to which it is a party or by which it is bound or any of its properties is affected and in respect of which the failure to comply reasonably could have a Material Adverse Effect. 5.13      Use of Proceeds.  The Borrower will use the proceeds of any Loan to be made pursuant hereto for the purchase or refinancing of Engines and Equipment as contemplated herein, as well as for working capital and general corporate purposes. 5.14      Further Assurances.  Do such further acts and things and execute and deliver to the Banks such additional assignments, agreements, powers and instruments, as any Bank may reasonably require or reasonably deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto each Bank its rights, powers and remedies hereunder. 5.15      Restricted Subsidiaries.  Upon the creation of any Restricted Subsidiary, or the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary, such Restricted Subsidiary shall duly authorize, execute and deliver a Guaranty in the form of Exhibit J hereto. 5.16      Placards.  The Borrower shall use its best efforts to cause each lessee under a Lease relating to each Eligible Engine or item of Eligible Equipment (other than Parts Packages and turboprop engines), to affix to and maintain on the Eligible Engine or item of Eligible Equipment (other than Parts Packages and turboprop engines) subject to such Lease a placard satisfactory to the Security Agent bearing an inscription substantially in the form of “THIS ENGINE IS OWNED BY WILLIS LEASE FINANCE CORPORATION, OR AN AFFILIATE, AND IS SUBJECT TO A FIRST PRIORITY SECURITY INTEREST IN FAVOR OF ONE OR MORE FINANCIAL INSTITUTIONS” or such other inscription as the Security Agent from time to time may reasonably request.  The Borrower shall, on a quarterly basis, provide to the Security Agent a list of those Eligible Engines or items of Equipment (other than Parts Packages and turboprop engines) subject to a Lease on which no such placard is affixed. 5.17      Certain Subsidiaries.  Within five days after the establishment of a Subsidiary to facilitate securitizations, the Borrower shall notify the Banks (which notice shall be in writing and specify the name and jurisdiction of organization of such Subsidiary) of such establishment. SECTION 6. NEGATIVE COVENANTS              The Borrower covenants and agrees that, without the prior written consent of the Majority Banks, from and after the date hereof and so long as any Revolving Loan Commitments are in effect or any Obligation remains unpaid or outstanding, it will not: 6.1        Consolidation and Merger.  Merge or consolidate with or into any corporation except, if (a) no Potential Default or Event of Default shall have occurred and be continuing either immediately prior to or upon the consummation of such transaction, and (b) the Borrower is the surviving entity.  The Borrower will promptly notify the Banks of any merger or consolidation involving the Borrower. 6.2        Liens.  Create, assume or permit to exist any Lien on any of its property or assets (including, without limitation, the Collateral), whether now owned or hereafter acquired, or upon any income or profits therefrom, except Permitted Liens, or allow or permit to exist any Lien (other than Permitted Liens) on any Collateral owned by an Owner Trustee.  Without limiting the foregoing, the Borrower, at the Borrower’s expense, shall, or shall cause the relevant Owner Trustee to, promptly discharge any such Lien, except Permitted Liens. 6.3        Guarantees.  Guarantee or otherwise in any way become or be responsible for indebtedness or obligations (including working capital maintenance, take-or-pay contracts) of any unconsolidated Person, contingently or otherwise. Notwithstanding the preceding sentence, the Borrower may guarantee indebtedness or obligations of unconsolidated Affiliates of the Borrower in amounts not to exceed $15,000,000 in the aggregate in the ordinary course of business with the prior written consent of the Majority Banks, such consent not to be unreasonably withheld provided, however, that if at any time WLFC Funding Corporation becomes an unconsolidated Affiliate of the Borrower, the Funding Corp. Guaranty (as defined in connection with the definition of WLFC Funding Facility above) shall not be deemed to violate the provisions of this Section 6.3. 6.4        Margin Stock.  Use or permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock within the meaning of Regulation U of The Board of Governors of the Federal Reserve System, as amended from time to time. 6.5        Acquisitions and Investments.  If an Event of Default or a Potential Default exists or would exist immediately thereafter: purchase or otherwise acquire (including, without limitation, by way of share exchange) any part or amount of the capital stock or assets of, or make any Investments in any other Person; or enter into any new business activities or ventures not directly related to its present business; or create any Subsidiary, except (a) it may acquire and hold stock, obligations or securities received in settlement of debts owing to it created in the ordinary course of business, and (b) it may make and own (i) Investments in certificates of deposit or time deposits having maturities in each case not exceeding one year from the date of issuance thereof and issued by any Bank, or any FDIC-insured commercial bank incorporated in the United States or any state thereof having a combined capital and surplus of not less than $150,000,000, (ii) Investments in marketable direct obligations issued or unconditionally guaranteed by the United States of America, any agency thereof, or backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of issuance or acquisition thereof, (iii) Investments in commercial paper issued by a corporation incorporated in the United States or any State thereof maturing no more than one year from the date of issuance thereof and, at the time of acquisition, having a rating of A–1 (or better) by Standard & Poor’s Corporation or P–1 (or better) by Moody’s Investors Service, Inc., and (iv) Investments in money market mutual funds all of the assets of which are invested in cash or investments described in the immediately preceding clauses (i), (ii) and (iii). 6.6        Transfer of Assets; Nature of Business.  The Borrower and its Restricted Subsidiaries may not sell, transfer, lease or dispose of assets constituting in the aggregate more than twenty percent (20%) of the net book value of their combined assets during any twelve- month period without the prior written consent of the Majority Banks, such consent not to be unreasonably withheld.  Notwithstanding the above, but in accordance with the provisions of Section 5(a) of the Security Agreement:  (a) the Borrower may or may cause an Owner Trustee to lease Engines and Equipment in the ordinary course of business, (b) the Borrower may or may cause an Owner Trustee to sell, transfer or otherwise dispose of Engines and Equipment subject to a Lease (including, without limitation, related assets such as security deposits and maintenance reserves, as applicable), or assign a Beneficial Interest, in the ordinary course of business, for its then fair market value; (c) the Borrower may or may cause an Owner Trustee to sell, transfer or otherwise dispose of Engines and Equipment that are declared a total loss or destroyed or that suffer damage that is not economically repairable (or assign any Beneficial Interest relating to any such Engine or item of Equipment), for their then fair market value; (d) the Borrower may or may cause an Owner Trustee to sell, transfer, assign, lease, re-lease or otherwise dispose of any Engine or Equipment with respect to which the relevant Lease has expired or is expiring (or assign any Beneficial Interest relating to any such Engine or item of Equipment) if such sale or disposition is in the ordinary course of its business, for its then fair market value; (e) the Borrower may or may cause an Owner Trustee to transfer Contributed Assets (as such term is defined in the Contribution Agreement) or similar assets to WLFC Funding Corporation or to any other Subsidiary of the Borrower (in each case as such term is defined in any other contribution or similar agreement entered into in connection with a similar securitization transaction); (f) the Borrower may or may cause an Owner Trustee to transfer Engines or Equipment in connection with nonrecourse or partial recourse financing otherwise permitted hereunder (including, without limitation, Section 6.9) of Leases and related Engines and Equipment; (g) the Borrower may or may cause an Owner Trustee to sell Parts to non-Affiliates of the Borrower in the ordinary course of business; and (h) the Borrower may or may cause an Owner Trustee to sell Engines, Equipment, Leases or related assets (or assign any Beneficial Interest relating thereto) to a Restricted Subsidiary for not less than their net book value at the time of transfer.  The Borrower may not discontinue, liquidate or change in any material respect any substantial part of its operations or business. 6.7        Accounting Change.  Without the prior written approval of the Majority Banks, make or permit any material change in financial accounting policies or financial reporting practices, except as required by Generally Accepted Accounting Principles or regulations of the Securities and Exchange Commission, if applicable.  Notwithstanding the foregoing, without the prior written approval of all of the Banks, the Borrower shall not make or permit any material change in financial accounting policies or financial reporting practices as they relate to, or in connection with, any current or future securitizations, except as required by GAAP or regulations of the Securities and Exchange Commission, if applicable (and in such case, the Borrower shall promptly notify the Administrative Agent of the need for such change). 6.8        Transactions with Affiliates of the Borrower.  Enter into any material transaction (including, without limitation, the purchase, sale or exchange of property, the rendering of any services or the payment of management fees) with any Affiliate of the Borrower, except transactions in the ordinary course of, and pursuant to the reasonable requirements of, its business, and in good faith and upon commercially reasonable terms and except for transactions with any member of the SwissAir Group and except for securitization transactions contemplated by the WLFC Funding Facility and any similar securitization transactions entered into from time to time by Subsidiaries of the Borrower. 6.9        Indebtedness.  Unless approved in writing by the Majority Banks, the Borrower shall not, and shall not permit its Restricted Subsidiaries to, create, enter into, or allow to exist any Debt other than (a) obligations incurred under this Credit Facility; (b) Existing Debt, not to exceed in the aggregate $65,000,000, provided that there shall be no extensions, renewals or further advances under any Existing Debt unless they are permitted by this Section 6.9, part (e); (c) Debt, not to exceed $500,000 in the aggregate, in connection with the purchase of miscellaneous assets and secured solely by the assets so acquired; (d) unsecured Debt, not to exceed $1,000,000 in the aggregate; (e) Other Indebtedness; (f) guarantees permitted under Section 6.3; (g) Operating Leases; (h) unsecured (except for a pledge of Shares (as defined in the Security Agreement) and records related to such Shares of any Unrestricted Subsidiary) guaranties of the obligations of Restricted and Unrestricted Subsidiaries (including, without limitation, the Funding Corp. Guaranty); (i) a pledge of Shares (as defined in the Share Pledge Agreement) and records related to such Shares of any Unrestricted Subsidiary and a pledge of Shares of T-7, a California corporation, and T-10, a California corporation, to secure the obligations of such Restricted Subsidiaries to Heller Financial, Inc. and FINOVA Capital Corporation, respectively; and (j) the Funding Corp. Guaranty (or similar guaranty issued by Borrower in connection with a similar securitization vehicle).  Without limiting the foregoing, the Borrower shall not incur any Debt relating to the financing or refinancing of Eligible Engines other than Debt consisting of the guaranties and pledges described in clauses (f), (h), (i) and (j) of this Section; provided that (subject to Section 6.13 below) this restriction shall not apply to the financing or refinancing of engines which Borrower is unable to finance under this Credit Facility. 6.10      Restricted Payments.              (a)         Make or pay any redemptions, repurchases, dividends or distributions of any kind with respect to its capital stock.              (b)        Redeem or prepay any Debt other than under this Credit Facility provided, however, that the Borrower shall be permitted to redeem, prepay, or refinance existing Debt if such redemption, prepayment, or refinancing (i) is in the ordinary course of the Borrower’s business, and (ii) no Potential Default or Event of Default exists prior to or after such refinancing. 6.11      Restriction on Amendment of this Agreement.  Other than as contemplated by the WLFC Funding Facility, enter into or otherwise become subject to or suffer to exist any agreement which would require it to obtain the consent of any other Person as a condition to the ability of the Banks and the Borrower to amend or otherwise modify this Agreement. 6.12      Investments in Unrestricted Subsidiaries.  Except for Borrower’s investment in WLFC Funding Corporation or any other Subsidiary of Borrower established to facilitate securitizations, make or maintain any Investments in Unrestricted Subsidiaries which exceed in the aggregate 15% of Net Worth of the Borrower. 6.13      No Adverse Selection.  No adverse selection procedures shall be used by Borrower as between the credit facility established by this Agreement and any other credit facility to which Borrower is a party (including, without limitation, the WLFC Funding Facility) in selecting any Engine or item of Equipment for inclusion in the Asset Base. SECTION 7. FINANCIAL COVENANTS              The Borrower covenants and agrees that, without the prior written consent of the Majority Banks, from and after the date hereof and so long as any Revolving Loan Commitments are in effect or any Obligation remains unpaid or outstanding: 7.1        No Losses.  From and after the Closing Date, the Willis Companies shall not at any time suffer a net loss for the then two (2) most recently ended consecutive Fiscal Quarters. 7.2        Minimum Tangible Net Worth.  Tangible Net Worth of the Willis Companies will not at any time be less than the sum of:  (i) $_______, plus (ii) if positive, _______% of the cumulative Net Income of the Willis Companies for each fiscal quarter earned from and after the Closing Date (without any deduction for net losses for any fiscal quarter); plus (iii) _______% of the net proceeds received by Borrower from the issuance of common stock or preferred stock of Borrower after January 1, 2001.* 7.3        Leverage Ratio.  From and after the Closing Date, the Leverage Ratio will not exceed ________ as of the end of any Fiscal Quarter.* 7.4        Adjusted Total Debt to Adjusted Tangible Net Worth.  From and after the Closing Date, the ratio of Adjusted Total Debt to Adjusted Tangible Net Worth will not exceed ________, as of the end of any Fiscal Quarter.* 7.5        Minimum Interest Coverage Ratio.  From and after the Closing Date, the Interest Coverage Ratio of the Willis Companies (measured at the end of each Fiscal Quarter on a rolling four-quarter basis) will not be less than _________.* 7.6        Asset Base.  The aggregate principal amount of Loans outstanding shall not at any time exceed the Asset Base or the Aggregate Revolving Loan Commitment, whichever is less; provided, however, that this covenant shall not be deemed breached if, at the time such aggregate amount exceeds said level, within four Business Days after the earlier of the date the Borrower first has knowledge of such excess or the date of the next Asset Base Certificate disclosing the existence of such excess, a prepayment of Loans shall be made.  The Borrower shall not be entitled to utilize this mechanism to avoid a breach of this covenant more than two (2) times during any twelve-month period. SECTION 8. DEFAULT 8.1        Events of Default.  The Borrower shall be in default if any one or more of the following events (each an “Event of Default”) occurs:              (a)         Payments.  The Borrower fails to pay the principal due on any Note when due and payable (whether at maturity, by notice of intention to prepay, or otherwise); or fails to pay interest or any other amount payable hereunder or under any other Loan Document within three Business Days after the date such interest or other amount is due and payable.              (b)        Covenants.  The Borrower, any of the Guarantors or any Owner Trustee, as applicable, fails to observe or perform:  (i) any term, condition or covenant set forth in Sections 5.1(a), 5.1(b), 5.1(c), 5.1(g), 5.1(h) or 5.1(i), Section 5.2, Section 5.7, Section 5.9, Section 5.10, Section 5.14, Sections 6.1 through 6.12 or Sections 7.1 through 7.6 herein, as and when required; or (ii) any term, condition or covenant contained in this Agreement or any other Loan Document, other than any Event of Default set forth in any other subsection of this Section 8.1, and other than as set forth in (i) above, as and when required and such failure shall continue unremedied for a period of 10 Business Days after the earlier of (1) actual knowledge of any executive officer of the Borrower or (2) written notice thereof by the Administrative Agent to the Borrower.              (c)         Representations, Warranties.  Any representation or warranty made or deemed to be made by the Borrower, any of the Guarantors or any Owner Trustee, as applicable, herein or in any Loan Document or in any exhibit, schedule, report or certificate delivered pursuant hereto or thereto shall prove to have been false, misleading or incorrect in any material respect when made or deemed to have been made.              (d)        Bankruptcy.  The Borrower or any of the Guarantors (except T–10 Inc., in the case of dissolution or liquidation and other than WLFC (Ireland) Limited) is dissolved or liquidated, makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver or trustee, commences any proceeding relating to itself under any bankruptcy, reorganization, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, has commenced against it any such proceeding which remains undismissed for a period of sixty (60) days, or indicates its consent to, approval of or acquiescence in any such proceeding, or any receiver of or trustee for the Borrower or any substantial part of its property is appointed, or if any such receivership or trusteeship to continues undischarged for a period of sixty (60) days.              (e)         Certain Other Defaults.  The Borrower or any Restricted Subsidiary shall fail to pay when due any Indebtedness for Borrowed Money which singularly or in the aggregate exceeds $1,000,000, and such failure shall continue beyond any applicable cure period, or the Borrower or a Restricted Subsidiary shall suffer to exist any default or event of default in the performance or observance, subject to any applicable grace period, of any agreement, term, condition or covenant with respect to any agreement or document relating to Indebtedness for Borrowed Money if the effect of such default is to permit, with the giving of notice or passage of time or both, the holders thereof, or any trustee or agent for said holders, to terminate or suspend any commitment (which is equal to or in excess of $1,000,000) to lend money or to cause or declare any portion of any borrowings thereunder to become due and payable prior to the date on which it would otherwise be due and payable, provided that during any applicable cure period the Bank’s obligations hereunder to make further Loans shall be suspended.              (f)         Judgments.  Any judgments against the Borrower or any of the Guarantors or against the assets of the Borrower or any of the Guarantors or property for amounts in excess of $1,000,000 in the aggregate remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days.              (g)        Attachments.  Any assets of the Borrower or of any of the Guarantors shall be subject to attachments, levies or garnishments for amounts in excess of $1,000,000 in the aggregate which have not been dissolved or satisfied within twenty (20) days after service of notice thereof to the Borrower or the Guarantors.              (h)        Change in Control of the Borrower.  Any Change of Control of the Borrower should occur.              (i)          Security Interests.  Except for security interests (a) in Collateral listed on Schedule 2 hereto; (b) in Engines and Equipment which the Security Agent determines to include in the Asset Base as part of the $__________ basket for unperfected Collateral or which is specifically approved in writing by the Required Banks notwithstanding that the Security Agent will not receive a perfected first priority security interest therein; (c) in Collateral as to which the Security Agent fails to file a UCC continuation statement; and (d) in Collateral other than Engines and Equipment as to which perfection is effected by any means other than by filing a UCC–1 financing statement (the Collateral described in (a), (b), and (d) above is hereinafter referred to as the “Excepted Collateral”), any security interest created pursuant to any Loan Document shall cease to be in full force and effect or shall cease in any material respect to give the Security Agent the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral but subject, in the case of any Lease to a lessee domiciled or principally located in a non-U.S. jurisdiction, to the provisos set forth in Section 9.1), superior to and prior to the rights of all third Persons, and subject to no other Liens (except as permitted by Section 6.2 and, insofar as the issue of accession may be deemed to affect such rights or to create any such Lien, except to the extent that the lessee (or, in the case of a Lease to WLFC (Ireland) Limited, the sublessee) of the Collateral is domiciled or principally located in a jurisdiction that satisfies one of the criteria for exclusion from the definition of “Nonrecognition of Rights Jurisdictions” and except to the extent that the Collateral is included in the Asset Base pursuant to clause (xii) of the definition thereof).*              (j)          WLFC Funding Facility.  A “Servicer Event of Default” (as defined in the WLFC Funding Facility) (other than a Servicer Event of Default specified in Section 7.01(xv) of the Servicing Agreement) shall have occurred under the WLFC Funding Facility.              THEN and in every such event other than that specified in Section 8.1(d), the Administrative Agent may, or at the written request of the Majority Banks shall, immediately terminate the Aggregate Revolving Loan Commitment by notice in writing to the Borrower and immediately declare any and all Notes, including without limitation accrued interest, to be, and they shall thereupon forthwith become due and payable without presentment, demand, or notice of any kind, all of which are hereby expressly waived by the Borrower.  Upon the occurrence of any event specified in Section 8.1(d), the Aggregate Revolving Loan Commitment shall automatically terminate and the Notes, including without limitation accrued interest, shall immediately be due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower.  Any date on which the Notes and such other Obligations are declared due and payable pursuant to this Section 8.1 shall be the Revolving Loan Termination Date for purposes of this Agreement.  From and after the date an Event of Default shall have occurred and for so long as an Event of Default shall be continuing, the Loans shall bear interest at the Default Rate. SECTION 9. COLLATERAL 9.1        Collateral.  Except as otherwise specifically set forth herein (including but not limited to the exceptions contained in Section 8.1(i)) or in any other Loan Document, the Borrower covenants and agrees that any Obligations made and outstanding and their repayment at all times shall be secured by a first priority perfected security interest in all of the Collateral, provided that in the case of any Owner Trustee which shall have executed an Owner Trustee Guarantee, Borrower shall not be required to take any additional steps to create or perfect any security interest in the related Lease, Engines or Equipment under the laws of the jurisdiction where the lessee under such Lease is domiciled or principally located, and provided further that with respect to any Existing Lease Transaction involving a lessee (or, in the case of a Lease to WLFC (Ireland) Limited, involving a sublessee) domiciled or principally located in a non-U.S. jurisdiction, Borrower’s obligations hereunder shall be limited to those filings, recordings and/or other actions taken and documentation delivered (or contemplated to be taken or delivered in the future including, without limitation, as a result of any change in law) in connection with such Existing Lease Transaction on or prior to the Closing Date. 9.2        Security Documents.  As security for the punctual payment in full of all Notes (including all payments of principal, and interest and other costs contemplated hereby) the Borrower shall execute and deliver to the Security Agent the Security Agreement, the Mortgage, the Share Pledge Agreement and such other documents as may be necessary to constitute and evidence and perfect a security interest in the Collateral (other than the Excepted Collateral); provided, however, that if a Potential Default or Event of Default exists, the Security Agent may require the Borrower to take all action possible to further legally perfect the security interest in the Collateral except as otherwise provided in the provisos to Section 9.1 of this Agreement or elsewhere in the Loan Documents but including Excepted Collateral. 9.3        Release of Collateral.  The Borrower shall be entitled to remove and request the Security Agent to release certain items of Collateral in accordance with the provisions of Section 5(a) of the Security Agreement, Section 6.09 of the Mortgage, Section 22 of the applicable Beneficial Pledge Agreement, Section 6.09 of the applicable Owner Trustee Mortgage, Section 3.3 of the WLFC (Ireland) Limited Security Assignments and, with respect to the Funding Corporation Collateral (as such term is defined in the Consent and Intercreditor Agreement) or any other debt or equity interest in any direct or indirect Subsidiary of the Borrower, the terms of the Consent and Intercreditor Agreement.  The Security Agent will cooperate with the Borrower in effecting any such release. SECTION 10. THE AGENTS 10.1      Appointment and Authorization.  Each Bank hereby irrevocably appoints and authorizes National City Bank as the Administrative Agent, Fortis as the Structuring Agent and Fortis as the Security Agent to take such action on each Bank’s behalf and to exercise such powers under this Agreement and the Loan Documents as are specifically delegated to the Agents by the terms hereof or thereof, together with such other powers as are reasonably incidental thereto.  No other agents or co-agents of the Banks under this Credit Facility may be appointed without the prior written consent of the Borrower and each Person then serving as an Agent.  The relationship between each Agent and each Bank has no fiduciary aspects, and each Agent’s duties hereunder are acknowledged to be only ministerial and not involving the exercise of discretion on its part.  Nothing in this Agreement or any Loan Document shall be construed to impose on any Agent any duties or responsibilities other than those for which express provision is made herein or therein.  In performing their duties and functions under this Article 10, the Agents do not assume and shall not be deemed to have assumed, and hereby expressly disclaim, any obligation with or for the Borrower.  As to matters not expressly provided for in this Agreement or any Loan Document, the Agents shall not be required to exercise any discretion or to take any action or communicate any notice, but shall be fully protected in so acting or refraining from acting upon the instructions of the Majority Banks and their respective successors and assigns; provided, however, that in no event shall any Agent be required to take any action which exposes it to personal liability or which is contrary to this Agreement, any Loan Document or applicable law, and each Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be specifically indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or omitting to take any such action.  If an indemnity furnished to any Agent for any purpose shall, in its reasonable opinion, be insufficient or become impaired, such Agent may call for additional indemnity from the Banks and not commence or cease to do the acts for which such indemnity is requested until such additional indemnity is furnished. 10.2      Duties and Obligations.  In performing its functions and duties hereunder on behalf of the Banks, each Agent shall exercise the same care and skill as it would exercise in dealing with loans for its own account.  No Agent, nor any of any Agent’s directors, officers, employees or other agents shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any Loan Document except for its or their own gross negligence or willful misconduct.  Without limiting the generality of the foregoing, each Agent (a) may consult with legal counsel and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith and in accordance with the advice of such experts; (b) makes no representation or warranty to any Bank as to, and shall not be responsible to any Bank for, any recital, statement, representation or warranty made in or in connection with this Agreement, any Loan Document or in any written or oral statement (including a financial or other such statement), instrument or other document delivered in connection herewith or therewith or furnished to any Bank by or on behalf of the Borrower; (c) shall have no duty to ascertain or inquire into the Borrower’s performance or observance of any of the covenants or conditions contained herein or to inspect any of the property (including the books and records) of the Borrower or inquire into the use of the proceeds of the Revolving Loans or to inquire into the existence or possible existence of any Event of Default or Potential Default; (d) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency, collectibility or value of this Agreement or any other Loan Document or any instrument or document executed or issued pursuant hereto or in connection herewith, except to the extent that such may be dependent on the due authorization and execution by the Agent itself; (e) except as expressly provided herein in respect of information and data furnished to any Agent for distribution to the Banks, shall have no duty or responsibility, either initially or on a continuing basis, to provide to any Bank any credit or other information with respect to the Borrower, whether coming into its possession before the making of the Loans or at any time or times thereafter; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document for, and shall be entitled to rely and act upon, any notice, consent, certificate or other instrument or writing (which may be by facsimile (telecopier), telegram, cable, or other electronic means) believed by it to be genuine and correct and to have been signed or sent by the proper party or parties.   10.3      The Agents as Banks.  With respect to its Revolving Loan Commitment and the Loans made and to be made by it, each Agent shall have the same rights and powers under this Agreement and all other Loan Documents as the other Banks and may exercise the same as if it were not an Agent.  The terms “Bank” and “Banks” as used herein shall, unless otherwise expressly indicated, include National City Bank and Fortis in their individual capacity.  National City Bank and any successor Administrative Agent, and Fortis and any successor Security Agent or Structuring Agent, which is a commercial bank, and their respective Affiliates, may accept deposits from, lend money to, act as trustee under indentures of and generally engage in any kind of business with, the Borrower and its Affiliates from time to time, all as if such entity were not the Administrative Agent, Structuring Agent or Security Agent hereunder and without any duty to account therefor to any Bank. 10.4      Independent Credit Decisions.  Each Bank acknowledges to the Agents that it has, independently and without reliance upon the Agents or any other Bank, and based upon such documents and information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement.  Each Bank also acknowledges that it will, independently or through other advisers and representatives but without reliance upon the Agents or any other Bank, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or refraining from taking any action under this Agreement or any Loan Document. 10.5      Indemnification.  The Banks agree to indemnify each Agent (to the extent not previously reimbursed by the Borrower), ratably in proportion to each Bank’s Revolving Loan Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against National City Bank (and its successors) in its capacity as Administrative Agent, or against Fortis (and its successors) in its capacity as Security Agent or Structuring Agent, in any way relating to or arising out of this Agreement or any Loan Document or any action taken or omitted to be taken by National City Bank (and its successors) in its capacity as Administrative Agent, or Fortis (and its successors) in its capacity as Security Agent or Structuring Agent, hereunder or under any Loan Document; provided that none of the Banks shall be liable to an Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s gross negligence or willful misconduct.  Without limiting the generality of the foregoing, each Bank agrees to reimburse the Agents, promptly on demand, for such Bank’s ratable share (based upon the aforesaid apportionment) of any out-of-pocket expenses (including counsel fees and disbursements) incurred by such Agent in connection with the preparation, execution, administration or enforcement of, or the preservation of any rights under, this Agreement and the Loan Documents to the extent that such Agent is not reimbursed for such expenses by the Borrower. 10.6      Successor Agents.  Any Agent may resign at any time by giving 30 days’ written notice of such resignation to the Banks and the Borrower, such resignation to be effective only upon the appointment of a successor Agent as hereinafter provided.  Upon any such notice of resignation, the Banks shall jointly appoint a successor Agent upon written notice to the Borrower and the withdrawing Agent, and provided that no Potential Default or Event of Default exists, the Borrower shall have the right to consent to such appointment (which consent shall not be unreasonably withheld or delayed).  If no successor Agent shall have been jointly appointed by such Banks (and, if required, consented to by the Borrower) and shall have accepted such appointment within thirty (30) days after the withdrawing Agent shall have given notice of resignation, the Administrative Agent (unless it is the withdrawing Agent, in which event the Bank or Banks having the largest Revolving Loan Commitment Percentage) may, upon notice to the Borrower and the Banks, appoint a successor Agent.  Upon its acceptance of any appointment as Agent hereunder, the successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of its predecessor, and the withdrawing Agent shall be discharged from its duties and obligations as Agent under this Agreement and the Loan Documents.  After an Agent’s resignation hereunder, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the Loan Documents. 10.7      Allocations Made By the Administrative Agent.  As between the Administrative Agent and the Banks, unless a Bank objecting to a determination or allocation made by the Administrative Agent pursuant to this Agreement delivers to the Administrative Agent written notice of such objection within one hundred twenty (120) days after the date any distribution was made by the Administrative Agent, such determination or allocation shall be conclusive on such one hundred twentieth day and only those items expressly objected to in such notice shall be deemed disputed by such Bank.  The Administrative Agent shall not have any duty to inquire as to the application by the Banks of any amounts distributed to them. SECTION 11. MISCELLANEOUS 11.1      Waiver.  No failure or delay on the part of any Agent or any Bank or any holder of any Note in exercising any right, power or remedy under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under any Loan Document.  The remedies provided under the Loan Documents are cumulative and not exclusive of any remedies provided by law. 11.2      Amendments.  No amendment, modification, termination, renewal or waiver of any Loan Document or any provision thereof nor any consent to any departure by the Borrower therefrom shall be effective unless the same shall have been approved by the Majority Banks, be in writing and be signed by National City Bank, as Administrative Agent on behalf of the Banks, and then any such waiver or consent shall be effective only in the instance and for the specific purpose for which given, provided, however, that unanimous written consent of all of the Banks shall be required for: (a) subject to Section 2.1(a), any increase in the amount of the Aggregate Revolving Loan Commitment; (b) any reduction in principal, interest, or fees payable by the Borrower under this Credit Facility; (c) any extension of the Revolving Loan Termination Date; (d) any extension of the due date for payment of any principal, interest or fees to be collected on behalf of the Banks; (e) any release of all or substantially all of the Collateral  (provided, however, that the Security Agent, acting alone, shall be entitled to release less than all or substantially all of the Collateral pursuant to Section 9.3); or (f) the release of any Guarantor.  In addition to the foregoing, no modification to the definition of “Asset Base” shall be made without the written consent of  the Required Banks and none of the voting rights established under this Section 11.2 shall be modified without the written consent of that number of Banks which would have been required to take the action to which such voting rights apply.  No notice to or demand on the Borrower shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.  No amendment or modification affecting the role of any Agent or Agents shall be effective unless it has been approved in writing by such Agent or Agents, as applicable.  In the event there exists one (1) dissenting Bank (the “Dissenting Bank”), the Borrower shall have the right to prepay the outstanding principal, interest then due and owing and Additional Amount (as set forth in Section 2.9) calculated with respect to the Revolving Loan made by the Dissenting Bank.  At such time as the prepayment is made the Dissenting Bank shall cease to be a Bank for purposes of this Credit Agreement and the Aggregate Revolving Loan Commitment shall be adjusted accordingly to reflect (i) the removal of the Dissenting Bank’s Revolving Loan Commitment and, if applicable, (ii) the increase by a Bank or Banks of their Revolving Loan Commitments or the addition of a new bank as a Bank under the Credit Agreement. 11.3      GOVERNING LAW.  THE LOAN DOCUMENTS AND ALL RIGHTS AND OBLIGATIONS OF THE PARTIES THEREUNDER SHALL BE GOVERNED BY AND BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CALIFORNIA OR FEDERAL PRINCIPLES OF CONFLICT OF LAWS. 11.4      Participations and Assignments.  The Borrower hereby acknowledges and agrees that so long as a Bank is not in default of its obligations under this Agreement, such Bank may at any time, with the consent (which consent shall not be unreasonably withheld) of the Borrower and the Structuring Agent:  (a) grant participations in all or any portion of its Revolving Loan Commitment or any portion of its Note(s) or of its right, title and interest therein or in or to this Agreement (collectively, “Participations”) to any other lending office of such Bank or to any other bank, lending institution or other entity which has the requisite sophistication to evaluate the merits and risks of investments in Participations (“Participants”); provided, however, that:  (i) all amounts payable by the Borrower hereunder shall be determined as if such Bank had not granted such Participation; (ii) such Bank shall act as agent for all Participants; and (iii) any agreement pursuant to which such Bank may grant a Participation:  (x) shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provisions of this Agreement; (y) such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement without the consent of the Participant if such modification, amendment or waiver would reduce the principal of or rate of interest on any Loan or postpone the date fixed for any payment of principal of or interest on any Loan or release (in whole or in part) any Guarantor or all or substantially all of the Collateral; and (z) shall not relieve such Bank from its obligations, which shall remain absolute, to make Loans hereunder; and (b) assign any of its Loans and its Revolving Loan Commitment. Upon execution and delivery by the assignee to the Borrower of an instrument in writing pursuant to which such assignee agrees to become a “Bank” hereunder having the Revolving Loan Commitment and Loans specified in such instrument, and upon consent thereto by the Borrower and the Structuring Agent, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Borrower), the obligations, rights and benefits of a Bank hereunder holding the Revolving Loan Commitment and Loans (or portions thereof) assigned to it, and such Bank shall, to the extent of such assignment, be released from the Revolving Loan Commitment (or portion(s) thereof) so assigned.  An assignment fee of $5,000 shall be paid by the assigning Bank to the Administrative Agent upon consummation of any assignment, including an assignment from one Bank to another Bank.  No assignments will be permitted by a Bank at a time when such Bank is in default of its obligations under this Agreement.  Notwithstanding anything to the contrary in this Section 11.4, the Borrower shall not have the right to approve any assignment or Participation by a Bank if a Potential Default or an Event of Default then exists.   11.5      Captions.  Captions in the Loan Documents are included for convenience of reference only and shall not constitute a part of any Loan Document for any other purpose. 11.6      Notices.  All notices, requests, demands, directions, declarations and other communications between the Banks and the Borrower provided for in any Loan Document shall, except as otherwise expressly provided, be mailed by registered or certified mail, return receipt requested, or telegraphed, or faxed, or delivered in hand or by a recognized overnight courier to the applicable party at its address indicated opposite its name on the signature pages hereto.  The foregoing shall be effective and deemed received three days after being deposited in the mails, postage prepaid, addressed as aforesaid and shall whenever sent by telegram, telegraph or facsimile (provided the transmitting facsimile machine provides written confirmation that the transmission was successfully completed) or delivered in hand or by a nationally recognized overnight courier be effective when received.  Any party may change its address by a communication in accordance herewith. 11.7      Sharing of Collections, Proceeds and Set-Offs: Application of Payments.              (a)         If any Bank, by exercising any right of set-off, counterclaim or foreclosure, receives payment of principal or interest or other amount due on any Note which is greater than the percentage share of such Bank (determined as set forth below), the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made as may be required, so that all such payments shall be shared by the Banks on the basis of their percentage shares; provided that if all or any portion of such proportionately greater payment of such indebtedness is thereafter recovered from, or must otherwise be restored by, such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest being paid by such purchasing Bank.  The percentage share of each Bank shall be based on the portion of the outstanding Loans of such Bank (prior to receiving any payment for which an adjustment must be made under this Section) in relation to the aggregate outstanding Loans of all the Banks.  The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan or reimbursement obligation, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.  If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Section would apply, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section to share in the benefits of any recovery on such secured claim.              (b)        If an Event of Default or Potential Default shall have occurred and be continuing the Agents, each Bank and the Borrower agree that all payments on account of the Obligations shall be applied by the Administrative Agent and the Banks as follows:              First, to any Agent, for any fees then due and payable to it under this Agreement or any other Loan Document until such fees are paid in full;              Second, to any Agent, for any fees, costs or expenses (including expenses described in Section 11.8) incurred by such Agent under any of the Loan Documents, then due and payable and not reimbursed by the Borrower or the Banks until such fees, costs and expenses are paid in full;              Third, to the Banks for their respective shares of all costs, expenses and fees then due and payable from the Borrower until such costs, expenses and fees are paid in full;              Fourth, to the Banks for their percentage shares of all interest then due and payable from the Borrower until such interest is paid in full, which percentage shares shall be calculated by determining each Bank’s percentage share of the amounts allocated in (a) above determined as set forth in said clause (a);              Fifth, to the Banks for their percentage shares of the principal amount of the Obligations then due and payable from the Borrower until such principal is paid in full, which percentage shares shall be calculated by determining each Bank’s percentage share of the amounts allocated in (a) above determined as set forth in said clause (a); and              Sixth, if any amounts remain after satisfying the amounts specified in clauses First through Fifth above, the balance, if any, shall be remitted to the Borrower. 11.8      Expenses; Indemnification.  The Borrower will from time to time reimburse the Agents promptly following demand for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of their legal counsel) in connection with (a) the preparation of the Loan Documents, (b) the making of any Loans, and (c) the administration of the Loan Documents.  The Borrower also will from to time reimburse the Agents and each Bank for all out-of-pocket expenses (including reasonable fees and expenses of their legal counsel) in connection with the enforcement of the Loan Documents.  In addition to the payment of the foregoing expenses, the Borrower hereby agree to indemnify, defend, protect and hold National City Bank, as Administrative Agent, Fortis, as Security Agent, and Fortis, as Structuring Agent, each Bank and any holder of any Note and the officers, directors, employees, agents, Affiliates and attorneys of the Agents, each Bank and such holder (collectively, the “Indemnitees”) harmless from and against any and all liabilities, obligations, losses, damages, claims, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature, including reasonable fees and expenses of legal counsel, which may be imposed on, incurred by, or asserted against such Indemnitee by the Borrower or other third parties and arise out of or relate to this Agreement or the other Loan Documents or any other matter whatsoever related to the transactions contemplated by or referred to in this Agreement or the other Loan Documents (including, without limitation, any Loan, any Revolving Loan Commitment or the Borrower’s use of the proceeds of any Loan); provided, however, that the Borrower shall have no obligation to an Indemnitee hereunder to the extent that the liability incurred by such Indemnitee has been determined by a court of competent jurisdiction to be the result of gross negligence or willful misconduct of such Indemnitee. 11.9      Survival of Warranties and Certain Agreements.  All agreements, representations and warranties expressly made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of the Notes.  Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Borrower set forth in Section 11.8 shall survive the payment of the Loans and the termination of this Agreement and continue for the benefit of the Indemnitees, notwithstanding the failure of the transactions contemplated hereby to be consummated.  This Agreement shall remain in full force and effect until the repayment in full of all amounts owed by the Borrower under the Notes or any other Loan Document. 11.10    Severability.  The invalidity, illegality or unenforceability in any jurisdiction of any provision in or obligation under this Agreement, any Note or other Loan Document shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement, the Notes or other Loan Documents or of such provision or obligation in any other jurisdiction. 11.11    Banks’ Obligations Several; Independent Nature of Banks’ Rights.  The obligation of each Bank hereunder is several and not joint and no Bank shall be the agent of any other (except to the extent any Agent is authorized to act as such hereunder).  No Bank shall be responsible for the obligation or commitment of any other Bank hereunder.  In the event that any Bank at any time should fail to make a Loan as herein provided, the other Banks, or any of them as may then be agreed upon, at their sole option, may make the Loan that was to have been made by the Bank so failing to make such Loan.  Nothing contained in any Loan Document and no action taken by any Agent or any Bank pursuant hereto or thereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity.  The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and, subject to the terms of this Agreement, each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. 11.12    No Fiduciary Relationship.  No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by any Bank to the Borrower. 11.13    CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  EACH OF THE BORROWER, THE AGENTS, AND THE BANKS HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE CITY OF SAN FRANCISCO, CALIFORNIA AND IRREVOCABLY AGREES THAT, ANY ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTES, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS.  EACH PARTY TO THIS AGREEMENT ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, ANY NOTE, OR SUCH OTHER LOAN DOCUMENT. 11.14    WAIVER OF JURY TRIAL.  THE BORROWER, THE AGENTS, AND THE BANKS EACH HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP ESTABLISHED HEREBY.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.  THE BORROWER, THE AGENTS, AND THE BANKS EACH ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO THE TRANSACTION, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.  THE BORROWER, THE AGENTS, AND THE BANKS EACH FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, MODIFICATIONS, REPLACEMENTS OR RESTATEMENTS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 11.15    Counterparts; Effectiveness.  This Agreement and any amendment hereto or waiver hereof may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement and any amendments hereto or waivers hereof shall become effective when the Administrative Agent shall have received signed counterparts or notice by fax of the signature page that the counterpart has been signed and is being delivered to it or facsimile that such counterparts have been signed by all the parties hereto or thereto. 11.16    Use of Defined Terms.  All words used herein in the singular or plural shall be deemed to have been used in the plural or singular where the context or construction so requires.  Any defined term used in the singular preceded by “any” shall be taken to indicate any number of the members of the relevant class. 11.17    Offsets.  Nothing in this Agreement shall be deemed a waiver or prohibition of any Bank’s right of banker’s lien or offset. 11.18    Entire Agreement.  This Agreement, the Notes issued hereunder and the other Loan Documents constitute the entire understanding of the parties hereto as of the date hereof with respect to the subject matter hereof and thereof and supersede any prior agreements, written or oral, with respect hereto or thereto. 11.19    Confidentiality.  In handling any written information specifically marked “confidential” prior to its delivery to any Bank by the Borrower, each of the Agents and the Banks shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same type to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement or any other Loan Documents except that disclosure of such information may be made (a) to the agents, employees, subsidiaries or Affiliates of such Person in connection with this Agreement or any other Loan Document, (b) to prospective participants or assignees of the Loans, provided that they have agreed to be bound by the provisions of this Section 11.19, (c) as required by law, regulation, rule or order, subpoena, judicial order or similar order, and (d) as may be required in connection with the examination, audit or similar investigation of such Person.  Confidential information shall not include information that either (x) is in the public domain, or becomes a part of the public domain after disclosure to such Person through no fault of such Person or (y) is disclosed to such Person by a third party, provided such Person does not have knowledge that such third party is prohibited from disclosing such information. *          *          * IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be duly executed by their duly authorized representatives as of the date first above written.   WILLIS LEASE FINANCE CORPORATION               By /s/ NICHOLAS J. NOVASIC     --------------------------------------------------------------------------------     Name: Nicholas J. Novasic     Title:  Chief Financial Officer   Notices To: 2320 Marinship Way Suite 300 Sausalito, CA  94965 Fax No. (415) 331–5167 Attention:  General Counsel     FORTIS BANK [NEDERLAND] N.V. (as Structuring Agent)               By /s/ M.P.A. ZONDAG     --------------------------------------------------------------------------------     /s/ P.R.G. ZAMAN     --------------------------------------------------------------------------------     Name: M.P.A. Zondag     Name: P.R.G. Zaman Notices To: Fortis Bank [Nederland] N.V. Coolsingel 93 3012 AE Rotterdam The Netherlands Attention:  Maarten H. Schipper Telephone:  31 10 401 9522 Facsimile:  31 10 401 9529 With a copy to: Vedder, Price, Kaufman & Kammholz Attention:  Dean N. Gerber 222 North LaSalle Street Suite 2600 Chicago, Illinois 60601 Telephone:  312–609–7500 Facsimile:  312–609–5005     FORTIS BANK [NEDERLAND] N.V. (as Security Agent)                 By /s/ M.P.A. ZONDAG     --------------------------------------------------------------------------------     /s/ P.R.G. ZAMAN     --------------------------------------------------------------------------------     Name: M.P.A. Zondag     Name: P.R.G. Zaman Notices To: Fortis Bank [Nederland] N.V. Coolsingel 93 3012 AE Rotterdam The Netherlands Attention:  Maarten H. Schipper Telephone:  31 10 401 9522 Facsimile:  31 10 401 9529 With a copy to: Vedder, Price, Kaufman & Kammholz Attention:  Dean N. Gerber 222 North LaSalle Street Suite 2600 Chicago, Illinois 60601 Telephone:  312-609–7500 Facsimile:  312–609–5005       FORTIS BANK [NEDERLAND] N.V.           By /s/ M.P.A. ZONDAG     --------------------------------------------------------------------------------     /s/ P.R.G. ZAMAN     --------------------------------------------------------------------------------     Name: M.P.A. Zondag     Name: P.R.G. Zaman Notices To: Fortis Bank [Nederland] N.V. Coolsingel 93 3012 AE Rotterdam The Netherlands Attention:  Maarten H. Schipper Telephone:  31 10 401 9522 Facsimile:  31 10 401 9529         With a copy to: Vedder, Price, Kaufman & Kammholz Attention:  Dean N. Gerber 222 North LaSalle Street Suite 2600 Chicago, Illinois 60601 Telephone:  312-609–7500 Facsimile:  312–609–5005     NATIONAL CITY BANK, as Administrative Agent               By /s/ CHRISTOS KYTZIDIS     --------------------------------------------------------------------------------     Name: Christos Kytzidis     Title:  Vice President   Notices To: National City Bank Attention: Christos Kytzidis, Vice President Specialized Banking Group One South Broad 13th Floor, Locator 01-5997 Philadelphia, PA 19107 Telephone:  267–256–4092 Facsimile:  267–256–4001 With a copy to: National City Bank Attention:  Larry Brown Agent Services Group 1900 East Ninth Street Locator 2083 Cleveland, OH 44114       NATIONAL CITY BANK           By /s/ CHRISTOS KYTZIDIS     --------------------------------------------------------------------------------     Name: Christos Kytzidis     Title: Vice President   Notices To: National City Bank Attention: Christos Kytzidis, Vice President Specialized Banking Group One South Broad 13th Floor, Locator 01-5997 Philadelphia, PA 19107 Telephone:  267–256–4092 Facsimile:  267–256–4001 With a copy to: National City Bank Attention:  Larry Brown Agent Services Group 1900 East Ninth Street Locator 2083 Cleveland, OH 44114     CITY NATIONAL BANK           By /s/ STEVE SLOAN     --------------------------------------------------------------------------------     Name: Steve Sloan     Title: Senior Vice President Notices To: Henry Yung, Vice President City National Bank-San Francisco CBC 351 California Street, Mezzanine Level San Francisco, CA 94104 Phone: 415-576-3909 Facsimile: 415-576-3996 With a copy to: Steven K. Sloan, Senior Vice President City National Bank 400 N. Roxbury Drive, 3rd Floor Beverly Hills, CA 90210 Phone: 310-888-6140 Facsimile:  310–888–6564       FIRST UNION NATIONAL BANK           By /s/ BILL A. SHIRLEY     --------------------------------------------------------------------------------     Name: Bill A. Shirley     Title: Senior Vice President Notices To: First Union National Bank One First Union Center, TW-9 301 South College Street Charlotte, NC 28289 Attention: Conduit Administration Phone: 704-383-9687 Facsimile: 704-374-3254     EUROPEAN AMERICAN BANK           By /s/ ANTHONY NOCERA     --------------------------------------------------------------------------------     Name: Anthony Nocera     Title: Vice President Notices To: European American Bank 400 Oak Street Garden City, NY 11530 Attention: Anthony Nocera, Vice President Phone: 516-357-1206 Facsimile: 516-357-1784 E-mail: [email protected]     BANCO POPULAR NORTH AMERICA           By /s/ JOSEPH FRADELOS     --------------------------------------------------------------------------------     Name: Joseph Fradelos     Title: Assistant Vice President Notices To: Banco Popular North America 7 West 51st Street New York, NY 10019 Attention: Joe Fradelos Middle Market Lending Group Phone: 212-445-1800 Facsimile: 212-588-3532     CALIFORNIA BANK & TRUST           By /s/ J. MICHAEL SULLIVAN     --------------------------------------------------------------------------------     Name: J. Michael Sullivan     Title: Vice President           /s/ THOMAS C. PATON     --------------------------------------------------------------------------------     By: Thomas C. Paton, Jr.     Its: Senior Vice President & Manager Notices To: J. Michael Sullivan Vice President California Bank & Trust South Bay Corporate Banking Office 1690 South El Camino Real San Mateo, CA 94402 Phone: 650-294-2026 Facsimile: 650-294-2029 and: Loan Administrator California Bank & Trust San Francisco Corporate Banking Office 465 California Street, 1st Floor San Francisco, CA 94104 Telephone:  415–875–1441 Facsimile:  415–875–1457  

QuickLinks -- Click here to rapidly navigate through this document AGREEMENT     This Agreement (hereinafter "Agreement") is made effective as of the 1st day of November, 2001 by and between Western Gas Resources, Inc., a Delaware corporation (hereinafter the "Company") and Lanny F. Outlaw (hereinafter "Consultant"). WITNESSETH:     WHEREAS, the Company desires to retain Consultant on a contractual basis with regard to certain technical and business matters of the Company as further detailed in this Agreement; and     WHEREAS, Consultant has agreed to continue with the Company under the terms and conditions of this Agreement.     NOW THEREFORE, for good and valuable consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: ARTICLE I Consultant Services     1.  Duties and Responsibilities.  Consultant agrees to devote his time, attention and effort to the business of Western Gas Resources, Inc., as are reasonably necessary for the performance of certain duties and responsibilities as follows:     a.  Business Strategy and Budget Process. To the extent requested by the Chief Executive Officer ("CEO"), Consultant shall actively work with the Company's management team in the development and formulation of the overall business strategy, annual budget, and five-year business plan.     b.  Business Relations and Government Affairs. At the request of the CEO, Consultant shall actively participate in fostering and maintaining good business relations with executive level business leaders in the industry and government officials for the purpose of seeking and attaining business information and opportunities for growth and expansion of the business of the Company.     In addition to the foregoing, Consultant agrees to be available to advise and counsel with the CEO and the management team of the Company and to perform other executive level duties when required for the benefit of the Company.     3.  Term.  The term of this Agreement for the performance of the foregoing services shall be for a period beginning November 1, 2001 and ending on May 31, 2003.     4.  Compensation and Expenses.  As consideration for the services to be performed under this Agreement, Consultant will be compensated as follows: a)Consultant shall receive a one-time lump sum payment in the amount of One Hundred Sixty Seven Thousand ($167,000) on or about May 31, 2002. In addition, on May 31, 2002, 50% of the principal balance and all accrued interest on those certain loans provided to Consultant under those certain Promissory Notes dated January 10, 1992, January 4, 1993, January 7, 1994, and February 9, 1995 (hereinafter collectively the "Notes") shall be forgiven by the Company; and b)Consultant shall receive a one-time lump sum payment in the amount of One Hundred Seventy FiveThousand ($175,000) on or about May 31, 2003. In addition, on May 31, 2003 the remaining principal balance and all accrued interest outstanding under the Notes shall be forgiven by the Company.     5.  Hold Harmless.  Upon execution of this Agreement, Consultant shall enter into that certain Indemnification Agreement on even date herewith attached hereto and incorporated herein by reference as Exhibit A.     6.  Independent Contractor Status.  Consultant is performing the services contained in this Agreement as an independent contractor, and is the sole judge of the manner in which to perform such services, that Consultant is not an employee or an agent of the Company while performing said services. It is further understood that, as an independent contractor, Consultant will be responsible for payment of state and Federal income taxes, FICA, self employment tax and any other taxes that my be due as a result of the consideration that is received in connection with the performance of the services contained in this Agreement or the forgiveness of the loans described herein. Upon execution of this Agreement, Consultant expressly waives any and all rights to participate in and be eligible for the Company's medical, dental, vision and life insurance coverage provided for employees of the company; provided however that Consultant shall have available such health coverage as may be provided to other directors of the Company as further described in Article II, paragraph 1. Further, upon execution of this Agreement, Consultant shall not continue to participate in or be eligible for benefits under the Company's 401K Plan or the Company's Profit Sharing Plan.     7.  Confidential Information.  Consultant acknowledges that pursuant to his prior employment with the Company and during the term of this Agreement, Consultant occupies a position of trust and confidence. Accordingly, the Consultant specifically agrees not to disclose any proprietary or confidential information of the Company acquired during his prior employment and during the term of this Agreement for a period of two (2) years after the term of this Agreement. In the event the Company has executed confidentiality agreement(s) with other companies in the course of its business, then Consultant may disclose certain confidential information in accordance with the terms and conditions of the confidentiality agreement(s) with said companies. If the Consultant violates this agreement of confidentiality, the Company shall pursue any and all legal and equitable remedies, including injunctive relief.     8.  Agreement Not to Compete.  Consultant hereby agrees that during the term of this Agreement he shall not engage in material competition with the activities of or plans of the Company as they exist up to May 31, 2003. Material competition by the Consultant shall mean that the Consultant is involved in any business or investment venture, in any material or controlling capacity including but not limited to an employee, consultant, advisor, agent, shareholder, independent contractor, investor, partner, member, owner or otherwise, which venture directly competes with or has a material adverse economic effect on any of the business activities or business plans of the Company. Examples of such material competition include, but shall not be limited to an activity involving the gathering and processing business within 25 miles of one of the Company's existing or planned gathering and processing facilities; an activity involving the storage or hub business for natural gas or natural gas liquids within 100 miles of an existing or planned storage facility of the Company; and/or an activity involving the purchase of oil or gas leases, the farming-in of such leases or any similar arrangement, within five (5) miles of the boundaries of an existing oil or gas lease of the Company. In the event the Consultant violates this agreement not to compete, the Company shall, in addition to any other remedies provided by law, be permitted to pursue an action for injunctive relief (preliminary or permanent), monetary damages, or both.     9.  Ownership of Documents.  All information, drawings, documents and materials of any kind and in any form, which the Consultant created or obtained during his prior employment with the Company or which Consultant creates or obtains during the term of this Agreement shall be the sole and exclusive property of the Company. ARTICLE II Continuation as Director     1.  Director of the Board of Directors for Western Gas Resources, Inc.  Consultant shall continue as a director of Western Gas Resources, Inc.'s Board of Directors for the term of this Agreement or for so long as he has been elected a director. Consultant shall be paid customary director fees and committee fees, if any, during his service as a director, including reasonable travel and expenses in connection therewith. Consultant shall also have the option to obtain health insurance through the Company under similar terms approved in the June 28, 1996 meeting of the Board of Directors for directors who were serving on the Board at that time.     2.  Director Insurance Coverage—Costs of Defense.  During the term of Consultant's service as a director of the Board of Directors and for two (2) years thereafter, the Company shall provide to Consultant with adequate insurance coverage to cover any claims that may be made arising from his past, present, or future activities on behalf of the Company, in the same manner as such insurance is provided to the other directors of the Company, provided that such insurance coverage is available to the Company at a reasonable cost. Thereafter, if the Consultant wants continuing insurance coverage, he shall be responsible for the cost thereof. Consultant hereby represents that to his knowledge no investigation, claim, or litigation is currently pending or threatened against him at this time relating to or arising out of his activities as Chief Executive Officer and President. In the event Consultant is subpoenaed as a witness with respect to any claim, investigation, or litigation in which the Company is a party, or joined as a party to litigation arising out of the performance of Consultant's duties while employed by the Company, the Company shall provide legal representation to the Consultant at no cost to him, provided, that in the event the Consultant is a party in the action, the Board of Directors has made a finding that the Consultant has acted in good faith. ARTICLE III Miscellaneous     1.  Benefit.  This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including, but not limited to (i) any corporation which may acquire all or substantially all of the Company's assets and business, (ii) any corporation with or into which the Company may be consolidated or merged, or (iii) any corporation that is the successor corporation in a share exchange, and the Consultant, his heirs, guardians and personal and legal representatives.     2.  Notices.  All notices and communications hereunder shall be in writing and shall be deemed given when sent postage prepaid by registered or certified mail, return receipt requested, and, if intended for the Company, shall be addressed to it, to the attention of its General Counsel, at: Western Gas Resources, Inc. 12200 North Pecos Street Denver, Colorado 80234 or at such other address which the Company shall have given notice to the Consultant in the manner herein provided, and if intended for the Consultant, shall be addressed to him at his last known residence, or at such other address at which the Consultant shall have given notice to the Company in the manner provided herein: LANNY F. OUTLAW 2159 Stonehenge Circle Lafayette, CO 80026     3.  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.     4.  Severability.  In the event one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or any other application or modification thereof, shall not in any way be affected or impaired thereunder, and the invalid provision shall be enforceable to the maximum extent permitted by law.     5.  Counterparts.  This Agreement may be executed in more than one copy, each copy of which shall serve as an original for all purposes, but all copies shall constitute but one and the same Agreement.     6.  No Assignment.  This Agreement is personal to each of the parties hereto, and neither party may assign nor delegate any of such party's rights or obligations hereunder.     7.  Headings.  All headings set forth in this Agreement are intended for convenience only and shall not control or affect the meaning, construction or effect of this Agreement or of any of the provisions hereof.     8.  Binding Arbitration, Attorney's Fees and Expenses.  Except for disputes arising or resulting from the payment provisions contained in Article I, paragraph 4 of this Agreement, if any dispute arises between the parties to this Agreement (but not as to whether the Company is obligated to provide legal representation to Consultant under Article II, paragraph 2), then both parties shall submit the dispute to binding arbitration. Both parties agree to be bound by the decision of such arbitration. The obligation to submit to binding arbitration shall not prevent either party from seeking a court order or an injunction enforcing the term of this Agreement. In the event of any binding arbitration between the parties, or any litigation to enforce any provision (except for disputes arising or resulting from the provision contained in Article I paragraph 4) of this Agreement or any right of either party, the unsuccessful party to such arbitration or litigation shall pay the successful party all costs and expenses, including reasonable attorneys' fees, incurred. In the event a dispute arises or results from the provisions of Article I paragraph 4 of this Agreement, then both parties shall submit the dispute to binding arbitration under the foregoing provisions, except that all costs and expenses, including reasonable attorneys' fees, incurred shall be solely borne by the Company.     9.  Waiver of Breach.  The waiver by any party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.     10.  Time of the Essence.  Time is of the essence with respect to this Agreement.     11.  Entire Agreement.  This Agreement contains all agreements, understandings, and arrangements between the parties hereto and no other exists. All previous agreements, understandings, and arrangements between the parties are terminated by this Agreement. This Agreement may be amended, waived, changed, modified, extended or rescinded only by a writing signed by the party against whom such amendment, waiver, change, modification, extension or rescission is sought.     IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the date first written above.     WESTERN GAS RESOURCES, INC., a Delaware corporation     By: /s/ WILLIAM J. KRYSIAK    -------------------------------------------------------------------------------- Name: William J. Krysiak Title: Chief Financial Officer       /s/ LANNY F. OUTLAW    -------------------------------------------------------------------------------- Lanny F. Outlaw QuickLinks AGREEMENT

EXHIBIT 10.46     CAPITAL NOTE AGRP HOLDING CORP.     Dated:                  December 5, 2001 $14,477,419     AGRP HOLDING CORP. (the “Company”) promises to pay to Affinity Group Thrift Holding Corp., a Delaware corporation, or assigns (the “Payee”) the principal sum of Fourteen Million Four Hundred Seventy-Seven Thousand Four Hundred Nineteen and 00/100 Dollars ($14,477,419).   1.                Interest.  The Payee shall be entitled to receive interest from the date hereof at the rate of eleven percent (11%) per annum on the principal amount of this Note outstanding from time to time.  Interest shall be paid at such times as declared by the board of directors of the Company.  Interest not paid shall accumulate and shall be compounded annually until paid.  All interest accumulated under this section shall be paid in full before any distribution is paid or declared to any member of the Company.  If not earlier paid, all accrued and theretofore unpaid interest shall be paid on the Maturity Date.  The Company shall pay interest on overdue principal and on overdue interest (to the full extent permitted by law) at a rate equal to fifteen percent (15%) per annum.   2.                Principal.  The Payee shall be entitled to receive the principal amount of this Note on the Maturity Date.   3.                Liquidation Preference.  In the event of any voluntary dissolution, liquidation, partial liquidation or winding up of the Company, after due payment or provision for payment of the other debts and other liabilities of the Company, the Payee shall be entitled to receive from the net assets an amount (the “Liquidation Payment”) equal to interest accumulated and unpaid pursuant to Section 1 above plus the principal amount hereof, before any distribution shall be made to any member of the Company.   4.                Pre-payment.                   A.                Voluntary Pre-payment.  The Company shall have the option of prepaying this Note in whole or in part at any time and from time to time without penalty or premium.  All payments shall be applied first to accrued interest and then to principal balances.                   B.                Mandatory Pre-payment. To the extent of the Net Proceeds thereof, the Company shall prepay the principal balance of this Note contemporaneously with the closing of a transaction described in clause (iii), (iv) or (v) of the definition of Asset Sale. The Company shall prepay the entire principal balance of this Note contemporaneously with the occurrence of an event described in clauses (i) or (ii) of the definition of Asset Sale.  Prepayments shall be applied in inverse order of maturity.     5.                Defaults and Remedies.  An "Event of Default" occurs if:         (a)   the Company defaults in the payment of any principal, interest or premium, if any, on the Note when the same becomes due and payable, or otherwise fails to comply with any other provision of this Note and such default is not cured within five business days after the occurrence thereof.                   (b)                the Company, pursuant to Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors as the same may be amended from time to time, (i) commences a voluntary case or proceeding, (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding, (iii) consents to the appointment of a receiver, trustee, assignee, liquidator, sequestrator or similar official charged with maintaining possession or control over property for one or more creditors, (iv) makes a general assignment for the benefit of its creditors, or (v) generally does not pay its debts when such debts become due or admits in writing its inability to pay its debts generally.         If an Event of Default specified in subparagraph (a) above occurs and is continuing, then the Payee may declare the principal of and interest on the Note to be due and payable immediately.  If an Event of Default specified in subparagraph (b) above occurs and is continuing, the principal of, and premium, if any, and interest on the Note shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Payee.  No course of dealing on the part of the Payee nor any delay or failure on the part of the Payee to exercise any right shall operate as a waiver of such right or otherwise prejudice the Payee’s rights, powers and remedies.  If an Event of Default occurs, the Company will pay to the Payee all costs and expenses, including but not limited to reasonable attorneys' fees, incurred by the Payee in collecting any sums due on this Note or in otherwise enforcing any of the Payee’s rights, powers and remedies.   6.                Seniority.  The indebtedness evidenced by this Note, including all principal, interest, premium, fees, costs and expenses payable by the Company hereunder, shall be expressly junior and subordinate in right of payment to any indebtedness of the Company for borrowed money which is designated as senior indebtedness, whether secured or unsecured (the "Senior Debt").  No payment of principal of or interest on this Note shall be made if the Company is in default, or such payment would result in a default, with respect to the Senior Debt.  Upon any distribution of assets of the Company, upon dissolution, winding-up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency or receivership proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of the Company, or otherwise, Senior Debt shall first be paid in full, or provision made for such payment, in cash, before any payment is made on account of the principal of and interest on this Note.   7.                Miscellaneous.   As used herein, the following terms shall have the meanings given to them hereinbelow:                   “Maturity Date” means the tenth anniversary of the date thereof or such earlier date on which the principal balance of this Note shall become due and payable by the terms hereof, by acceleration or otherwise.                   “Asset Sale” means:  (i) a voluntary or involuntary dissolution or winding up of the Company; (ii) any capital reorganization or reclassification of the equity interests of the Company or consolidation or merger of the Company with or into another entity; (iii) a sale of any of the real property scheduled on Exhibits A-1 through A-11 to that certain real estate purchase agreement dated as of November 1, 2001 made between the Company, as buyer, and Affinity Group, Inc., as seller, (the “Real Property”) or the sale of shares of stock of any subsidiary of the Company holding any Real Property (a “Real Estate Sub”) to an unaffiliated entity; (iv) if theretofore transferred to an affiliate, (a) a sale of any Real Property (or the shares of a Real Estate Sub) by such affiliate to an unaffiliated entity, (b) a capital reorganization or reclassification of the ownership of such affiliate, (c) the consolidation or merger of such affiliate with or into another entity, (d) a distribution by such affiliate including, without limitation, a distribution of any Real Property, or (e) a voluntary or involuntary dissolution or winding up of such affiliate; or (v) the declaration by the Company of any distribution, by dividend or otherwise, of any Real Property or of a Real Estate Sub.                                   “Net Proceeds” means the net amount of cash available to the Company from an Asset Sale after the payment of all expenses incurred in connection with the Asset Sale and after the making of such deposits, escrows or other payments as may be required in connection with any indebtedness to which the Real Property is subject.                   This Note is a contract made under the laws of the state of California and the rights and obligations of the Company and the Payee shall be construed, interpreted and enforced under the laws of such state.                   This Note has not been registered under the Securities Act of 1933, as amended, or the securities laws of the State of California, or any other state.  This note may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement or appropriate exemption from registration under the foregoing laws.  Accordingly, this Note may not be sold, transferred or otherwise disposed of without (i) the opinion of counsel satisfactory to the Company that such transfer may lawfully be made without registration under the Federal Securities Act of 1933 and the securities laws of the State of California or any other applicable state securities laws; or (ii) such registration.  This legend represents a restriction on transferability of this Note.                   IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the date first written above.               AGRP HOLDING CORP.                                             By: /s/             Name: Mark J. Boggess             Title: Senior Vice President                                  

  EXHIBIT 10.17 THIRD AMENDMENT TO CREDIT AGREEMENT      This Third Amendment (the “Third Amendment”) dated as of September 28, 2001 amends that certain $120,000,000 Multi-Currency Revolving Credit Agreement dated as of January 9, 1998 among American Management Systems, Incorporated (as a Borrower and the Guarantor), various other Borrowers, the Lenders named therein and Bank of America, N.A., formerly NationsBank, N.A., as Administrative Agent, and Wachovia Bank, N.A., as Documentation Agent, as amended by a certain First Amendment to Credit Agreement dated as of March 16, 1998 and a certain Second Amendment to Credit Agreement dated as of March 21, 2001, and as further modified by a certain Waiver and Agreement dated as of July 25, 2001 (such Credit Agreement, as amended or modified by such amendments and such waiver and agreement, being referred to as the “Agreement”).      WHEREAS, the Borrowers and the Guarantor have requested that the Lenders amend certain provisions of the Agreement, and the Lenders are willing to amend the Agreement as herein provided;      NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the Borrowers, the Guarantor and the Lenders agree as follows:      1.     Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement.      2.     EBILTDA. The definition of “EBILTDA” in Section 1.1 of the Agreement shall be amended by adding the following sentences and adjustment table at the end of such definition:   In addition, for the purposes of Section 5.2(b) hereof only, the amount of EBILTDA computed with respect to any four-fiscal-quarter period that includes any fiscal quarter described in the adjustment table below shall be increased by adding back to the amount otherwise calculated in accordance with the definition of EBILTDA the amount of restructuring and special charges set forth opposite such included fiscal quarter in the following adjustment table. If a four-fiscal-quarter period includes more than one fiscal quarter described in such table, the amount of EBILTDA computed with respect to such four-quarter-period shall be increased by the aggregate amount of restructuring and special charges set forth opposite each such included fiscal quarter.   --------------------------------------------------------------------------------                 Adjustment Table     -------------------------------------------------------------------------------- Fiscal Quarter Ending   Restructuring and Special Charges --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- March 31, 2001   $13,800,000 June 30, 2001   $16,100,000 September 30, 2001   The amount, not to exceed $14,000,000,     recorded as restructuring charges for the     fiscal quarter ended September 30, 2001.   Without limiting the generality of the introduction to the preceding adjustment table, the parties acknowledge that the adjustments to EBILTDA set forth in such table shall not apply in determining the ratio of EBILTDA to Interest and Lease Charges for purposes of the definition of “Applicable Rate.”      3.     Fixed Charge Coverage Ratio. Section 5.2(b) of the Credit Agreement is amended in its entirety so that as amended it shall read as follows:        (b)     Fixed Charge Coverage Ratio. Maintain as of the end of each fiscal quarter for the four fiscal quarters ending on such date, a ratio of EBILTDA to Interest and Lease Charges of not less than (i) 2.25 to 1.0 as of December 31, 1997 and March 31, 1998, (ii) 2.5 to 1.0 as of June 30, 1998 and as of the last day of each fiscal quarter thereafter through September 30, 2001, (iii) 2.375 to 1.0 as of December 31, 2001, March 31, 2002 and June 30, 2002, and (iv) 2.5 to 1.0 as of September 30, 2002 and as of the last day of each fiscal quarter thereafter.      4.     Conditions Precedent. The effectiveness of this Consent Agreement shall be subject to fulfillment of the following conditions:        (a)     The Administrative Agent shall have received an original of this Consent Agreement executed by AMS (as Borrower and as Guarantor), each of the other Borrowers and the Required Lenders; and        (b)     AMS shall have paid to the Administrative Agent and each Lender all amounts required to be paid to such Persons pursuant to the fee letter dated September 28, 2001 between Bank of America, N.A. and AMS.      5.     Acknowledgement of Guarantor. The Guarantor affirms its obligations under the Guaranty and consents to this Third Amendment. 2 --------------------------------------------------------------------------------        6.     Representations and Warranties. Each Borrower represents and warrants to the Agents and each Lender as follows:               6.1     Existence. Each of the Borrower and its Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the Laws of the nation in which it is organized and any political subdivision thereof, and is duly qualified to do business and in good standing in each other nation and any political subdivision thereof where the nature or extent of its business activities requires such qualification, except where the failure to be so qualified and in good standing could not reasonably be expected to have a Materially Adverse Effect.               6.2     Power and Authority. Each of the Borrower and its Subsidiaries has all requisite power and authority to own or lease its properties, conduct its business as now conducted and to execute and deliver the Third Amendment and to perform the Agreement as amended hereby.               6.3     Authorization and Enforceability. The execution, delivery and performance of the Third Amendment have been duly authorized by all necessary corporate or partnership action of each of the Borrower and its Subsidiaries and require no consent of any Person which has not been obtained, and the Third Amendment constitutes, and the Agreement as amended hereby constitutes, valid and binding obligations of each of the Borrower and its Subsidiaries party thereto, enforceable in accordance with their respective terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity.               6.4     No Violation. The execution, delivery and performance of the Third Amendment does not and will not violate any Borrower’s or any of its Subsidiaries’ charter, bylaws, partnership agreement or other organizational documents, any Laws applicable to such Borrower or any of its Subsidiaries or any agreement to which such Borrower or any of its Subsidiaries is a party or by which such Borrower or any of its Subsidiaries is bound, except for violations of Laws or agreements which could not reasonably be expected to have a Materially Adverse Effect.               6.5     No Default. As of the date of this Third Amendment, no Default Condition or Event of Default has occurred and is continuing under the Agreement which has not been waived.      7.     Cost and Expenses. AMS shall pay all reasonable out-of-pocket costs, fees and expenses of the Administrative Agent incident to this Third Amendment, including the reasonable fees, out-of-pocket expenses and other disbursements of Smith Helms Mulliss & Moore, L.L.P., counsel for the Administrative Agent, in connection with this Third Amendment.      8.     Reaffirmation. Except as otherwise expressly amended by this Third Amendment, the Agreement is and shall continue to be in full force and effect in accordance with its terms. The parties hereto further agree that each reference in any Loan Document to the 3 --------------------------------------------------------------------------------   “Agreement” or the “Loan Agreement” shall be deemed to refer to the Agreement as amended by this Third Amendment and as it may be amended, modified, supplemented, restated, renewed or extended from time to time hereafter.      9.     Miscellaneous.               9.1     Governing Law. This Third Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.               9.2     No Novation. The transactions described herein do not constitute, and should not be construed to be, a novation of any indebtedness outstanding under the Agreement.               9.3     Successors and Assigns. This Third Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrowers, the Guarantor, the Agents, the Lenders and their respective successors and permitted assigns.               9.4     Invalidity. If any provision of this Third Amendment shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof.               9.5     Counterparts. This Third Amendment may be executed in several counterparts, each of which shall be an original and all of which together shall constitute but one and the same instrument.      IN WITNESS WHEREOF, each Borrower, the Guarantor and the Lenders parties hereto have caused this Third Amendment to be duly executed by their respective authorized officers as of the day and year first above written.   AMERICAN MANAGEMENT SYSTEMS, INCORPORATED, as Borrower and Guarantor   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01 4 --------------------------------------------------------------------------------       AMS MANAGEMENT SYSTEMS     DEUTSCHLAND GmbH,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS     EUROPE S.A./N.V.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS U.K. Ltd., as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS CANADA     INC.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMSY MANAGEMENT SYSTEMS     NETHERLANDS, B.V.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01 5 --------------------------------------------------------------------------------       NORDIC BUSINESS MANAGEMENT     SYSTEMS AB,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS     AUSTRALIA PTY. LIMITED,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS     (SWITZERLAND) AG,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS ITALIA     S.p.A.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS     FRANCE S.A.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01 6 --------------------------------------------------------------------------------       AMS MANAGEMENT SYSTEMS     POLAND Sp. Z O.O.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMERICAN MANAGEMENT SYSTEMS PORTUGAL-CONSULTORIA E DESENVOLVIMENTO DE SOFTWARE, SOCIEDADE UNIPESSOAL IDA, as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01   AMS MANAGEMENT SYSTEMS     ESPAÑA, S.A.,     as Borrower   By: /s/ Frank A. Nicoli Title: Director Date: 9/28/01 7 --------------------------------------------------------------------------------   COMMONWEALTH OF VIRGINIA CITY/COUNTY OF  ________________          The foregoing instrument was acknowledged before me in my jurisdiction aforesaid this ___ day of ____________ , ____________ by __________________, who is ____________________ of AMS Management Systems Espana, S.A., for and on behalf of the corporation.           ___________________________                 Notary Public   My commission expires: _____________________         8 --------------------------------------------------------------------------------     BANK OF AMERICA, N.A., as Administrative Agent and Lender   By: /s/ John E. Williams Title: Managing Diector Date: 10/1/01   WACHOVIA BANK, N.A., as Documentation Agent and Lender   By: Title: Date:   BANK OF TOKYO - MITSUBISHI TRUST COMPANY, as Lender   By: /s/ Pamela Donnelly Title: Vice President Date: 9/28/01   COMERICA BANK, as Lender   By: /s/ Jeff Lafferty Title: Account Representative Date: 9/28/01   KBC BANK N.V., as Lender   By: /s/ Robert Snauffer /s/ Sean O’Brien Title: First Vice President, Assistant Vice President Date: ____________________________ 9

       EMPLOYMENT AGREEMENT                 This EMPLOYMENT AGREEMENT (the "Agreement"), made as of October 1, 2001 by and among Tyson Foods, Inc., a Delaware corporation (the "Company"), and Greg Lee, a resident of the State of Arkansas (the "Executive"). RECITALS                 To induce Executive's service as a Group President and Co-Chief Operating Officer of the Company during the Term (as defined in Section 2 below), the Company desires to provide Executive with compensation and other benefits on the terms and conditions set forth in this Agreement.                 Executive is willing to accept such employment and perform services for the Company, on the terms and conditions hereinafter set forth.                 It is therefore hereby agreed by and among the parties as follows: >       1.       Employment.               1.1     Subject to the terms and conditions of this Agreement, the Company agrees to employ Executive during the Term as a Group President and Co-Chief Operating Officer. In such capacity, Executive shall report to the Company's Chairman and Chief Executive Officer and shall have the powers, responsibilities and authorities as are assigned by the Company's Chairman and Chief Executive Officer.               1.2     Subject to the terms and conditions of this Agreement, Executive hereby accepts employment as a Group President and Co-Chief Operating Officer of the Company as of the date hereof and agrees to devote his full working time and efforts, to the best of his ability, experience and talent, to the performance of services, duties and responsibilities in connection therewith. Executive shall perform such duties and exercise such powers, commensurate with his position, as the Company's Chairman and Chief Executive Officer shall from time to time delegate to him on such terms and conditions and subject to such restrictions as the Company's Chairman and Chief Executive Officer may reasonably from time to time impose.               1.3     Except as provided in Section 12 hereof, nothing in this Agreement shall preclude Executive from engaging, so long as, in the reasonable determination of the Company's Chairman and Chief Executive Officer, such activities do not interfere with his duties and responsibilities hereunder, in charitable and community affairs, from managing any passive investment made by him in publicly traded equity securities or other property (provided that no such  349 -------------------------------------------------------------------------------- investment may exceed 5% of the equity of any publicly traded entity, without the prior approval of the Company's Chairman and Chief Executive Officer) or from serving, subject to the prior approval of the Company's Chairman and Chief Executive Officer, as a member of boards of directors or as a trustee of any other corporation, association or entity. For purposes of the preceding sentence, any required approval shall not be unreasonably withheld.               2.      Term of Employment. Executive's term of employment under this Agreement shall commence as of the date hereof (the "Effective Date") and, subject to the terms hereof, shall terminate on such date (the "Termination Date") which is the earlier of (i) October 1, 2006 or (ii) the termination of Executive's employment pursuant to this Agreement (the period from the Effective Date until the Termination Date shall be the "Term"). The Termination Date (and the Term) shall automatically be extended for an additional year on October 1, 2006 and on each subsequent last day of the Company's fiscal year thereafter unless (a) Executive's employment has been terminated prior to such day, or (b) not later than 30 days prior to such day, either party to this Agreement shall have given written notice to the other party that he or it does not wish to extend further the Termination Date (and the Term).               3.      Compensation.               3.1     Salary. The Company shall pay Executive a base salary ("Base Salary") at the rate of $650,000 per annum during the Term; provided, however, that commencing on September 29, 2002, the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") shall, and each year thereafter shall, review the Executive's annual Base Salary for potential increase; however, Executive's right to annual increases shall not be unreasonably denied, and the Base Salary shall not be decreased at any time during the Term. Base Salary shall be payable in accordance with the ordinary payroll practices of the Company. Any increase in Base Salary shall constitute "Base Salary" hereunder.               3.2     Annual Bonus. It is expressly understood and contemplated that Executive's bonus plan will be mutually agreed to by the parties hereto for the Company's fiscal year beginning September 30, 2001 and for each fiscal year thereafter during the Term. The annual bonus plan shall be driven by and proportionate to GAAP determined EBIT generated by Company business activities reporting to Executive.               3.3     Stock Option Awards. As of the date of approval by the Compensation Committee, Executive shall receive an option to purchase 60,000 shares of Company Class A common stock at an exercise price equal to the market price of Company Class A common stock on the date of the grant; the other terms and conditions of such award  350 -------------------------------------------------------------------------------- shall be governed by the terms of a stock option award agreement in a form substantially similar to that presently used by the Company. On the first business day of each of the Company's 2003, 2004, 2005 and 2006 fiscal years (in each case so long as the Termination Date has not occurred), the Company shall award Executive an additional option to acquire 60,000 shares of Company Class A common stock at an exercise price equal to the market price of Company Class A common stock on the date of the grant; the other terms and conditions of such awards shall be governed by the terms of a stock option award agreement in a form substantially similar to that then used by the Company. The options awarded pursuant to this Section 3.3 shall be for a term of ten (10) years and shall vest in one-quarter increments beginning on the second anniversary of the date of the award and annually thereafter until fully vested.               3.4     Restricted Stock/Stock Awards. >               Company Restricted Stock. As of the date of approval by the > Compensation Committee, Executive shall receive an award of 90,000 shares of > restricted Company Class A common stock (less any shares withheld to satisfy > applicable tax withholding requirements) pursuant to a restricted stock award > agreement in a form substantially similar to that presently used by the > Company, as follows:       (i) 15,000 shares of such restricted stock shall be immediately vested and unrestricted; and       (ii) 15,000 shares of such restricted stock shall vest in equal increments over five years beginning on the first anniversary date of the award.             3.5      Perquisites. During the Term, the Company shall provide Executive with the following:       (a) Reimbursement for annual country club dues incurred by Executive during the Term;       (b) Use of, and the payment of all reasonable expenses (including, without limitation, insurance, repairs, maintenance, fuel and oil) for, an automobile. The monthly lease payment or allowance for such automobile shall be consistent with the past practices for other executives at the Company;       (c) Company provided split dollar life insurance with a face amount of no less than $3,000,000, in a form similar to that provided by the Company to its other senior executive officers; 351 --------------------------------------------------------------------------------       (d) Reasonable personal use of the Company-owned aircraft; provided, however, that Executive's personal use of the Company-owned aircraft shall not interfere with Company use of the Company-owned aircraft. The Company will reimburse and gross-up Executive for any and all income tax liability incurred by Executive in connection with his personal use of the Company-owned aircraft; and       (e) Reimbursement from the Company during the Term for costs incurred by Executive for tax and estate planning advice from an entity recommended by the Company.           3.6    Compensation Plans and Programs. Executive shall be eligible to participate in any compensation plan or program maintained by the Company other than plans or programs related to (i) Company options; provided, however, that the limitation in this clause (i) shall not apply in any Company fiscal year beginning after October 1, 2006 and (ii) restricted stock; provided, however, that the limitation in this clause (ii) shall not apply in any Company fiscal year beginning after September 28, 2002 .           4.      Employee Benefits.           4.1    Employee Benefit Programs, Plans and Practices. The Company shall provide Executive during the Term with coverage under all employee pension and welfare benefit programs, plans and practices (commensurate with his position in the Company and to the extent permitted under any employee benefit plan) in accordance with the terms thereof, which the Company generally makes available to its senior executives.           4.2    Vacation and Fringe Benefits. Executive shall be entitled to no less than twenty (20) business days paid vacation in each calendar year (or such greater time as Company policy permits a person of his employment seniority), which shall be taken at such times as are consistent with Executive's responsibilities hereunder. In addition, Executive shall be entitled to the perquisites and other fringe benefits generally made available to senior executives of the Company, commensurate with his position with the Company.           5.      Expenses. Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, including, without limitation, expenses for travel and similar items related to such duties and responsibilities. The Company will reimburse Executive for all such expenses upon presentation by Executive, from time to time, of accounts of such expenditures (appropriately itemized and approved consistent with the Company's policy). 352 --------------------------------------------------------------------------------           6.      Termination of Employment.           6.1    Termination by the Company Not for Cause or by Executive for Good Reason.       (a) The Company may terminate Executive's employment at any time for any reason. If Executive's employment is terminated prior to the Termination Date, as that date may be extended from time to time under the terms of Section 2 hereof, (i) by the Company (other than for Cause (as defined in Section 6.2(c) hereof) or by reason of Executive's death or Permanent Disability (as defined in Section 6.1(d) hereof)), or (ii) by the Executive for Good Reason (as defined in Section 6.1(c) hereof) prior to the Termination Date, Executive shall receive the following items and payments:       (i) An amount (the "Termination Amount") in lieu of any Bonus in respect of all or any portion of the fiscal year in which such termination occurs and any other cash compensation, which Termination Amount shall be payable in a single lump sum within thirty (30) days following the date of such termination. The Termination Amount shall consist of an amount equal to the sum of (x) three (3) times Executive's Base Salary for the fiscal year immediately preceding the year in which such termination occurs plus (y) three (3) times Executive's Bonus for the fiscal year immediately preceding the year in which such termination occurs;       (ii) Executive shall be entitled to receive a cash lump sum payment in respect of accrued but unused vacation days (the "Vacation Payment") and to Base Salary earned but not yet paid (the "Compensation Payment");       (iii) Any then unvested restricted stock and/or time-vesting stock option awards previously granted to Executive by the Company, including, without limitation, those grants set forth in Sections 3.3 and 3.4 hereof, shall become immediately one-hundred percent vested. Any portion of a time-vesting stock option award accelerated pursuant to this Section 6.1(a) shall be exercisable pursuant to the terms of the stock option plan and the stock option award agreement applicable to such award; and       (iv) Any other benefits due to Executive pursuant to the terms of any employee benefit plan or policy maintained generally for employees or a group of management employees. 353 > --------------------------------------------------------------------------------         (b) The Vacation Payment and the Compensation Payment shall be paid by the Company to Executive within 30 days after the termination of Executive's employment by check payable to the order of Executive or by wire transfer to an account specified by Executive.       (c) For purposes of this Agreement, "Good Reason" shall mean any of the following (without Executive's express prior written consent):                   (i) Any material breach by the Company of this Agreement, including any material reduction by the Company of Executive's, title, duties or responsibilities (except in connection with the termination of Executive's employment for Cause, as a result of Permanent Disability, as a result of Executive's death or by Executive other than for Good Reason); or                   (ii) A reduction by the Company in Executive's Base Salary, other than a reduction which is part of a general salary reduction program affecting senior executives of the Company generally; or       (iii) Any change by the Company of the Executive's place of employment to a location more than fifty (50) miles from the Company's headquarters.           6.2    Discharge for Cause; Voluntary Termination by Executive; Termination Because of Death or Permanent Disability.       (a) The Company shall have the right to terminate the employment of Executive for Cause. In the event that Executive's employment is terminated prior to the Termination Date (i) by the Company for Cause, or (ii) by Executive other than (A) for Good Reason or (B) as a result of the Executive's Permanent Disability or death, Executive shall only be entitled to receive the Compensation Payment and the Vacation Payment. Executive shall not be entitled, among other things, to the payment of any Bonus in respect of all or any portion of the fiscal year in which such termination occurs, but shall be entitled to the payment of any unpaid bonus earned with respect to any prior fiscal year. After the termination of Executive's employment under this Section 6.2, the obligations of the Company under this Agreement to make any further payments, or provide any benefits specified herein, to Executive shall thereupon cease and terminate.       (b) If Executive's employment is terminated as a result of Executive's Permanent Disability or death: 354 --------------------------------------------------------------------------------       (i) Executive shall be entitled to receive the annual bonus described in Section 3.2 hereof prorated to the date of Executive's Permanent Disability or death;       (ii) Any then unvested restricted stock and/or time-vesting stock option awards previously granted to Executive by the Company, including, without limitation, those grants set forth in Sections 3.3 and 3.4 hereof, shall become immediately one-hundred percent vested; provided, however that in the event of Executive's death future option awards shall; and       (iii) The Executive shall receive any other benefits due to Executive pursuant to the terms of any employee benefit plan or policy maintained generally for employees or a group of management employees       (c) As used herein, the term "Cause" shall be limited to (i) willful malfeasance, willful misconduct or gross negligence by Executive in connection with his employment, (ii) willful and continuing refusal by Executive to perform his duties hereunder or any lawful direction of the Company's Board of Directors (the "Board"), after notice of any such refusal to perform such duties or direction was given to Executive and Executive is provided a reasonable opportunity to cure such deficiency, (iii) any material breach of the provisions of Section 12 of this Agreement by Executive or any other material breach of this Agreement by Executive after notice of any such breach and an opportunity to cure such breach or (iv) the conviction of Executive of any (A) felony or (B) a misdemeanor involving moral turpitude. Termination of Executive pursuant to this Section 6.2 shall be made by delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the then members of the Board at a meeting of the Board called and held for the purpose (after 30 days prior written notice to Executive and reasonable opportunity for Executive to be heard before the Board prior to such vote), finding that in the reasonable judgment of the Board, Executive was guilty of conduct set forth in any of clauses (i) through (iv) above and specifying the particulars thereof.       (d) For purposes of this Agreement "Permanent Disability" shall have the same meaning ascribed thereto in the Company's Long-Term Disability Benefit Plan applicable to senior executive officers as in effect on the date hereof.           7.      Mitigation of Damages. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise after the termination of his employment  355 -------------------------------------------------------------------------------- hereunder, and any amounts earned by Executive, whether from self-employment, as a common-law employee or otherwise, shall not reduce the amount of any Termination Amount otherwise payable to him.           8.      Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Tyson Foods, Inc.   2210 Oaklawn Drive   Springdale, Arkansas 72762-6999   FAX: (501) 290-4028   Attn: Chairman and Chief Executive Officer     with a copy to:       Tyson Foods, Inc.   2210 Oaklawn Drive   Springdale, Arkansas 72762-6999   FAX: (501) 290-4028   Attn:      General Counsel     To Executive: Greg Lee   4553 Crossover Road   Springdale, Arkansas 72764   Any such notice or communication shall be delivered by hand or by courier or sent certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in a notice duly delivered as described above), and the third business day after the actual date of mailing shall constitute the time at which notice was given.           9.      Separability; Legal Fees. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. Each party hereto shall be solely responsible for any and all legal fees incurred by him or it in connection with this Agreement, including the enforcement. In the event the Executive is required to bring any action to enforce rights or to collect monies due under this Agreement and is successful in such action, the Company shall reimburse the Executive for all of Executive's reasonable attorneys' fees and expenses in preparing, investigating and pursuing such action.           10.      Assignment. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Executive and the assigns and successors of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the  356 -------------------------------------------------------------------------------- laws of intestate succession) or by the Company, except that the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to the stock, assets or business(es) of the Company. > 11.      Amendment. This Agreement may only be amended by written agreement of > the parties hereto.           12.      Nondisclosure of Confidential Information; Non-Competition; Non-Disparagement.       (a) Executive shall not, without the prior written consent of the Company, use, divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity any Confidential Information (as defined below) pertaining to the business of the Company or any of its affiliates, except (i) while employed by the Company, in the business of and for the benefit of the Company, or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information. For purposes of this Section 12(a), "Confidential Information" shall mean non-public information concerning the financial data, strategic business plans, product development (or other proprietary product data), customer lists, marketing plans and other non-public, proprietary and confidential information of the Company or its affiliates (the "Restricted Group") or customers, that, in any case, is not otherwise available to the public (other than by Executive's breach of the terms hereof).       (b) During the Term and for one (1) year thereafter, Executive agrees that, without the prior written consent of the Company, (A) he will not, directly or indirectly, in the United States, participate in any Position (as defined below) in any business which is in direct competition with any business of the Restricted Group and (B) he shall not, on his own behalf or on behalf of any person, firm or company, directly or indirectly, solicit or offer employment to any person who has been employed by the Restricted Group at any time during the 12 months immediately preceding such solicitation, and (C) he shall not, on his own behalf or  357 -------------------------------------------------------------------------------- on behalf of any person, firm or company, solicit, call upon, or otherwise communicate in any way with any client, customer, prospective client or prospective customer of the Company or of any member of the Restricted Group for the purposes of causing or of attempting to cause any such person to purchase products sold or services rendered by the Company or by any member of the Restricted Group from any person other than the Company or any member of the Restricted Group. The term "Position" shall include, without limitation, a partner, director, holder of more than 5% of the outstanding voting shares, principal, executive, officer, manager or any employment or consulting position. It is acknowledged and agreed that the scope of the clause as set forth above is essential, because (i) a more restrictive definition of "Position" (e.g. limiting it to the "same" position with a competitor) will subject the Company to serious, irreparable harm by allowing competitors to describe positions in ways to evade the operation of this clause, and substantially restrict the protection sought by the Company, and (ii) by the allowing Executive to escape the application of this clause by accepting a position designated as a "lesser" or "different" position with a competitor, the Company is unable to restrict the Executive from providing valuable information to such competing company to the harm of the Company.       (c) Executive agrees that he will not, directly or indirectly, individually or in concert with others, engage in any conduct or make any statement that is likely to have the effect of undermining or disparaging the reputation of the Company or any member of the Restricted Group, or their good will, products, or business opportunities, or that is likely to have the effect of undermining or disparaging the reputation of any officer, director, agent, representative or employee, past or present, of the Company or any member of the Restricted Group. Company agrees that it shall not, directly or indirectly, engage in any conduct or make any statement that is likely to have the effect of undermining or disparaging the reputation of Executive.       (d) For purposes of this Section 12, a business shall be deemed to be in competition with the Restricted Group if it is principally involved in the purchase, sale or other dealing in any property or the rendering of any service purchased, sold, dealt in or rendered by the Restricted Group as a material part of the business of the Restricted Group within the same geographic area in which the Restricted Group effects such purchases, sales or dealings or renders such services. Nothing in this Section 12 shall be construed so as to preclude Executive from investing in any company pursuant to the provisions of Section 1.3 hereof. 358 --------------------------------------------------------------------------------       (e) Executive and the Company agree that this covenant not to compete is a reasonable covenant under the circumstances, and further agree that if in the opinion of any court of competent jurisdiction such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so modified. Executive agrees that any breach of the covenants contained in this Section 12 would irreparably injure the Company. Accordingly, Executive agrees that the Company may, in addition to pursuing any other remedies it or they may have in law or in equity, cease making any payments otherwise required by this Agreement and obtain an injunction against Executive from any court having jurisdiction over the matter restraining any further violation of this Agreement by Executive.           13.      Beneficiaries; References. Executive shall be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. Any reference to the masculine gender in this Agreement shall include, where appropriate, the feminine.           14.      Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. In particular, the provisions of Section 12 hereunder shall remain in effect as long as is necessary to give effect thereto.           15.      Governing Law. This Agreement shall be construed, interpreted and governed in accordance with the laws of Arkansas, without reference to rules relating to conflicts of law.           16.      Effect on Prior Agreements. This Agreement contains the entire understanding among the parties hereto and supersedes in all respects any prior or other agreement or understanding among the parties or any affiliate or predecessor of the Company and Executive with respect to Executive's employment, including but not limited to any severance arrangements. Under no circumstances shall Executive be entitled to any other severance payments or benefits of any kind, except for the payments and benefits described herein. 359 --------------------------------------------------------------------------------           17.      Withholding. The Company shall be entitled to withhold from payment any amount of withholding required by law.           18.      Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original.   360 --------------------------------------------------------------------------------   >       IN WITNESS WHEREOF, the parties hereto have executed this Agreement on > the day and year first above written.   TYSON FOODS, INC. By:              /s/ John Tyson Name:         John Tyson Title:           Chairman and Chief Executive Officer                   /s/ Greg Lee                   Greg Lee   361 --------------------------------------------------------------------------------  

EXHIBIT 10.2 MEDIA 100 INC. 1986 Employee Stock Purchase Plan, as amended through June 12, 2001 Section 1.  Purpose of Plan.              The Media 100 Inc. ("Media 100") 1986 Employee Stock Purchase Plan (the "Plan") is intended to provide a method by which eligible employees of Media 100 (formerly Data Translation, Inc.) and its subsidiaries (collectively, the "Company") may use voluntary, systematic payroll deductions to purchase shares of Common Stock of Media 100 ("stock") and thereby acquire an interest in the future of the Company.  For purposes of the Plan, a subsidiary is any corporation in which Media 100 owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock. Section 2.  Options to Purchase Stock.              Under the Plan, there is available an aggregate of not more than 1,700,0001 shares of stock (subject to adjustment as provided in Section 16) for sale pursuant to the exercise of options ("options") granted under the Plan to employees of the Company ("employees").  The stock to be delivered upon exercise of options under the Plan may be either shares of Media 100's authorized but unissued stock, or shares of reacquired stock, as the Board of Directors of Media 100 (the "Board of Directors") shall determine. -------------------------------------------------------------------------------- 1  An increase in the number of shares authorized for issuance under the Plan by 500,000 to a total of 1,700,000 shares was approved by the requisite vote of stockholders at the Annual Meeting of Stockholders of Media 100 held on June 12, 2001. Section 3.  Eligible Employees.              Except as otherwise provided in Section 20, each employee who has completed one month of continuous service in the employ of the Company shall be eligible to participate in the Plan. Section 4.  Method of Participation.              Subject to the second paragraph of Section 8, the periods January 1 to June 30 and July 1 to December 31 of each year shall be option periods. Each person who will be an eligible employee on the first day of any option period may elect to participate in the Plan by executing and delivering, at least 15 days prior to such day, a payroll deduction authorization in accordance with Section 5.  Such employee shall thereby become a participant ("participant") on the first day of such option period and shall remain a participant until his participation is terminated as provided in the Plan.  Each participant shall execute, prior to or contemporaneously with his election to participate in the Plan, the Company's then standard form of Employee Agreement relating to confidentiality, inventions and the like. Section 5.  Payroll Deductions.              The payroll deduction authorization shall request withholding, at a rate of not less than 2% nor more than 10%, from the participant's compensation, by means of substantially equal payroll deductions over the option period.  For purposes of the Plan, "compensation" shall mean all compensation paid to the participant by the Company including compensation paid as bonuses and commissions, but excluding overrides, overseas allowances, and payments under stock option plans and other employee benefit plans   A participant may change the withholding rate of his payroll deduction authorization by written notice delivered to the Company at least 15 days prior to the first day of the option period as to which the change is to be effective.  All amounts withheld in accordance with a participant's payroll deduction authorization shall be credited to a withholding account for such participant. Section 6.  Grant of Options.              Each person who is a participant on the first day of an option period shall as of such day be granted an option for such period.  Such option shall be for the number of shares of stock to be determined by dividing (a) the balance in the participant's withholding account on the last day of the option period by (b) the purchase price per share of the stock determined under Section 7, and eliminating any fractional share from the quotient.  The Company shall reduce on a substantially proportionate basis the number of shares of stock receivable by each participant upon exercise of his option for an option period in the event that the number of shares then available under the Plan is otherwise insufficient. Section 7.  Purchase Price.              The purchase price of stock issued pursuant to the exercise of an option shall be 85% of the fair market value of the stock at (a) the time of grant of the option or (b) the time at which the option is deemed exercised, whichever is less.  Fair market value shall be determined in accordance with the applicable provisions of the Internal Revenue Code of 1986, as amended or restated from time to time (the "Code") or regulations issued thereunder, or in the absence of any such provisions or regulations, shall be deemed to be the last sale price at which the stock is traded on the day in question or the last prior date on which a trade occurred as reported in the Wall Street Journal; or, if the Wall Street Journal is not published or does not list the stock, then in such other appropriate newspaper of general circulation as the Board of Directors may prescribe; or, if the last price at which the stock traded is not generally reported, then the mean between the reported bid and asked prices at the close of the market on the day in question or the last prior date when such prices were reported. Section 8.  Exercise of Options.              If an employee is a participant in the Plan on the last business day of an option period, he shall be deemed to have exercised the option granted to him for that period.  Upon such exercise, the Company shall apply the balance of the participant's withholding account to the purchase of the number of whole shares of stock determined under Section 6, and as soon as practicable thereafter shall issue and deliver certificates for said shares to the participant and shall return to him the balance, if any, of his withholding account in excess of the total purchase price of the shares so issued.  No fractional shares shall be issued hereunder.              Notwithstanding anything herein to the contrary, the Company shall not be obligated to deliver any shares unless and until, in the opinion of the Company's counsel, all requirements of applicable federal and state laws and regulations (including any requirements as to legends) have been complied with, nor, if the outstanding stock is at the time listed on any securities exchange, unless and until the shares to be delivered have been listed (or authorized to be added to the list upon official notice of issuance) upon such exchange, nor unless or until all other legal matters in connection with the issuance and delivery of shares have been approved by the Company's counsel. Section 9.  Interest.              No interest will be payable on withholding accounts. Section 10.  Cancellation and Withdrawal.              A participant who holds an option under the Plan may at any time prior to exercise thereof under Section 8 cancel all (but not less than all) of his option by written notice delivered to the Company.  Upon such cancellation, the balance in his withholding account shall be returned to him.              A participant may terminate his payroll deduction authorization as of any date by written notice delivered to the Company and shall thereby cease to be a participant as of such date.  Any participant who voluntarily terminates his payroll deduction authorization prior to the last business day of an option period shall be deemed to have canceled his option. Section 11.  Termination of Employment.              Except as otherwise provided in Section 12, upon the termination of a participant's employment with the Company for any reason whatsoever, he shall cease to be a participant, and any option held by him under the Plan shall be deemed cancelled, the balance of his withholding account shall be returned to him, and he shall have no further rights under the Plan.  For purposes of this Section 11, a participant's employment will not be considered terminated in the case of sick leave or other bona fide leave of absence approved for purposes of this Plan by Media 100 or a subsidiary or in the case of a transfer to the employment of a subsidiary or to the employment of Media 100. Section 12.  Death or Retirement of Participant.              In the event a participant holds any option hereunder at the time his employment with the Company is terminated (1) by his retirement with the consent of the Company, and such retirement is within three months of the time such option becomes exercisable, or (2) by his death whenever occurring, then such participant (or in the event of death, his legal representative) may, by a writing delivered to the Company on or before the date such option is exercisable, elect either (a) to cancel any such option and receive in cash the balance in his withholding account, or (b) to have the balance in his withholding account applied as of the last day of the option period to the exercise of his option pursuant to Section 8.  In the event such participant (or his legal representative) does not file a written election as provided above, any outstanding option shall be treated as if an election had been filed pursuant to subparagraph (a) above. Section 13.  Participant's Rights Not Transferable, Etc.              All participants granted options under the Plan shall have the same rights and privileges.  Each participant's rights and privileges under any option granted under the Plan shall be exercisable during his lifetime only by him, and shall not be sold, pledged, assigned, or otherwise transferred in any manner whatsoever except by will or the laws of descent and distribution.  In the event any participant violates the terms of this Section, any options held by him may be terminated by the Company and upon return to the participant of the balance of his withholding account, all his rights under the Plan shall terminate. Section 14.  Employment Rights.              Neither the adoption of the Plan nor any of the provisions of the Plan shall confer upon any participant any right to continued employment with Media 100 or a subsidiary or affect in any way the right of the Company to terminate the employment of a participant at any time. Section 15.  Rights as a Shareholder.              A participant shall have the rights of a shareholder only as to stock actually acquired by him under the Plan. Section 16.  Change in Capitalization.              In the event of a stock dividend, stock split or combination of shares, recapitalization, merger in which Media 100 is the surviving corporation or other change in Media 100's capital stock, the number and kind of shares of stock or securities of Media 100 to be subject to the Plan and to options then outstanding or to be granted hereunder, the maximum number of shares or securities which may be delivered under the Plan, the option price and other relevant provisions shall be appropriately adjusted by the Board of Directors, whose determination shall be binding on all persons.  In the event of a consolidation or merger in which Media 100 is not the surviving corporation or in the event of the sale or transfer of substantially all Media 100's assets (other than by the grant of a mortgage or security interest), all outstanding options shall thereupon terminate, provided that prior to the effective date of any such merger, consolidation or sale of assets, the Board of Directors shall either (a) return the balance in all withholding accounts and cancel all outstanding options, or (b) accelerate the exercise date provided for in Section 8, or (c) if there is a surviving or acquiring corporation, arrange to have that corporation or an affiliate of that corporation grant to the participants replacement options having equivalent terms and conditions as determined by the Board of Directors. Section 17.  Administration of Plan.              The Plan will be administered by the Board of Directors.  The Board of Directors will have authority, not inconsistent with the express provisions of the Plan, to take all action necessary or appropriate hereunder, to interpret its provisions, and to decide all questions and resolve all disputes which may arise in connection therewith.  Such determinations of the Board of Directors shall be conclusive and shall bind all parties.              The Board may, in its discretion, delegate its powers with respect to the Plan to an Employee Benefit Plan Committee or any other committee (the "Committee"), in which event all references to the Board of Directors hereunder, including without limitation the references in Section 18, shall be deemed to refer to the Committee.  A majority of the members of any such Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members.  Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. Section 18.  Amendment and Termination of Plan.              The Board of Directors may at any time or times amend the Plan or amend any outstanding option or options for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, provided that (except to the extent explicitly required or permitted herein) no such amendment will, without the approval of the shareholders of Media 100, (a) increase the maximum number of shares available under the Plan, (b) reduce the option price of outstanding options or reduce the price at which options may be granted, or (c) amend the provisions of this Section 18 of the Plan, and no such amendment will adversely affect the rights of any participant (without his consent) under any option theretofore granted.              The Plan may be terminated at any time by the Board of Directors, but no such termination shall adversely affect the rights and privileges of holders of the outstanding options. Section 19.  Approval of Shareholders.              The Plan shall be subject to the approval of the shareholders of the Company, which approval shall be secured within twelve months after the date the Plan is adopted by the Board of Directors.  Notwithstanding any other provisions of the Plan, no option shall be exercised prior to the date of such approval.  For purposes of the foregoing, any increase in the number of shares described in Section 2, other than pursuant to adjustment as provided in Section 16, shall be treated as an adoption of the Plan with respect to the additional shares. Section 20.  Limitations on Eligibility.              Notwithstanding any other provision of the Plan,              (a) An employee shall not be eligible to receive an option pursuant to the Plan if, immediately after the grant of such option to him, he would (in accordance with the provisions of Sections 423 and 425(d) of the Code) own or be deemed to own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the employer corporation or of its parent or subsidiary corporation, as defined in Section 425 of the Code.              (b) No employee shall be granted an option under the Plan which would permit his rights to purchase shares of stock under all employee stock purchase plans of the Company and any parent and subsidiary corporations to accrue at a rate which exceeds $25,000 in fair market value of such stock (determined at the time the option is granted) for each calendar year during which any such option granted to such employee is outstanding at any time, as provided in Sections 423 and 425 of the Code.  Without limiting the foregoing, the maximum number of shares for which an employee may be granted an option under the Plan for any six-month option period shall be the number of whole shares obtained by dividing $12,500 by the fair market value of one share of Common Stock on the date of grant.

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.1     SHORELINE TECHNOLOGY PARK MOUNTAIN VIEW, CALIFORNIA LEASE AGREEMENT BETWEEN EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("LANDLORD") AND AEROGEN, INC., a Delaware corporation ("TENANT") -------------------------------------------------------------------------------- TABLE OF CONTENTS I.   Basic Lease Information   1 II.   Lease Grant   4 III.   Adjustment of Commencement Date; Possession   4 IV.   Rent   5 V.   Compliance with Laws; Use   9 VI.   Security Deposit   12 VII.   Services   12 VIII.   Leasehold Improvements   13 IX.   Repairs, Maintenance and Alterations   14 X.   Use of Utility Services by Tenant   16 XI.   Entry by Landlord   17 XII.   Assignment and Subletting   17 XIII.   Liens   20 XIV.   Indemnity and Waiver of Claims   20 XV.   Insurance   21 XVI.   Subrogation   21 XVII.   Casualty Damage   22 XVIII.   Condemnation   23 XIX.   Events of Default   23 XX.   Remedies   24 XXI.   Limitation of Liability   25 XXII.   No Waiver   26 XXIII.   Quiet Enjoyment   26 XXIV.   Relocation. INTENTIONALLY OMITTED   26 XXV.   Holding Over   26 XXVI.   Subordination to Mortgages; Estoppel Certificate   26 XXVII.   Attorneys' Fees   27 XXVIII.   Notice   27 XXIX.   Excepted Rights   28 XXX.   Surrender of Premises   28 XXXI.   Miscellaneous   29 XXXII.   Entire Agreement   30 i -------------------------------------------------------------------------------- LEASE AGREEMENT     THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the      day of             , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant"). I. Basic Lease Information. A."Building" shall mean the building located at 2071 Stierlin Court, Mountain View, California. B."Premises" shall mean the area shown on Exhibit A-1 to this Lease. The "Rentable Square Footage of the Premises" is deemed to be 66,096 square feet. C."Rentable Square Footage of the Building" is deemed to be 66,096 square feet. If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises. D."Base Rent": Period --------------------------------------------------------------------------------   Annual Rate Per Square Foot --------------------------------------------------------------------------------   Annual Base Rent --------------------------------------------------------------------------------   Monthly Base Rent -------------------------------------------------------------------------------- 11/15/01—12/31/02   $ 34.80   $ 2,300,140.80   $ 191,678.40 1/1/03—12/31/03   $ 35.93   $ 2,374,829.28   $ 197,902.44 1/1/04—12/31/04   $ 37.10   $ 2,452,161.60   $ 204,346.80 1/1/05—12/31/05   $ 38.30   $ 2,531,476.80   $ 210,956.40 1/1/06—12/31/06   $ 39.55   $ 2,614,096.80   $ 217,841.40 1/1/07—12/31/07   $ 40.84   $ 2,699,360.64   $ 224,946.72 1/1/08—12/31/08   $ 42.16   $ 2,786,607.36   $ 232,217.28 1/1/09—12/31/09   $ 43.53   $ 2,877,158.88   $ 239,763.24 1/1/10—12/31/10   $ 44.95   $ 2,971,015.20   $ 247,584.60 1/1/11—1/29/12   $ 46.41   $ 3,067,515.36   $ 255,626.28 Landlord and Tenant acknowledge that the schedule of Base Rent described above is based on the assumption that the Commencement Date (as hereinafter defined) will be November 15, 2001. If the Commencement Date is not November 15, 2001, the beginning and ending dates set forth in the above schedule with respect to the payment of any installment(s) of Base Rent shall be appropriately adjusted on a per diem basis and set forth in the Commencement Letter to be prepared by Landlord in the form attached hereto as Exhibit C. In the event that the Base Rent rate adjusts (up or down) on any day other than the first day of the month, Base Rent for the month on which such adjustment occurs shall be determined based on the number of days in such month for which each particular Base Rent rate is applicable. Notwithstanding the above schedule of Base Rent to the contrary, as long as Tenant is not in default beyond any applicable notice and cure periods, Tenant shall be entitled to (i) an abatement of Base Rent (the "Abated Base Rent") for the period commencing on the actual Commencement Date and continuing for a period of seventy five (75) calendar days thereafter (the "Abatement Period"), and (ii) an abatement of Expenses and Taxes (as hereinafter defined) during the Abatement Period (the "Abated Expenses and Taxes"). Additionally, if and to the extent that Tenant's completion of its Initial Alterations (as defined in Exhibit D attached hereto) is delayed beyond the 75 day Abatement Period referred to above by reason 1 -------------------------------------------------------------------------------- of a Landlord Delay (as defined in Exhibit D attached hereto), then the Abatement Period, and Tenant's right to Abated Base Rent and Abated Expenses and Taxes, shall be extended as provided in Exhibit D. In the event Tenant defaults at any time during the Term following the expiration of all applicable cure periods without cure, all Abated Base Rent and Abated Expenses and Taxes shall immediately become due and payable. The payment by Tenant of the Abated Base Rent and the Abated Expenses and Taxes in the event of an uncured default as set forth in the immediately preceding sentence shall not limit or affect any of Landlord's other rights, pursuant to this Lease or at law or in equity. During the Abatement Period, only Base Rent and Expenses and Taxes shall be abated, and all Additional Rent and other costs and charges specified in this Lease shall remain as due and payable pursuant to the provisions of this Lease. In the event that Tenant both (a) substantially completes the Initial Alterations (as defined in Exhibit D of this Lease) prior to the last day of the Abatement Period, and (b) commences its business operations in the Premises prior to the last day of the Abatement Period, Tenant shall commence paying Base Rent in accordance with the above Base Rent schedule and Expenses and Taxes in accordance with Article IV of this Lease on a pro rata basis based upon the portion of the Premises in which Tenant has commenced its business operations prior to the last day of the Abatement Period. In such event, the payment of such prorated Base Rent, Expenses and Taxes shall commence with the day after the date Tenant commences its business operations in the Premises. For purposes of this paragraph, the Initial Alterations shall be deemed substantially completed on the date that, in Landlord's reasonable judgment, all Initial Alterations have been performed, other than any details of construction, mechanical adjustment or any other similar matter, the non-completion of which does not materially interfere with Tenant's use of the Premises. E."Tenant's Pro Rata Share": 100%. F."Term": A period of 122 months and 15 days. The Term shall commence on the date Landlord delivers possession of the Premises to Tenant in vacant and broom-clean condition with the Premises free from occupancy by any party, including, without limitation, Visto Corporation, Inc. (the "Commencement Date") and, unless terminated early in accordance with this Lease, end on the date which is 122 months and 15 days after the Commencement Date (the "Termination Date"). Notwithstanding the foregoing, in no event shall the Commencement Date occur prior to November 15, 2001. Landlord and Tenant acknowledge that as of the date of this Lease, it is currently anticipated that the Commencement Date shall be November 15, 2001 (the "Anticipated Commencement Date"), and Landlord shall use its reasonable efforts to tender possession of the Premises to Tenant by November 15, 2001. In the event the Commencement Date is not November 15, 2001, Landlord and Tenant shall enter into a commencement letter agreement in the form attached as Exhibit C setting forth the actual Commencement Date and the actual Termination Date. G.Tenant allowance(s): None. H."Security Deposit": $1,200,000.00, as more fully described in Article VI of this Lease. I."Guarantor(s)": None. J."Broker(s)": Cornish & Carey Commercial for Landlord and CRESA Partners for Tenant. K."Permitted Use": Office, research and development, laboratory, manufacturing, storage and other legal uses (including biotech and pharmaceutical research and development and manufacturing) as permitted by local zoning laws applicable to the Premises and otherwise permitted by the Governing Documents (as that term is defined in Article XXXI.M. below). 2 -------------------------------------------------------------------------------- L."Notice Addresses": Tenant: On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address: Aerogen, Inc. 1310 Orleans Drive Sunnyvale, California 94089 Attention: General Counsel Phone #: (408) 543-2400 Fax #: (408) 543-2450           Landlord:   With a copy to: EOP-Shoreline Technology Park, L.L.C. c/o Equity Office Properties Trust 5104 Old Ironsides Drive Santa Clara, California 95054 Attention: Building Manager   Equity Office Properties Trust Two North Riverside Plaza Suite 2100 Chicago, Illinois 60606 Attention: Regional Counsel—San Jose Region Rent (defined in Section IV.A) is payable to the order of Equity Office Properties at the following address: EOP Operating Limited Partnership, as agent for EOP-Shoreline Technology Park, Dept. #8824, Los Angeles, California 90084-8824. M."Business Day(s)" are Monday through Friday of each week, exclusive of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day ("Holidays"). Landlord may designate additional Holidays, provided that the additional Holidays are commonly recognized by other office buildings in the area where the Building is located. N."Comparable Buildings" means other office and research and development type buildings in the Shoreline submarket of Mountain View, California which are perceived in the marketplace to be similar to the Project, taking into account the size, age, quality of construction and location, as such market perception may change over time, depending upon future development in the Mountain View, California area. O."Law(s)" means all applicable statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity. P."Normal Business Hours" for the Building are 7:00 a.m. to 6:00 p.m. on Business Days, and 9:00 A.M. to 2:00 P.M. on Saturdays. Q."Property" means the Building and the parcel(s) of land on which it is located and the Building's parking area and other improvements serving the Building, if any, and the parcel(s) of land on which they are located. R."Project" shall mean the development located on approximately 51.83 acres commonly described as Shoreline Technology Park, which includes the Building, the Property, as well as other buildings and property as outlined on Exhibit A-2 attached hereto and incorporated herein. S."Rentable Square Footage of the Project" is deemed to be 726,508 square feet. 3 -------------------------------------------------------------------------------- II. Lease Grant.     Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, together with the right in common with others to use any other portions of the Project that are designated by Landlord for the common use of tenants and others, such as sidewalks, unreserved parking areas, common corridors, elevator foyers, restrooms, vending areas, lobby areas, artificial lakes, walkways, water amenities, landscaping, plaza, roads, driveways, and recreation areas (collectively, the "Common Areas"), including but not limited to that certain recreation area (the "Recreational Area") which is maintained by Landlord in the location and configuration shown on Exhibit A-3 attached hereto; provided that Tenant shall have, subject to the terms of this Lease, the exclusive right to use the corridors, elevator foyers, restrooms, vending areas and lobby areas located with the Building. Notwithstanding the foregoing to the contrary, Tenant's right to use the Recreational Area shall be subject to the right of the City of Mountain View ("City") to require that a portion of the Recreational Area be paved and used for parking purposes at a time to be determined at the discretion of the City. The area to be used for parking purposes is indicated as "Potential Parking Area" on Exhibit A-3. If the City requires the parking, Tenant shall have the non-exclusive right to use the parking spaces created thereby. III. Adjustment of Commencement Date; Possession. A.Intentionally Omitted. B.Subject to Landlord's obligations under Section IX.B. and the provisions of this Section III.B. below, the Premises are accepted by Tenant in "as is" condition and configuration. On or before the Commencement Date, Landlord, at Landlord's sole cost and expense, shall hire The Trane Company or another HVAC/engineering company reasonably acceptable to Tenant to (i) inspect the heating, ventilating and air conditioning systems within the Premises, and (ii) certify to Landlord and Tenant that such systems are in good working order. Subject to the foregoing, by taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition, and that there are no representations or warranties by Landlord regarding the condition of the Premises, the Building or the Project. Landlord shall not be obligated to tender possession of the Premises or other space leased by Tenant from time to time hereunder that, on the date possession is delivered, is occupied by a tenant or other occupant or that is subject to the rights of any other tenant or occupant, nor shall Landlord have any other obligations to Tenant under this Lease with respect to such space until the date Landlord: (i) recaptures such space from such existing tenant or occupant; and (2) regains the legal right to possession thereof. If Landlord is delayed delivering possession of the Premises or any other space due to the holdover or unlawful possession of such space by any party, Landlord shall use reasonable efforts to obtain possession of the space, in which case, the Commencement Date shall be postponed until the date Landlord delivers possession of the Premises to Tenant with the Premises free from occupancy by any party, subject to Tenant's right to terminate this Lease on the Drop Dead Date (as defined in the following paragraph) if the Commencement Date has not occurred by the Drop Dead Date, and the Termination Date, at the option of Landlord, may be postponed by an equal number of days. Tenant shall have no claim for damages against Landlord as a result of any such failure to deliver possession of the Premises to Tenant, all of which are hereby waived and released by Tenant. Notwithstanding the foregoing, if the Commencement Date has not occurred on or before the Drop Dead Date (defined below), Tenant, in its sole and absolute discretion and as its sole remedy, shall have the right to terminate this Lease by giving Landlord written notice of termination on or before the earlier to occur of: (i) 5 Business Days after the Drop Dead Date, and (ii) the date on which the Commencement Date actually occurs. In such event, this 4 -------------------------------------------------------------------------------- Lease shall be deemed null and void and of no further force and effect and Landlord shall promptly refund any prepaid rent, the Letter of Credit and any Security Deposit previously advanced by Tenant under this Lease and the parties hereto shall have no further responsibilities or obligations to each other with respect to this Lease. The "Drop Dead Date" shall mean the date which is 60 days after the later of November 1, 2001, the date this Lease is properly executed and delivered by Tenant, the date all prepaid rental and Security Deposits required under this Lease are delivered to Landlord, and, the date the contingency set forth in Article IV of Exhibit E of this Lease has either been satisfied or waived by the parties hereto. Notwithstanding anything herein to the contrary, if Landlord determines in good faith that it will be unable to cause the Commencement Date to occur by the Drop Dead Date, Landlord shall have the right to provide Tenant with written notice (the "Drop Dead Date Extension Notice") of such inability, which Drop Dead Date Extension Notice shall set forth the date on which Landlord reasonably believes that the Commencement Date will occur. Upon receipt of the Drop Dead Date Extension Notice, Tenant shall have the right to terminate this Lease by providing written notice of termination to Landlord within 5 Business Days after the date of the Drop Dead Date Extension Notice. If Tenant does not terminate this Lease within such 5 Business Day period, the Drop Dead Date automatically shall be amended to be the date set forth in Landlord's Drop Dead Date Extension Notice. C.Tenant shall not take possession of the Premises before the Commencement Date. IV. Rent. A.Payments. As consideration for this Lease, Tenant shall pay Landlord, without any setoff or deduction, the total amount of Base Rent and Additional Rent due for the Term. "Additional Rent" means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord. Additional Rent and Base Rent are sometimes collectively referred to as "Rent". Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes, franchise taxes, gross receipts taxes and excess profits taxes), if any, imposed upon or measured by Rent payable by Tenant under this Lease and levied or imposed under applicable Law. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand, provided that the installment of Base Rent for the 1st full calendar month of the Term shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before 30 days after billing by Landlord. All payments of Rent shall be by good and sufficient check or by other means (such as automatic debit or electronic transfer) acceptable to Landlord. If Tenant fails to pay any item or installment of Rent when due, Tenant shall pay Landlord an administration fee equal to 5% of the past due Rent, provided that Tenant shall be entitled to a grace period of 5 days for the first 2 late payments of Rent in a given calendar year. If the Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, the monthly Base Rent and Tenant's Pro Rata Share of Expenses (defined in Section IV.C.) and Taxes (defined in Section IV.D.) for the month shall be prorated based on the number of days in such calendar month. Landlord's acceptance of less than the correct amount of Rent shall be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept the check or payment without prejudice to that party's right to recover the balance or pursue other available remedies. Tenant's covenant to pay Rent is independent of every other covenant in this Lease. B.Payment of Tenant's Pro Rata Share of Expenses and Taxes. Tenant shall pay Tenant's Pro Rata Share of the total amount of Expenses (defined in Section IV.C.) and Taxes (defined in 5 -------------------------------------------------------------------------------- Section IV.D) for each calendar year during the Term. Landlord shall provide Tenant with a good faith estimate of the total amount of Expenses and Taxes for each calendar year during the Term. On or before the first day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of the total amount of Expenses and Taxes. If Landlord determines that its good faith estimate was incorrect by a material amount, Landlord may provide Tenant with a revised estimate. After its receipt of the revised estimate, Tenant's monthly payments shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the total amount of Expenses and Taxes by January 1 of a calendar year, Tenant shall continue to pay monthly installments based on the previous year's estimate until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment shall be made for any month for which Tenant paid monthly installments based on the previous year's estimate. Tenant shall pay Landlord the amount of any underpayment within 30 days after receipt of the new estimate. Any overpayment shall be refunded to Tenant within 30 days or credited against the next due future installment(s) of Additional Rent. As soon as is practical following the end of each calendar year, Landlord shall furnish Tenant with a statement of the actual amount of Expenses and Taxes for the prior calendar year and Tenant's Pro Rata Share of the actual amount of Expenses and Taxes for the prior calendar year (the "Annual Statement"). Landlord shall use reasonable efforts to furnish the Annual Statement on or before June 1 of the calendar year immediately following the calendar year to which the statement applies. If the estimated amount of Expenses and Taxes for the prior calendar year is more than the actual amount of Expenses and Taxes for the prior calendar year as shown on the Annual Statement, Landlord shall apply any overpayment by Tenant against Additional Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated amount of Expenses and Taxes for the prior calendar year as shown on the Annual Statement is less than the actual amount of Expenses and Taxes for such prior year, Tenant shall pay Landlord, within 30 days after its receipt of the statement of Expenses and Taxes, any underpayment for the prior calendar year. C.Expenses Defined. "Expenses" means the sum of (y) 100% of all direct and indirect costs and expenses incurred in each calendar year in connection with operating, maintaining, repairing, managing and owning the Premises, the Building, the Property, and the parking structure(s) or parking lot(s) predominantly serving the Building, and (z) the Building's allocable share of the direct and indirect costs of operating and maintaining the Common Areas of the Project, the Building's allocable share (not to exceed the rentable square footage of the Building divided by the rentable square footage of the entire Project, as the same may change from time to time) of all costs, fees, expenses or other amounts payable by Landlord to the Association, if any, and the Building's allocable share of all fees payable to the company or the Association, if applicable, managing the parking areas within the Project. Landlord agrees to act in a commercially reasonable manner in incurring Expenses, taking into consideration the class and the quality of the Project. "Expenses" shall include, but not be limited to: 1.Labor costs, including, wages, salaries, social security and employment taxes, medical and other types of insurance, uniforms, training, and retirement and pension plans; provided that if any employee performs services in connection with the Project and other buildings not included within the Project, costs associated with such employee may be proportionately included in Expenses based on the percentage of time such employee spends in connection with the operation, maintenance and management of the Project. 2.Management fees, the cost of equipping and maintaining a management office, accounting and bookkeeping services, legal fees not attributable to leasing or collection 6 -------------------------------------------------------------------------------- activity, and other administrative costs. Landlord, by itself or through an affiliate, shall have the right to directly perform or provide any services under this Lease (including management services). However, in no event shall the management fees for the Premises exceed 2.5% of the Base Rent due and payable with respect to the Premises. 3.The cost of services, including amounts paid to service providers and the rental and purchase cost of parts, supplies, tools and equipment. 4.Premiums and deductibles paid by Landlord for insurance, including workers compensation, fire and extended coverage, earthquake, general liability, rental loss, elevator, boiler and other insurance customarily carried from time to time by owners of comparable office buildings. 5.Electrical Costs (defined below) and charges for HVAC, water, gas, steam and sewer, but excluding those charges for which Landlord is reimbursed by tenants. "Electrical Costs" means: (a) charges paid by Landlord for electricity; (b) subject to the provisions of Article X.A. below, costs incurred in connection with an energy management program for the Property, Building or Project; and (c) subject to the provisions of Article X.A. below, if and to the extent permitted by Law, a fee for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for electricity, provided that such fee shall not exceed 50% of any savings obtained by Landlord. Electrical Costs shall be adjusted as follows: (i) amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs; (ii) the cost of electricity incurred to provide overtime HVAC to specific tenants (as reasonably estimated by Landlord) shall be deducted from Electrical Costs; and (iii) if Tenant is billed directly for the cost of building standard electricity to the Premises as a separate charge in addition to Base Rent, the cost of electricity to individual tenant spaces in the Building and Project shall be deducted from Electrical Costs. 6.The amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made to the Building and/or the Common Areas which are: (a) performed primarily to reduce operating expense costs or otherwise improve the operating efficiency of the Building and/or the Common Areas, provided that Landlord, based on expert third party advice, reasonably believes that such improvements will reduce operating expense costs or improve the operating efficiency of the Building and/or Project and such estimated savings are substantially realized; or (b) required to comply with any Laws that are enacted, or first interpreted to apply to the Building and/or the Common Areas, after the Commencement Date of this Lease. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or 5 years. The amortized cost of capital improvements may, at Landlord's option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. "Payback Period" means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement. If Landlord incurs Expenses for the Project together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Project and the other buildings or properties. Expenses shall not include: the cost of capital improvements (except as set forth in Section IV.C.6 above); depreciation; interest (except as provided above for the amortization of capital improvements); principal payments 7 -------------------------------------------------------------------------------- of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds or by other tenants or third parties; costs in connection with leasing space in the Building, including attorneys' fees, advertising costs and brokerage commissions; lease concessions, including rental abatements and construction allowances, granted to specific tenants; all "tenant allowances", "tenant concessions" and other costs or expenses incurred in completing fixturing, furnishing, renovating or otherwise improving, decorating or redecorating space for tenants or other occupants of the Project, or vacant leaseable space in the Project, except in connection with general maintenance and repairs provided to the tenants of the Project in general; costs incurred in connection with the sale, financing or refinancing of the Building; fines, interest and penalties incurred due to the late payment of Taxes (defined in Section IV.D) or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Project under their respective leases; costs incurred by Landlord in connection with the correction of defects in design and original construction of the Building or Project; fines or penalties incurred as a result of violation by Landlord of any applicable Laws; or any costs or expense related to removal, cleaning, abatement or remediation of "hazardous materials" in or about the Building, Common Area, Property or Project, including, without limitation, hazardous substances in the ground water or soil (including but not limited to any release or emission of hydraulic fluids from the elevator lifts at the Project), except to the extent caused by the release or emission of hazardous materials by Tenant, or except to the extent such removal, cleaning, abatement or remediation is related to the general repair and maintenance of the Building, Common Area or Property. If the Project is not at least 95% occupied during any calendar year or if Landlord is not supplying services to at least 95% of the total Rentable Square Footage of the Project at any time during a calendar year, Expenses shall, at Landlord's option, be determined as if the Project had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Project during that calendar year. The extrapolation of Expenses under this Section shall be performed by appropriately adjusting the cost of those components of Expenses that are impacted by changes in the occupancy of the Project. D.Taxes Defined. "Taxes" shall mean: (1) all real estate taxes and other assessments on the Building, Property and/or Project, including, but not limited to, assessments for special improvement districts and building improvement districts, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the Project's share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Project; (2) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Project; and (3) all commercially reasonable costs and fees incurred in connection with seeking reductions in any tax liabilities described in (1) and (2), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall not include any income, gross receipts, excess profits, capital levy, franchise, transfer, capital stock, gift, estate or inheritance tax. If an assessment is payable in installments, Taxes for the year shall include the amount of the installment and any interest due and payable during that year. For all other real estate taxes, Taxes for that year shall, at Landlord's election, include either the amount accrued, assessed or otherwise imposed for the year or the amount due and payable for that year, provided that Landlord's election shall be applied consistently throughout the Term. If a change in Taxes or refund of Taxes is obtained for any year of the Term, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. 8 -------------------------------------------------------------------------------- Tenant shall be responsible for, and shall pay prior to delinquency, taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to, or assessed against, its personal property, and its interest pursuant to this Lease. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord prior to the delinquency of such taxes. In the event that the tenant improvements in the Building which correspond to the Initial Alterations, as defined in this Lease, are assessed and taxed separately by the applicable taxing authority, then Tenant shall be liable and shall pay that portion of the Taxes applicable to the value of the Initial Alterations in the Premises based on the value attributed thereto by the applicable taxing authority to either (a) the applicable taxing authority prior to the delinquency of such taxes in the event Tenant is billed directly by such taxing authority, or (b) the Landlord within 30 days after written demand, in the event Landlord is billed directly by the applicable taxing authority. E.Audit Rights. Tenant may, within 90 days after receiving Landlord's Annual Statement (as defined in Section IV.B above) give Landlord written notice ("Review Notice") that Tenant intends to review Landlord's records of the Expenses for that calendar year. Within a reasonable time after receipt of the Review Notice, Landlord shall make all pertinent records available for inspection that are reasonably necessary for Tenant to conduct its review. If any records are maintained at a location other than the office of the Project, Tenant may either inspect the records at such other location or pay for the reasonable cost of copying and shipping the records. If Tenant retains an agent to review Landlord's records, the agent must be with a licensed CPA firm. Tenant shall be solely responsible for all costs, expenses and fees incurred for the audit. However, notwithstanding the foregoing, if Landlord and Tenant determine that Expenses for the Building for the year in question were less than stated by more than 4%, Landlord, within 30 days after its receipt of paid invoices therefor from Tenant, shall reimburse Tenant for the reasonable amounts paid by Tenant to third parties in connection with such review by Tenant. Within 60 days after the records are made available to Tenant, Tenant shall have the right to give Landlord written notice (an "Objection Notice") stating in reasonable detail any objection to Landlord's statement of Expenses for that year. If Tenant fails to give Landlord an Objection Notice within the 60 day period or fails to provide Landlord with a Review Notice within the 90 day period described above, Tenant shall be deemed to have approved Landlord's statement of Expenses and Taxes and shall be barred from raising any claims regarding the Expenses and Taxes for that year. If Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenant's Objection Notice. If Landlord and Tenant determine that Expenses and Taxes for the calendar year are less than reported, Landlord shall provide Tenant with a credit against the next installment of Rent in the amount of the overpayment by Tenant. Likewise, if Landlord and Tenant determine that Expenses and Taxes for the calendar year are greater than reported, Tenant shall pay Landlord the amount of any underpayment within 30 days. The records obtained by Tenant shall be treated as confidential. In no event shall Tenant be permitted to examine Landlord's records or to dispute any statement of Expenses and Taxes unless Tenant has paid and continues to pay all Rent when due. V. Compliance with Laws; Use. A.The Premises shall be used only for the Permitted Use and for no other use whatsoever. Tenant shall not use or permit the use of the Premises for any purpose which is illegal, dangerous to persons or property or which, in Landlord's reasonable opinion, unreasonably disturbs any other tenants of the Building or the Project or interferes with the operation of 9 -------------------------------------------------------------------------------- the Building or the Project. Tenant shall comply with all Laws, including the Americans with Disabilities Act, regarding the operation of Tenant's business and the use, condition, configuration and occupancy of the Premises. Tenant, within 10 days after receipt, shall provide Landlord with copies of any notices it receives regarding a violation or alleged violation of any Laws. Tenant shall comply with the rules and regulations of the Project attached as Exhibit B and such other reasonable rules and regulations adopted by Landlord from time to time. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations. Landlord shall not knowingly discriminate against Tenant in Landlord's enforcement of the rules and regulations. Except for Tenant's obligation to comply with the ADA as set forth above, nothing herein shall require Tenant to comply with Laws or requirements of public authorities which require the installation of new or additional structural, seismic, mechanical, electrical, plumbing or fire/life safety systems on a Project-wide basis without reference to the particular use of Tenant or any Alterations (including the Initial Alterations) performed by Tenant ("Project-Wide Laws"). Subject to Tenant's obligation to comply with the ADA as set forth above, Landlord will, at Landlord's expense (except to the extent properly included in Expenses), perform all acts required to comply with such Project-Wide Laws as the same affect the Premises, the Building and the Project. If there is a conflict between this Lease and any rules and regulations enacted after the date of this Lease, the terms of this Lease shall control. B.As used in this Lease, "Hazardous Materials" shall mean any material or substance that is now or hereafter prohibited or regulated by any statute, law, rule, regulation or ordinance or that is now or hereafter designated by any governmental authority to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment including but not limited to (i) oil and petroleum products, (ii) radioactive materials, (iii) asbestos and asbestos-containing materials, (iv) polychlorinated biphenyls and (v) substances defined as "hazardous substances", "hazardous materials", or "toxic substances" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §§6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. §§2601, et seq.; the Clean Water Act, 33 U.S.C. §§1251 et seq.; the California Hazardous Waste Control Act, Health and Safety Code §§25330, et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code §§25249.5, et seq.; California Health and Safety Code §§25280, et seq. (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code §§25170, et seq. (Hazardous Materials Release Response Plans and Inventory); the California Porter-Cologne Water Quality Control Act, Water Code §§13000, et seq.; all as amended. As used in this Lease, "Environmental Laws" shall mean all local, state, or federal laws, statutes, ordinances, rules and regulations now or hereafter enacted, issued or promulgated by any governmental authority which relate to any Hazardous Material or the use, manufacture, handling, treatment, transportation, production, disposal, discharge, distribution, release, recycling, emission, sale, or storage of, or the exposure of any person to, a Hazardous Material. Tenant shall, at Tenant's sole cost and expense, comply with all Environmental Laws applicable to its operations within the Premises and will at its sole expense obtain, procure and comply with all permits, licenses and other governmental approvals required for Tenant's Permitted Use of the Premises. Tenant shall not and shall not permit any other party to use, manufacture, handle, treat, transport, produce, dispose of, discharge, distribute, release, recycle, emit, sell, or store any Hazardous Materials in violation of any Environmental Laws, on or around the Premises or the surrounding property during the term of this Lease. Landlord and Tenant may use, in compliance with all applicable laws, 10 -------------------------------------------------------------------------------- including Environmental Laws, reasonable amounts of non-toxic, non-flammable office and janitorial supplies and products typically used in buildings similar to the Premises and which are sold over the counter to the public at retail, and, in addition, during the construction of Tenant's Initial Alterations and subsequent alterations, Landlord and Tenant may use ordinary and necessary building materials and containerized petroleum products stored and used in compliance with all applicable Environmental Laws. In addition to the foregoing, and notwithstanding any other provisions in this Lease, Landlord acknowledges and agrees that Tenant may use, research, develop, test, manufacture, handle, treat, transport, produce, dispose of, distribute, sell or store, in compliance with all applicable Environmental Laws, Hazardous Materials, chemicals, drugs, drug compounds, controlled substances, pharmaceuticals and other materials used by Tenant now or in the future in its biotechnology and pharmaceutical business as reflected in Tenant's periodic Hazardous Materials Management Plans and other reports and disclosures filed by Tenant with applicable governmental agencies (collectively, "Tenant's Hazardous Material Filings"). Tenant shall deliver true and complete copies of all of Tenant's Hazardous Material Filings to Landlord concurrent with its delivery of Tenant's Hazardous Material Filings to the applicable government agencies. In all events, Tenant shall comply with all Laws pertaining to and governing the use, generation, storage and transportation of these materials by Tenant and Tenant shall remain solely liable for the costs of abatement, removal and remediation. Tenant shall indemnify, defend and hold Landlord and its officers, directors, employees, partners, affiliates, subsidiaries, shareholders, agents, lenders, attorneys, successors and assigns harmless from and against all claims, damages, liabilities, losses, fines, penalties, consequential damages, costs and expenses, demands, causes of action, judgments and attorneys' and consultant's fees, whether foreseeable or unforeseeable, directly or indirectly arising out of Tenant's and Tenant's Parties' use, handling, generation, storage, disposal, exposure of others to, emission or release of Hazardous Materials on or about the Premises. The foregoing indemnity obligations shall include, without limitation, the cost of any required or necessary repair, cleanup or detoxification of the Premises, Building or other properties and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the termination of this Lease. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of the Lease. Upon request by Landlord from time to time, Tenant shall make a reasonable demonstration to Landlord that Tenant has been and will continue to store, handle and dispose of any such Hazardous Materials in a manner that protects health, safety and the environment and complies with all applicable Environmental Laws. The factors to be addressed in any such demonstration shall include, but may not be limited to: (i) a description of the approximate quantities of each Hazardous Material used, (ii) a description of how the Hazardous Materials have been and will be stored (e.g. use of fire safety cabinets, description of designated areas, evidence showing that incompatible materials will not be stored near each other, etc.), (iii) a description of the hazardous properties of the materials (including delivery of a MSDS for each such material), (iv) description of safeguards used by Tenant to ensure that only properly trained employees will have access to the Hazardous Materials, and (v) a description of how the materials have been and will be used in the manufacturing or research process and how any byproducts of the process or any unused materials have been and will be disposed of. Tenant may, in its sole and absolute discretion, condition the making of any such demonstration upon the receipt by Tenant from Landlord of a reasonable confidentiality agreement pursuant to which Landlord agrees to keep confidential the information provided in the demonstration by Tenant. Landlord represents that, to its knowledge based solely upon the actual knowledge of Teresa Marks, property manager for the Building, except as disclosed in that certain Phase I 11 -------------------------------------------------------------------------------- Environmental Report of Shoreline Technology Park (Phases I and II) dated October 30, 1996 prepared by Property Solutions Incorporated, and subsequent Report Review and Supplemental Environmental Information Review dated December 13, 1996 by Haley & Aldrich, Inc., the Building and the Premises are free of Hazardous Materials in amounts and conditions which are in violation of applicable Environmental Laws. VI. Security Deposit.     The Security Deposit shall be in the form of an irrevocable letter of credit (the "Letter of Credit") which shall: (a) be in the amount of $1,200,000.00; (b) be issued on the form attached hereto as Exhibit G; (c) name Landlord as its beneficiary; (d) be drawn on an FDIC insured financial institution reasonably satisfactory to Landlord; and (e) be annually renewable so as to expire no earlier than 60 days after the Termination Date of this Lease. The Letter of Credit shall be delivered to Landlord within 10 Business Days of the execution of this Lease by Tenant, but in no event prior to the Prior Tenant's execution and delivery of the Prior Tenant Modification Agreement referred to in Section IV of Exhibit E. The Security Deposit shall be held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenant's obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenant's liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Rent (following the expiration of any applicable cure period without cure) or to cure any uncured default by Tenant (following the expiration of any applicable cure period without cure). If Landlord uses the Security Deposit, Tenant shall on demand restore the Security Deposit to its original amount. Landlord shall return the Letter of Credit (subject to any permissible draws made upon the Letter of Credit) and any unapplied portion of the Security Deposit to Tenant within 45 days after the later to occur of: (1) the determination of Tenant's Pro Rata Share of Expenses and Taxes for the final year of the Term; (2) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (3) the Termination Date. Notwithstanding the foregoing to the contrary, if Tenant is not in default at the termination of this Lease, Landlord shall return the Letter of Credit (subject to any permissible draws made upon the Letter of Credit) and any unapplied balance of the Security Deposit to Tenant within 60 day(s) after Tenant surrenders the Premises to Landlord in accordance with this Lease. In addition to any other deductions Landlord is entitled to make pursuant to the terms hereof, Landlord shall have the right to make a good faith estimate of any unreconciled Expenses and/or Taxes as of the Termination Date and to deduct any anticipated shortfall from the Security Deposit, provided that Landlord has first notified Tenant and made demand upon Tenant for such amounts, and Tenant has failed to pay such estimate of unreconciled Expenses and/or Taxes to Landlord within 10 days of the date of Landlord's demand upon Tenant. Such estimate shall be final and binding upon Tenant. If Landlord transfers its interest in the Premises, Landlord may assign the Security Deposit to the transferee and, following the assignment, Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, or any similar or successor Laws now or hereinafter in effect. VII. Services. A.Subject to the provisions of Article X below, Tenant will be responsible, at its sole cost and expense, for the furnishing of all services and utilities to the Premises, including, but not limited to, heating, ventilation and air-conditioning, electricity, water, light, power, trash pick-up, sewer charges, telephone, janitorial and interior Building security services and all other utility services supplied to the Premises, and all taxes and surcharges thereon. Landlord agrees to maintain and repair the Property as described in Article IX.B. Tenant shall have access to the Building for Tenant and its employees 24 hours per day/7 days per week, subject to events of Force Majeure, the terms of this Lease and such security or monitoring systems 12 -------------------------------------------------------------------------------- as Landlord may reasonably impose, including, without limitation, sign-in procedures and/or presentation of identification cards. B.Any interruption or termination of, services due to the application of Laws, the failure of any equipment, the performance of repairs, improvements or alterations, or the occurrence of any other event (a "Service Failure") shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. Furthermore, in no event shall Landlord be liable to Tenant for any loss or damage, including the theft of Tenant's Property (defined in Article XV), arising out of or in connection with the failure of any security services, personnel or equipment. VIII. Leasehold Improvements.     Upon the expiration or earlier termination of this Lease, Tenant shall have the right to remove from the Premises all of Tenant's laboratory and related equipment, fixtures, trade fixtures, inventory and removable personal property which has been installed and paid for by Tenant (collectively, "Tenant's FF&E"), provided that Tenant returns the Premises to Landlord broom clean, and in good order, condition and repair, ordinary wear and tear and damage by fire and other casualty for which Landlord is required to make repairs hereunder excepted. All improvements (other than Tenant's FF&E) to the Premises (collectively, "Leasehold Improvements") shall be owned by Landlord and shall remain upon the Premises without compensation to Tenant. However, Landlord, by written notice to Tenant within 30 days prior to the Termination Date, may require Tenant to remove, at Tenant's expense: (1) Cable (defined in Section IX.A) installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Project; (2) any Leasehold Improvements that are performed by or for the benefit of Tenant and, in Landlord's reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with improvements to buildings of this kind; and (3) all laboratory equipment, benches, laboratory casework, hoods, cleanrooms, lab walls and equipment yard (collectively referred to as "Required Removables"). Without limitation, it is agreed that Required Removables include internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications of any type installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Project. The Required Removables designated by Landlord shall be removed by Tenant before the Termination Date, provided that upon prior written notice to Landlord, Tenant may remain in the Premises for up to 5 days after the Termination Date for the sole purpose of removing the Required Removables and Tenant's FF&E. Tenant's possession of the Premises shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Rent on a per diem basis at the rate in effect for the last month of the Term. Tenant shall repair damage caused by the installation or removal of Required Removables or the Tenant's FF&E. If Tenant fails to remove any Required Removables or perform related repairs in a timely manner, Landlord, at Tenant's expense, may remove and dispose of the Required Removables and perform the required repairs. Tenant, within 30 days after receipt of an invoice, shall reimburse Landlord for the reasonable costs incurred by Landlord. Notwithstanding the foregoing, Tenant, at the time it requests approval for a proposed Alteration (defined in Section IX.C), or the Initial Alterations (defined in Exhibit D) may request in writing that Landlord advise Tenant whether the Alteration or the Initial Alterations, as the case may be, or any portion of the Alteration or the Initial Alterations, as the case may be, will constitute a Required Removable. Within 10 days after receipt of Tenant's request, Landlord shall reasonably advise Tenant in writing as to which portions of the Alteration or the Initial Alterations, as the case may be, if any, will constitute Required Removables. 13 -------------------------------------------------------------------------------- IX. Repairs, Maintenance and Alterations. A.Tenant's Repair and Maintenance Obligations. Tenant shall, at its sole cost and expense, promptly perform all maintenance and non-structural repairs to the Premises that are not Landlord's express responsibility under this Lease, and shall keep the Premises in good condition and repair (including the replacement of any applicable improvements and appurtenances when necessary), reasonable wear and tear and casualty damage excepted. Tenant's repair and replacement obligations include, without limitation, repairs to and replacements of: (1) floor covering; (2) interior partitions; (3) doors; (4) walls and wall coverings; (5) electronic, phone and data cabling and related equipment (collectively, "Cable") that is installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Project; (6) private showers and kitchens, including hot water heaters, and similar facilities; (7) mechanical (including HVAC), plumbing fixtures, sewer connections (within the Building), wiring, electrical, lighting, and fire, life safety equipment and systems serving the Building and the Premises; (8) interior and exterior windows, glass and plate glass; (9) ceilings; (10) roof membrane(s) and roof penetrator(s); (11) skylights; (12) fixtures and equipment; (13) Alterations performed by contractors retained by Tenant, including related HVAC balancing. All work shall be performed in accordance with the rules and procedures described in Section IX.C. below. In addition, Tenant shall, at its sole cost and expense, provide janitorial service to the Premises in a manner consistent with Comparable Buildings. The janitorial service to be provided by Tenant shall include, but not be limited to, the obligation to clean the exterior windows and to keep the interior of the Premises such as the windows, floors, walls, doors, showcases and fixtures clean and neat in appearance and to remove all trash and debris which may be found in or around the Premises. Tenant shall also enter into and keep and maintain in effect, service contracts reasonably acceptable to Landlord with contractors reasonably acceptable to Landlord for the maintenance of those systems servicing the Building as Landlord may reasonably designate, including, without limitation, the HVAC, electrical and life safety systems of the Building. Without limiting the foregoing, Tenant shall, at Tenant's sole cost and expense, (a) promptly replace all broken glass in the Premises with glass equal to or in excess of the specification and quality of the original glass; and (b) promptly repair any damage caused by Tenant, Tenant's agents, employees, invitees, visitors, subtenants or contractors. If Tenant fails to make any repairs or replacements to the Premises or fails to perform the required janitorial work in the Premises at the level required for more than 15 days after written notice from Landlord (although notice shall not be required if there is an emergency), Landlord may make the repairs or replacements or perform the janitorial work, as the case may be, and Tenant shall pay the reasonable cost of the repairs, replacements or janitorial work, as the case may be, to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 6% of the cost of the work performed. In addition, in the event Tenant fails to make any required repairs or provide the required janitorial services to the Premises and such failure continues beyond the applicable cure period provided in Article XIX.B. below, such failure shall constitute a default under this Lease. Tenant shall maintain written records of maintenance and repairs and shall use certified technicians to perform any such maintenance and repairs. B.Landlord's Repair Obligations. Landlord shall keep and maintain in good repair and working order (in accordance with standards generally comparable to those observed in Comparable Buildings) and make repairs to and perform maintenance upon: (1) the structural elements of the Building, including, without limitation, the columns, footings, structural floor, interior load bearing and exterior walls; (2) Common Areas, including, without limitation, parking structures and parking areas, driveways, sidewalks, landscaping, irrigation and lighting systems, 14 -------------------------------------------------------------------------------- except that Tenant shall pay for its share of the maintenance and repairs to such Common Areas to the extent such costs are properly included in Expenses; (3) the roof of the Building, including roof screens, but excluding the roof membrane; and (4) elevators (if any) serving the Building. Landlord shall promptly make repairs (considering the nature and urgency of the repair) for which Landlord is responsible. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932, and Sections 1941 and 1942 of the California Civil Code, or any similar or successor Laws now or hereinafter in effect. C.Alterations. Tenant shall not make alterations, additions or improvements to the Premises or install any Cable in the Premises or other portions of the Building or the Project (collectively referred to as "Alterations") without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. However, Landlord's consent shall not be required for any Alteration that satisfies all of the following criteria (a "Cosmetic Alteration"): (1) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (2) is not visible from the exterior of the Premises or Building; (3) will not adversely affect the systems or structure of the Building; and (4) does not require work to be performed inside the walls or above the ceiling of the Premises. However, even though consent is not required, the performance of Cosmetic Alterations shall be subject to all the other provisions of this Section IX.C. Prior to starting work, Tenant shall furnish Landlord with plans and specifications reasonably acceptable to Landlord; names of contractors reasonably acceptable to Landlord (provided that Landlord may designate specific reputable contractors with respect to Building systems); copies of contracts; necessary permits and approvals; and evidence of contractor's and subcontractor's insurance in amounts reasonably required by Landlord. If, after receiving bids from Landlord's specified contractors with respect to the Building Systems, Tenant reasonably believes that one or more of the bids quoted by Landlord's specified contractors is significantly higher than the applicable market rate for such work, Tenant may, in the alternative, utilize alternative contractors in connection with such work, provided that any such alternative contractors shall be subject to the prior review and reasonable approval of Landlord. Changes to the plans and specifications must also be submitted to Landlord for its reasonable approval. Alterations shall be constructed in a good and workmanlike manner using materials of a quality that is at least equal to the quality designated by Landlord as the minimum standard for the Building and the Project. Landlord may designate reasonable rules, regulations and procedures for the performance of work in the Building and the Project. Tenant shall reimburse Landlord within 30 days after receipt of an invoice for sums paid by Landlord for reasonable third party examination of Tenant's plans for non-Cosmetic Alterations. In addition, within 30 days after receipt of an invoice from Landlord, Tenant shall pay Landlord a fee for Landlord's oversight and coordination of any non-Cosmetic Alterations as follows: (a) in the event the cost of any non-Cosmetic Alterations in the Premises are less than or equal to $100,000 during any calendar year, Tenant shall pay no oversight and coordination fee to Landlord; (b) in the event the cost of any non-Cosmetic Alterations in the Premises are greater than $100,000 but less than or equal to $300,000 during any calendar year, Tenant shall pay to Landlord an oversight and coordination fee equal to 3% of the total cost of the non-Cosmetic Alterations performed during such calendar year; and (c) in the event the cost of any non-Cosmetic Alterations in the Premises are greater than $300,000 during any calendar year, Tenant shall pay to Landlord an oversight and coordination fee equal to 1.5% of the total cost of the non-Cosmetic Alterations performed during such calendar year, up to a maximum amount of $25,000 for each of such non-Cosmetic Alterations. Notwithstanding the foregoing to the contrary, in no event shall Tenant be obligated to pay Landlord a fee for Landlord's oversight and coordination of the Initial Alterations (as defined in Exhibit D). Upon completion, Tenant shall furnish "as-built" plans (except for Cosmetic Alterations), completion affidavits, full and 15 -------------------------------------------------------------------------------- final waivers of lien in recordable form, and receipted bills covering all labor and materials. Tenant shall assure that the Alterations comply with all insurance requirements and Laws. Landlord's approval of an Alteration shall not be a representation by Landlord that the Alteration complies with applicable Laws or will be adequate for Tenant's use. The Landlord acknowledges that Tenant's Initial Alterations will include construction and installation of laboratories, cleanrooms, laboratory equipment, benches, case work, hoods, lab walls and equipment yard, subject to Landlord's review and approval of the Tenant's plans as provided in the Work Letter. X. Use of Utility Services by Tenant. A.Electricity, gas, water and other utility services used by Tenant in the Premises shall, at Landlord's option, be paid for by Tenant either: (1) through inclusion in Expenses (except as provided in Section X.B. for excess usage); (2) by a separate charge payable by Tenant to Landlord within 30 days after billing by Landlord; or (3) by separate charge billed by the applicable utility company and payable directly by Tenant. Electricity shall initially be paid for by Tenant by separate charge billed by the applicable utility company and payable directly by Tenant. In the event Landlord subsequently elects to provide electricity to the Premises and bill Tenant in the manner set forth in either subclause (1) or subclause (2) above, then electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges, provided that any such provider chosen by Landlord shall be subject to the prior approval of Tenant, which approval shall not be unreasonably withheld, conditioned or delayed. In such event, subject to Tenant's approval rights set forth in the immediately preceding sentence, Landlord shall have the exclusive right to select any company providing electrical service to the Premises, to aggregate the electrical service for the Property and Premises with other buildings, to purchase electricity through a broker and/or buyers group and to change the providers and manner of purchasing electricity. If Landlord elects to change the method of electricity delivery and payment to the Premises as provided in subclause (1) or subclause (2) above, then Landlord shall be entitled to receive a fee (if permitted by Law) for the selection of utility companies and the negotiation and administration of contracts for electricity, provided that the amount of such fee shall not exceed 50% of any savings obtained by Landlord. B.Tenant's use of electrical service shall not exceed, either in voltage, rated capacity, or overall load, that which Landlord deems to be standard for the Building. If Tenant requests permission to consume excess electrical service, Landlord may refuse to consent or may condition consent upon conditions that Landlord reasonably elects (including, without limitation, the installation of utility service upgrades, meters, submeters, air handlers or cooling units), and the additional usage (to the extent permitted by Law), installation and maintenance costs shall be paid by Tenant. Landlord shall have the right to separately meter electrical usage for the Premises and to measure electrical usage by survey or other commonly accepted methods. 16 -------------------------------------------------------------------------------- XI. Entry by Landlord.     Landlord, its agents, contractors and representatives may enter the Premises to inspect or show the Premises, to clean and make repairs, alterations or additions to the Premises, and to conduct or facilitate repairs, alterations or additions to any portion of the Building or the Project, including other tenants' premises. Except in emergencies or to provide janitorial service (if Landlord so elects in accordance with Article IX.A. above) and other regularly scheduled services after Normal Business Hours, Landlord shall provide Tenant with at least 24 hours prior notice of entry into the Premises, which may be given orally. If reasonably necessary for the protection and safety of Tenant and its employees, upon at least 72 hours prior notice to Tenant and consultation with Tenant (except in the event of an emergency or except as may be otherwise required by any governmental entity, in which event no prior notice need be given and no prior consultation need be made), Landlord shall have the right to temporarily close all or a portion of the Premises to perform repairs, alterations and additions. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after Normal Business Hours. Entry by Landlord in accordance with this Article XI shall not constitute constructive eviction or entitle Tenant to an abatement or reduction of Rent. Notwithstanding the foregoing, Tenant, at its own expense, may provide its own locks to one or more areas within the Premises (each a "Secured Area"), provided that in no event shall the total amount of space constituting Secured Areas exceed 10% of the Premises, in the aggregate. Tenant need not furnish Landlord with a key, but upon the Termination Date or earlier expiration or termination of Tenant's right to possession, Tenant shall surrender all such keys to Landlord. If Landlord must gain access to a Secured Area in a non-emergency situation, Landlord shall contact Tenant at least 24 hours in advance, and Landlord and Tenant shall arrange a mutually agreed upon time for Landlord to have such access. Landlord shall comply with all reasonable rules, regulations and procedures as Tenant may from time to time establish with respect to entry to such Secured Area, including limitation as to time of entry, purpose of entry and controls by Tenant with respect to the conduct of such entry (including accompaniment by designated representatives of Tenant), provided that Tenant gives Landlord at least 30 days' prior written notice of all such rules, regulations and procedures and provided that all Secured Areas are clearly marked in the Premises. If Landlord determines in its sole discretion that an emergency in the Building or the Premises, including, without limitation, a suspected fire or flood, requires Landlord to gain access to the Secured Area, subject to the penultimate sentence of this Section X.B., Tenant hereby authorizes Landlord to forcibly enter the Secured Area. In such event, Landlord shall have no liability whatsoever to Tenant, and Tenant shall pay all reasonable expenses incurred by Landlord in repairing or reconstructing any entrance, corridor, door or other portions of the Premises damaged as a result of a forcible entry by Landlord. In the event of such an emergency in the Building or the Premises which Landlord reasonably determines requires access by Landlord, Landlord shall make reasonable efforts to notify Tenant's designated employees as soon as reasonably possible, taking into account the nature of the emergency, Landlord's access to communications facilities and other reasonable factors. Landlord shall have no obligation to provide either janitorial service or cleaning in the Secured Area. XII. Assignment and Subletting. A.Except in connection with a Permitted Transfer (defined in Section XII.E. below), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a "Transfer") without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed if Landlord does not elect to exercise its termination rights (if any) under Section XII.B below. Landlord acknowledges and agrees that Landlord has no termination rights under Section XII.B. below during the initial 122 month and 15 day term of this Lease. Without limitation, it is agreed that Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial condition does not meet the criteria 17 -------------------------------------------------------------------------------- Landlord uses to select Project tenants having similar leasehold obligations; (2) the proposed transferee's business is not suitable for the Building or the Project considering the business of the other tenants and the Project's prestige, or would result in a violation of another tenant's rights under its lease; (3) the proposed transferee is a governmental agency or occupant of the Project; (4) Tenant is in default after the expiration of the notice and cure periods in this Lease; or (5) any portion of the Project, Building or Premises would likely become subject to additional or different Laws as a consequence of the proposed Transfer. Tenant shall not be entitled to receive any consequential, special or indirect damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer. Instead, any such claim of Tenant shall be limited to the foreseeable, direct and actual damages incurred by Tenant. Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any similar or successor Laws, now or hereinafter in effect, and all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable Laws, on behalf of the proposed transferee. Any attempted Transfer in violation of this Article shall, at Landlord's option, be void. Consent by Landlord to one or more Transfer(s) shall not operate as a waiver of Landlord's rights to approve any subsequent Transfers. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease. B.As part of its request for Landlord's consent to a Transfer, Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord may reasonably request. During the initial Term of this Lease, Landlord shall have the right, by providing written notice to Tenant within 20 days of its receipt of the required information and documentation, to either consent to the Transfer by the execution of a consent agreement in a form reasonably designated by Landlord, or reasonably refuse to consent to the Transfer in writing specifying with particularity the Landlord's basis for refusing consent. During the Renewal Term or any extension of the initial Term of the Lease, Landlord shall have the right, by providing written notice to Tenant within 20 days of its receipt of the required information and documentation, to either: (1) consent to the Transfer by the execution of a consent agreement in a form reasonably designated by Landlord or reasonably refuse to consent to the Transfer in writing specifying with particularity the Landlord's basis for refusing consent; or (2) exercise its right to terminate this Lease with respect to the entire Premises, if Tenant is proposing to assign the Lease, or with respect to the portion of the Premises that Tenant is proposing to assign or sublet if the proposed sublease (if approved) would result in 50% or more of the Tenant's Premises being subject to sublease. Any such termination shall be effective on the proposed effective date of the Transfer for which Tenant requested consent. Tenant shall pay Landlord a review fee of $1,250.00 for Landlord's review of any Permitted Transfer or requested Transfer, provided if Landlord's actual reasonable costs and expenses (including reasonable attorney's fees) exceed $1,250.00, Tenant shall reimburse Landlord for its actual reasonable costs and expenses in lieu of a fixed review fee. C.All rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer shall be retained by Tenant until such time as Tenant has recouped all reasonable brokerage fees and reasonable attorneys' fees incurred in connection with such Transfer, plus the unamortized costs Tenant incurred in connection with the construction of the Initial Alterations (as specified in the Initial TI Cost Sheet but specifically excluding all costs and expenses for furniture, trade fixtures and equipment), but in no event shall the amount of such unamortized costs of its Initial Improvements so recouped by Tenant exceed $5,000,000.00. The phrase "other consideration" used herein shall mean all monies, property and other consideration paid or payable to Tenant for the Transfer and for all property in the 18 -------------------------------------------------------------------------------- Premises included in such Transfer, including, without limitation, Initial Alterations and Leasehold Improvements of Tenant, but excluding Tenant's Property. For purposes of this Section XII.C. only, the term "Tenant's Property" shall be as defined in Article XV of this Lease but shall also be deemed to include goodwill, the going concern value of Tenant's business, Tenant's technology and products, Tenant's trade name, Tenant's trade marks, Tenant's service marks, Tenant's patents, Tenant's copyrights, Tenant's customer lists and any other intangible personal property associated with Tenant's business, but in no event shall it be deemed to include Tenant's interest under this Lease. Once Tenant has received from the excess Rent payable in connection with any Transfer(s) hereunder its reasonable brokerage fees and reasonable attorneys' fees incurred in connection with the Transfer plus Tenant's full remaining unamortized cost of constructing the Initial Alterations (not to exceed $5,000,000.00), then Tenant shall thereafter pay 50% of all excess Rent actually received by Tenant in connection with any Transfer(s) under this Lease to Landlord within 30 days after Tenant's actual receipt of such excess consideration. If Tenant is in Monetary Default (defined in Section XIX.A. below), Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of any payments received (less Landlord's share of any excess). D.Except as provided below with respect to a Permitted Transfer, if Tenant is a corporation, limited liability company, partnership, or similar entity, and if the entity which owns or controls a majority of the voting shares/rights at any time changes for any reason (including but not limited to a merger, consolidation or reorganization), such change of ownership or control shall constitute a Transfer. The foregoing shall not apply so long as Tenant is an entity whose outstanding stock is listed on a recognized security exchange, or if at least 80% of its voting stock is owned by another entity, the voting stock of which is so listed. E.So long as Tenant is not entering into the Permitted Transfer for the purpose of avoiding or otherwise circumventing the remaining terms of this Article XII, Tenant may assign its entire interest under this Lease, without the consent of Landlord, to (i) an affiliate, subsidiary, or parent of Tenant, or a corporation, partnership or other legal entity wholly owned by Tenant (collectively, an "Affiliated Party"), or (ii) a successor to Tenant by purchase, merger, consolidation or reorganization, provided that all of the following conditions are satisfied (each such Transfer a "Permitted Transfer"): (1) Tenant is not in default under this Lease; (2) the Permitted Use does not allow the Premises to be used for retail purposes; (3) Tenant shall give Landlord written notice at least 30 days prior to the effective date of the proposed Permitted Transfer (except in the event of a merger or consolidation, in which event Tenant shall give Landlord written notice no later than 10 days after the effective date of the proposed merger or consolidation); (4) with respect to a proposed Permitted Transfer to an Affiliated Party, Tenant continues to have a net worth equal to or greater than Tenant's net worth at the date of this Lease; and (5) with respect to a purchase, merger, consolidation or reorganization or any Permitted Transfer which results in Tenant ceasing to exist as a separate legal entity, (a) Tenant's successor shall own all or substantially all of the assets of Tenant, and (b) Tenant's successor shall have a net worth which is at least equal to the Tenant's net worth at the date of this Lease. Tenant's notice to Landlord shall include information and documentation showing that each of the above conditions has been satisfied. If requested by Landlord, Tenant's successor shall sign a commercially reasonable form of assumption agreement. As used herein, (A) "parent" shall mean a company which owns a majority of Tenant's voting equity; (B) "subsidiary" shall mean an entity wholly owned by Tenant or at least 51% of whose voting equity is owned by Tenant; and (C) "affiliate" shall mean an entity controlled by, controlling or under common control with Tenant. Notwithstanding the foregoing, if any parent, affiliate or subsidiary to which this Lease has been assigned or transferred subsequently sells or transfers its voting equity or its interest under this Lease 19 -------------------------------------------------------------------------------- other than to another parent, subsidiary or affiliate of the original Tenant named hereunder, such sale or transfer shall be deemed to be a Transfer requiring the consent of Landlord hereunder. XIII. Liens.     Tenant shall not permit mechanic's or other liens to be placed upon the Project, Property, Premises or Tenant's leasehold interest in connection with any work or service done or purportedly done by or for benefit of Tenant. If a lien is so placed, Tenant shall, within 10 days of notice from Landlord of the filing of the lien, fully discharge the lien by settling the claim which resulted in the lien or by bonding or insuring over the lien in the manner prescribed by the applicable lien Law. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to bond or insure over the lien or discharge the lien, including, without limitation, reasonable attorneys' fees (if and to the extent permitted by Law) within 30 days after receipt of an invoice from Landlord. XIV. Indemnity and Waiver of Claims. A.Except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) (defined in Article XXVI), and agents ("Landlord Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties and arising out of or in connection with any breach of this Lease by Tenant, any damage or injury occurring in the Premises or any acts or omissions (including violations of Law) of Tenant, the Tenant Related Parties (defined below) or any of Tenant's transferees, contractors or licensees. B.Except to the extent caused by the negligence or willful misconduct of Tenant or any Tenant Related Parties (defined below), Landlord shall indemnify, defend and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees and agents ("Tenant Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Tenant or any of the Tenant Related Parties and arising out of or in connection with any breach of this Lease by Landlord or the acts or omissions (including violations of Law) of Landlord, the Landlord Related Parties or any of Landlord's contractors. C.Landlord and the Landlord Related Parties shall not be liable for, and Tenant waives, all claims for loss or damage to Tenant's business or loss, theft or damage to Tenant's Property or the property of any person claiming by, through or under Tenant resulting from: (1) wind or weather; (2) the failure of any sprinkler, heating or air-conditioning equipment, any electric wiring or any gas, water or steam pipes; (3) the backing up of any sewer pipe or downspout; (4) the bursting, leaking or running of any tank, water closet, drain or other pipe; (5) water, snow or ice upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building or the Project; (6) any act or omission of any party other than Landlord or Landlord Related Parties; and (7) any causes not reasonably within the control of Landlord. Tenant shall insure itself against such losses under Article XV below. Notwithstanding the foregoing, except as provided in Article XVI to the contrary, Tenant shall 20 -------------------------------------------------------------------------------- not be required to waive any claims against Landlord (other than for loss or damage to Tenant's business) where such loss or damage is due to the negligence or willful misconduct of Landlord or any Landlord Related Parties. Nothing herein shall be construed as to diminish the repair and maintenance obligations of Landlord contained elsewhere in this Lease. XV. Insurance.     Tenant shall carry and maintain the following insurance ("Tenant's Insurance"), at its sole cost and expense: (1) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $3,000,000.00; (2) All Risk Property/Business Interruption Insurance, (excluding flood and earthquake), written at replacement cost value and with a replacement cost endorsement covering all of Tenant's trade fixtures, equipment, furniture and other personal property within the Premises ("Tenant's Property"); (3) Workers' Compensation Insurance as required by the state of California and in amounts as may be required by applicable statute; and (4) Employers Liability Coverage of at least $1,000,000.00 per occurrence. Any company writing any of Tenant's Insurance shall have an A.M. Best rating of not less than A-VIII. All Commercial General Liability Insurance policies shall name Tenant as a named insured and Landlord (or any successor), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, and their respective members, principals, beneficiaries, partners, officers, directors, employees, and agents, and other designees of Landlord as the interest of such designees shall appear, as additional insureds. All policies of Tenant's Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days' advance written notice of any change, cancellation, termination or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenant's Insurance prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 15 days prior to the expiration of the insurance coverage. Landlord shall maintain so called All Risk property insurance on the Building, the Initial Alterations and the Leasehold Improvements (excluding any Alterations that were performed by Tenant in violation of this Lease) at full replacement cost value (excluding any deductibles), as reasonably estimated by Landlord. In addition, Landlord shall at all times during the Lease Term and as part of Expenses, procure or cause to be procured and continued comprehensive general liability insurance in an amount not less than Three Million Dollars ($3,000,000.00), combined single limit to protect Landlord against liability for injury to or death of any person or damage to property in connection with the use, occupancy, operation or condition of the Building and the Project. The cost of such insurance shall be included as a part of the Expenses, and payments for losses and recoveries thereunder shall be made solely to Landlord or the Mortgagees of Landlord as their interests shall appear. Except as specifically provided to the contrary, the limits of either party's' insurance shall not limit such party's liability under this Lease. XVI. Subrogation.     Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive and shall cause their respective insurance carriers to waive any and all rights of recovery, claim, action or causes of action against the other and their respective trustees, principals, beneficiaries, partners, officers, directors, agents, and employees, for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to Tenant's Property, the Project, the Building, the Premises, any additions or improvements to the Project, Building or Premises, or any contents thereof, including all rights of recovery, claims, actions or causes of action arising out of the negligence of Landlord or any Landlord Related Parties or the negligence of Tenant or any Tenant Related Parties, which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance. 21 -------------------------------------------------------------------------------- XVII. Casualty Damage. A.If all or any part of the Premises is damaged by fire or other casualty, Tenant shall immediately notify Landlord in writing. During any period of time that all or a material portion of the Premises is rendered untenantable as a result of a fire or other casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. Landlord shall have the right to terminate this Lease if: (1) the Building or the Project shall be materially damaged so that, in Landlord's reasonable judgment, substantial alteration or reconstruction of the Building or the Project, as the case may be, shall be required (whether or not the Premises has been damaged); (2) Landlord is not permitted by Law to rebuild the Building or the Project in substantially the same form as existed before the fire or casualty; (3) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the casualty; (4) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (5) a material uninsured loss to the Building or the Project occurs. Landlord may exercise its right to terminate this Lease by notifying Tenant in writing within 90 days after the date of the casualty. If Landlord does not terminate this Lease, Landlord shall commence and proceed with reasonable diligence to repair and restore the Building, the Initial Alterations and the Leasehold Improvements (excluding any Alterations that were performed by Tenant in violation of this Lease). However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord, provided that if Landlord does not have sufficient insurance proceeds to substantially complete the restoration of the Leasehold Improvements in the Premises and Landlord elects not to fund any shortfall, Landlord shall so notify Tenant and Tenant, within 10 days thereafter, shall have the right to terminate this Lease by the giving of written notice to Landlord. Landlord shall not be liable for any loss or damage to Tenant's Property or to the business of Tenant resulting in any way from the fire or other casualty or from the repair and restoration of the damage. Landlord and Tenant hereby waive the provisions of any Law relating to the matters addressed in this Article, and agree that their respective rights for damage to or destruction of the Premises shall be those specifically provided in this Lease. If Landlord has the right to terminate this Lease pursuant to this Article XVII, Landlord agrees to exercise such right in a nondiscriminatory fashion among leases affecting the Project. Consideration of the following factors in arriving at its decision shall not be deemed discriminatory: Length of term remaining on the Lease, time needed to repair and restore, costs of repair and restoration not covered by insurance proceeds, Landlord's plans to repair and restore Common Areas serving the Premises, Landlord's plans for repair and restoration of the Building, and other relevant factors of Landlord's decision as long as they are applied to Tenant in the same manner as other tenants. B.If all or any portion of the Premises shall be made untenantable by fire or other casualty, Landlord shall, with reasonable promptness, cause an architect or general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required to substantially complete the repair and restoration of the Premises and make the Premises tenantable again, using standard working methods ("Completion Estimate"). If the Completion Estimate indicates that the Premises cannot be made tenantable within 365 days from the date of such casualty, then regardless of anything in Section XVII.A above to the contrary, either party shall have the right to terminate this Lease by giving written notice to the other of such election within 10 days after receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the fire or casualty was caused by the negligence or intentional misconduct of Tenant, Tenant Related Parties or any of Tenant's transferees, contractors or licensees. Notwithstanding the foregoing, if neither Landlord nor Tenant have exercised their respective rights to terminate this Lease and if Landlord does not substantially complete the repair and restoration of the Premises within 16 months of the date 22 -------------------------------------------------------------------------------- of such casualty, which period shall be extended to the extent of any Reconstruction Delays (as hereinafter defined), then Tenant may terminate this Lease by written notice to Landlord within 15 days after the expiration of such period, as the same may be extended. For purposes of this Lease, the term "Reconstruction Delays" shall mean any delays caused by Tenant. C.The provisions of this Lease, including this Article XVII, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises or the Property, and any Laws, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other Laws now or hereinafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises or the Property. XVIII. Condemnation.     Either party may terminate this Lease if the whole or any material part of the Premises or parking for the Premises shall be taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a "Taking"). Landlord and Tenant shall also have the right to terminate this Lease if there is a Taking of any portion of the Building, Property, or Project which would leave the remainder of the Building or the Project unsuitable for use as an office building or an office park, as the case may be, in a manner comparable to the use of the Building and/or Project prior to the Taking. In order to exercise its right to terminate the Lease, Landlord or Tenant, as the case may be, must provide written notice of termination to the other within 45 days after the terminating party first receives notice of the Taking. Any such termination shall be effective as of the date the physical taking of the Premises or the portion of the Project, Building or Property occurs. If this Lease is not terminated, the Rentable Square Footage of the Building, the Rentable Square Footage of the Premises, the Rentable Square Footage of the Project and Tenant's Pro Rata Share shall, if applicable, be appropriately adjusted. In addition, Rent for any portion of the Premises taken or condemned shall be abated during the unexpired Term of this Lease effective when the physical taking of the portion of the Premises occurs. All compensation awarded for a Taking, or sale proceeds, shall be the property of Landlord, any right to receive compensation or proceeds being expressly waived by Tenant. However, Tenant may file a separate claim at its sole cost and expense for Tenant's Property, Tenant's reasonable relocation expenses and for interruption of or damage to Tenant's business, provided the filing of the claim does not diminish the award which would otherwise be receivable by Landlord. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure, or any similar or successor Laws. XIX. Events of Default.     Tenant shall be considered to be in default of this Lease upon the occurrence of any of the following events of default: A.Tenant's failure to pay when due all or any portion of the Rent, if the failure continues for 5 days after written notice to Tenant ("Monetary Default"). B.Tenant's failure (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, if the failure is not cured within 30 days after written notice to Tenant. However, if Tenant's failure to comply cannot reasonably be cured within 30 days, Tenant shall be allowed additional time (not to exceed 90 days) as is reasonably necessary to cure the failure so long as: (1) Tenant commences to cure the failure within 30 days, and (2) Tenant diligently pursues a course of action that will cure the failure and bring Tenant back into compliance with the Lease. However, if Tenant's failure to comply creates a hazardous condition, the failure must be cured immediately upon notice to Tenant. In addition, if 23 -------------------------------------------------------------------------------- Landlord provides Tenant with notice of Tenant's failure to comply with any particular term, provision or covenant of the Lease on 3 occasions during any 12 month period, Tenant's subsequent violation of such term, provision or covenant shall, at Landlord's option, be an incurable event of default by Tenant. C.Tenant or any Guarantor becomes insolvent, makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts when due. D.The leasehold estate is taken by process or operation of Law. EIn the case of any ground floor or retail Tenant, Tenant does not take possession of, or abandons all or any portion of the Premises. F.Tenant is in default beyond any notice and cure period under any other lease or agreement with Landlord at the Project, including, without limitation, any lease or agreement for parking. XX. Remedies. A.Upon the occurrence of any event or events of default under this Lease, whether enumerated in Article XIX or not, Landlord shall have the option to pursue any one or more of the following remedies without any notice (except as expressly prescribed herein) or demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives notice and demand for payment of Rent or other obligations and waives any and all other notices or demand requirements imposed by applicable law): 1.Terminate this Lease and Tenant's right to possession of the Premises and recover from Tenant an award of damages equal to the sum of the following: (a)The Worth at the Time of Award of the unpaid Rent which had been earned at the time of termination; (b)The Worth at the Time of Award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (c)The Worth at the Time of Award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; (d)Any other amount necessary to compensate Landlord for all the detriment either proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and (e)All such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable law. The "Worth at the Time of Award" of the amounts referred to in parts (a) and (b) above, shall be computed by allowing interest at the lesser of a per annum rate equal to: (i) the greatest per annum rate of interest permitted from time to time under applicable law, or (ii) the Prime Rate plus three percent (3%). For purposes hereof, the "Prime Rate" shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the State of California. The "Worth at the Time of Award" of the amount referred to in part (c), above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%); 24 -------------------------------------------------------------------------------- 2.Employ the remedy described in California Civil Code § 1951.4 (Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations); or 3.Notwithstanding Landlord's exercise of the remedy described in California Civil Code § 1951.4 in respect of an event or events of default, at such time thereafter as Landlord may elect in writing, to terminate this Lease and Tenant's right to possession of the Premises and recover an award of damages as provided above in Paragraph XX.A.1. B.The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No waiver by Landlord of any breach hereof shall be effective unless such waiver is in writing and signed by Landlord. C.TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION 3275 OF THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174 (c) AND 1179 OF THE CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY AND ALL OTHER LAWS AND RULES OF LAW FROM TIME TO TIME IN EFFECT DURING THE LEASE TERM PROVIDING THAT TENANT SHALL HAVE ANY RIGHT TO REDEEM, REINSTATE OR RESTORE THIS LEASE FOLLOWING ITS TERMINATION BY REASON OF TENANT'S BREACH. TENANT ALSO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE. D.No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable Law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. E.This Article XX shall be enforceable to the maximum extent such enforcement is not prohibited by applicable Law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion. XXI. Limitation of Liability.     NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROJECT. TENANT SHALL LOOK SOLELY TO LANDLORD'S INTEREST IN THE PROJECT FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN ARTICLE XXVI BELOW) ON THE PROPERTY, BUILDING OR PREMISES, NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT. FOR 25 -------------------------------------------------------------------------------- PURPOSES HEREOF, "INTEREST OF LANDLORD IN THE PROJECT" SHALL INCLUDE RENTS DUE FROM TENANTS, INSURANCE PROCEEDS, PROCEEDS FROM SALE (AFTER DEDUCTING AMOUNTS PAYABLE PURSUANT TO ANY MORTGAGE OR OTHER LIEN ENCUMBERING THE PROJECT) AND PROCEEDS FROM CONDEMNATION OR EMINENT DOMAIN PROCEEDINGS (PRIOR TO THE DISTRIBUTION OF SAME TO ANY PARTNER OR SHAREHOLDER OF LANDLORD OR ANY OTHER THIRD PARTY). XXII. No Waiver.     Either party's failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of the default, nor shall it constitute an estoppel. Either party's failure to enforce its rights for a default shall not constitute a waiver of its rights regarding any subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall not constitute an acceptance or surrender of the Premises. XXIII. Quiet Enjoyment.     Tenant shall, and may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building, and shall not be a personal covenant of Landlord or the Landlord Related Parties. XXIV. Relocation. INTENTIONALLY OMITTED. XXV. Holding Over.     Except for any permitted occupancy by Tenant under Article VIII, if Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, occupancy of the Premises after the termination or expiration shall be that of a tenancy at sufferance. Tenant's occupancy of the Premises during the holdover shall be subject to all the terms and provisions of this Lease and Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the greater of: (1) the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover; or (2) the fair market gross rental for the Premises as reasonably determined by Landlord. No holdover by Tenant or payment by Tenant after the expiration or early termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements for a new tenant, as a result of Tenant's holdover and Tenant fails to vacate the Premises within 15 days after Landlord notifies Tenant of Landlord's inability to deliver possession, or perform improvements, Tenant shall be liable to Landlord for all damages, including, without limitation, consequential damages, that Landlord suffers from the holdover. XXVI. Subordination to Mortgages; Estoppel Certificate.     Subject to Tenant's receipt of a non-disturbance, subordination and attornment agreement in favor of Tenant as provided below in this Article XXVI, Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building, the Property or the Project, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a "Mortgage"). The party having the benefit of a Mortgage shall be referred to as a "Mortgagee". This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the 26 -------------------------------------------------------------------------------- right at any time to subordinate its Mortgage to this Lease. If requested by a successor-in-interest to all or a part of Landlord's interest in the Lease, Tenant shall, without charge, attorn to the successor-in-interest. Landlord and Tenant shall each, within 10 Business Days after receipt of a written request from the other, execute and deliver an estoppel certificate to those parties as are reasonably requested by the other (including a Mortgagee or prospective purchaser). The estoppel certificate shall include a statement certifying that this Lease is unmodified (except as identified in the estoppel certificate) and in full force and effect, describing the dates to which Rent and other charges have been paid, representing that, to such party's actual knowledge, there is no default (or stating the nature of the alleged default) and indicating other matters with respect to the Lease that may reasonably be requested. Landlord represents and warrants to Tenant that as of the date of this Lease there is no mortgage, deed of trust or ground lease encumbering the Project. Notwithstanding anything in this Article to the contrary, as a condition precedent to the future subordination of this Lease to a future Mortgage, Landlord shall be required to provide Tenant with a non-disturbance, subordination, and attornment agreement in favor of Tenant from any Mortgagee who comes into existence from and after the date of this Lease. Such non-disturbance, subordination, and attornment agreement in favor of Tenant shall provide that, so long as Tenant is paying the Rent due under the Lease and is not otherwise in default under the Lease beyond any applicable cure period, its right to possession and the other terms of the Lease shall remain in full force and effect. Such non-disturbance, subordination, and attornment agreement may include other commercially reasonable provisions in favor of the Mortgagee, including, without limitation, additional time on behalf of the Mortgagee to cure defaults of the Landlord and provide that (a) neither Mortgagee nor any successor-in-interest shall be bound by (i) any payment of the Base Rent, Additional Rent, or other sum due under this Lease for more than 1 month in advance or (ii) any amendment or modification of the Lease made without the express written consent of Mortgagee or any successor-in-interest; (b) neither Mortgagee nor any successor-in-interest will be liable for (i) any act or omission or warranties of any prior landlord (including Landlord), (ii) the breach of any warranties or obligations relating to construction of improvements on the Property or any tenant finish work performed or to have been performed by any prior landlord (including Landlord), or (iii) the return of any security deposit, except to the extent such deposits have been received by Mortgagee; and (c) neither Mortgagee nor any successor-in-interest shall be subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord). XXVII. Attorneys' Fees.     If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Lease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys' fees. XXVIII. Notice.     If a demand, request, approval, consent or notice (collectively referred to as a "notice") shall or may be given to either party by the other, the notice shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service at the party's respective Notice Address(es) set forth in Article I, except that if Tenant has vacated the Premises (or if the Notice Address for Tenant is other than the Premises, and Tenant has vacated such address) without providing Landlord a new Notice Address, Landlord may serve notice in any manner described in this Article or in any other manner permitted by Law. Each notice shall be deemed to have been received or given on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or the other Notice Address of Tenant without providing a new Notice Address, 3 days after notice is deposited in the U.S. mail or with a 27 -------------------------------------------------------------------------------- courier service in the manner described above. Either party may, at any time, change its Notice Address by giving the other party written notice of the new address in the manner described in this Article. XXIX. Excepted Rights.     This Lease does not grant any rights to light or air over or about the Building or the Project. Subject to the provisions of Article XI of this lease, Landlord excepts and reserves exclusively to itself the use of: (1) roofs, (2) telephone and electrical closets, (3) equipment rooms, Building risers or similar areas that are used by Landlord for the provision of building services, (4) rights to the land and improvements below the floor of the Premises and the Project, (5) the improvements and air rights above the Premises, (6) the improvements and air rights outside the demising walls of the Premises, and (7) the areas within the Premises used for the installation of utility lines and other installations serving occupants of the Building and/or the Project. Notwithstanding the foregoing to the contrary, and subject to the terms of Article XI above, Tenant shall have the right to access the areas specified in subclauses (1), (2), (3) and (7) above. Landlord has the right to change the name or address of the Building and/or the Project, provided that Landlord will give Tenant at least 30 days prior notice with respect to a change in the Building's street address that will prohibit Tenant from receiving mail at its current address. Landlord also has the right to make such other changes to the Project, Property and Building as Landlord deems reasonably appropriate, provided the changes do not materially affect (1) Tenant's ability to use the Premises for the Permitted Use, (2) Tenant's ability to gain access to and ingress and egress from the Premises, and (3) the accessibility and availability of Tenant's parking. Landlord shall also have the right (but not the obligation) to temporarily close the Building and/or the Project if Landlord reasonably determines that there is an imminent danger of significant damage to the Building or the Project or of personal injury to Landlord's employees or the occupants of the Building and/or the Project. The circumstances under which Landlord may temporarily close the Building and/or the Project shall include, without limitation, electrical interruptions, hurricanes, earthquakes and civil disturbances. A closure of the Building and/or the Project under such circumstances shall not constitute a constructive eviction nor entitle Tenant to an abatement or reduction of Rent. XXX. Surrender of Premises.     At the expiration or earlier termination of this Lease or Tenant's right of possession, Tenant shall remove Tenant's FF&E (defined in Article VIII) and Tenant's Property (defined in Article XV) from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear and damage by fire and other casualty for which Landlord is required to make repairs hereunder excepted. Tenant shall also be required to remove the Required Removables in accordance with Article VIII. If Tenant fails to remove any of Tenant's FF&E or Tenant's Property within 5 days after the termination of this Lease or of Tenant's right to possession, Landlord, at Tenant's sole cost and expense, shall be entitled (but not obligated) to remove and store Tenant's Property and Tenant's FF&E. Landlord shall not be responsible for the value, preservation or safekeeping of Tenant's Property or Tenant's FF&E. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred for Tenant's Property and Tenant's FF&E. In addition, if Tenant fails to remove Tenant's Property or Tenant's FF&E from the Premises or storage, as the case may be, within 30 days after written notice, Landlord may deem all or any part of Tenant's Property and Tenant's FF&E to be abandoned, and title to Tenant's Property and Tenant's FF&E shall be deemed to be immediately vested in Landlord. 28 -------------------------------------------------------------------------------- XXXI. Miscellaneous. A.This Lease and the rights and obligations of the parties shall be interpreted, construed and enforced in accordance with the Laws of the State of California and Landlord and Tenant hereby irrevocably consent to the jurisdiction and proper venue of such state. If any term or provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by Law. The headings and titles to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of the Lease. B.Tenant shall not record this Lease or any memorandum without Landlord's prior written consent. C.Landlord and Tenant hereby waive any right to trial by jury. D.Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant, the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, civil disturbances and other causes beyond the reasonable control of the performing party ("Force Majeure"). However, events of Force Majeure shall not extend any period of time for the payment of Rent or other sums payable by either party or any period of time for the written exercise of an option or right by either party. E.Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Project, Building and/or Property referred to herein, and upon such transfer Landlord shall be released from any further obligations hereunder from and after the date of such sale, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations, provided that, any successor pursuant to a voluntary, third-party transfer (but not as part of an involuntary transfer resulting from a foreclosure or deed in lieu thereof) shall have assumed Landlord's obligations under this Lease either by contractual obligation, assumption agreement or by operation of Law. F.Landlord and Tenant each represents to the other that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant shall indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease. Landlord agrees to pay a brokerage commission to Broker in accordance with the terms of a separate written commission agreement to be entered into between Landlord and Broker, provided that in no event shall Landlord be obligated to pay a commission to Broker in connection with any extension of the Term or in connection with any additional space that is leased by Tenant pursuant to the terms of this Lease except as may be specifically provided otherwise in such written agreement or future written agreement between Landlord and Broker. G.Tenant covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; (2) this Lease is binding upon Tenant; and (3) Tenant is duly organized and legally existing in the state of its organization and is qualified to do business in the State of California. If there is more than one Tenant, or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities. 29 -------------------------------------------------------------------------------- Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them. H.Time is of the essence with respect to Tenant's exercise of any expansion, renewal or extension rights granted to Tenant. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture or any other relationship. This Lease and the covenants and conditions in this Lease shall inure only to the benefit of and be binding only upon Landlord and Tenant and their permitted successors and assigns. I.The expiration of the Term, whether by lapse of time or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease. Without limiting the scope of the prior sentence, it is agreed that Landlord's and Tenant's respective obligations under Articles IV, VIII, XIV, XX, XXV and XXX shall survive the expiration or early termination of this Lease. J.Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party. K.All understandings and agreements previously made between the parties are superseded by this Lease, and neither party is relying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant. L.Tenant, within 15 days after request, shall provide Landlord with a current financial statement and such other information as Landlord may reasonably request in order to create a "business profile" of Tenant and determine Tenant's ability to fulfill its obligations under this Lease. Landlord, however, shall not require Tenant to provide such information unless Landlord is requested to produce the information in connection with a proposed financing or sale of the Building. Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement covering any confidential information that is disclosed by Tenant. M.This Lease shall be subject to the terms and conditions of that certain Declaration Of Covenants, Conditions And Restrictions Of Shoreline Technology Park ("Declaration") imposing certain covenants, conditions and restrictions on the use and management of Shoreline Technology Park ("the Governing Documents"). Any failure to comply with the Governing Documents (after the expiration of the applicable notice and cure period hereunder) shall be a default under the terms of this Lease. XXXII. Entire Agreement.     This Lease and the following exhibits and attachments constitute the entire agreement between the parties and supersede all prior agreements and understandings related to the Premises, including all lease proposals, letters of intent and other documents: Exhibit A-1 (Outline and Location of Premises), Exhibit A-2 (Outline and Location of Project), Exhibit A-3 (Outline and Location of Recreational Area), Exhibit B (Rules and Regulations), Exhibit C (Commencement Letter), Exhibit D (Work Letter), Exhibit E(Additional Provisions), Exhibit F (Parking Agreement) and Exhibit G (Form of Letter of Credit). 30 --------------------------------------------------------------------------------     Landlord and Tenant have executed this Lease as of the day and year first above written.     LANDLORD:     EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company     By:   EOP Operating Limited Partnership, a Delaware limited partnership, its sole member         By:   Equity Office Properties Trust, a Maryland real estate investment trust, its general partner             By:      --------------------------------------------------------------------------------             Name:      --------------------------------------------------------------------------------             Title:      --------------------------------------------------------------------------------     TENANT:     AEROGEN, INC., a Delaware corporation     By:      --------------------------------------------------------------------------------     Name:      --------------------------------------------------------------------------------     Title:      -------------------------------------------------------------------------------- 31 -------------------------------------------------------------------------------- EXHIBIT A-1 OUTLINE AND LOCATION OF PREMISES     This Exhibit is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. 1 -------------------------------------------------------------------------------- EXHIBIT A-2 OUTLINE AND LOCATION OF PROJECT     This Exhibit is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. 2 -------------------------------------------------------------------------------- EXHIBIT A-3 OUTLINE AND LOCATION OF RECREATIONAL AREA     This Exhibit is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. 3 -------------------------------------------------------------------------------- EXHIBIT B BUILDING RULES AND REGULATIONS     The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking garage (if any), the Property, the Project and the appurtenances. Capitalized terms have the same meaning as defined in the Lease. 1.Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, litter, trash, or material shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenant's employees to loiter in Common Areas or elsewhere about the Property or Project. 2.Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed in the fixtures or appliances. Damage resulting to fixtures or appliances by Tenant, its agents, employees or invitees, shall be paid for by Tenant, and Landlord shall not be responsible for the damage. 3.Except as provided in Exhibit E of this Lease, no signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building or Project, except those of such color, size, style and in such places as are first reasonably approved in writing by Landlord. All tenant identification and suite numbers at the entrance to the Premises shall be installed by Landlord, at Tenant's cost and expense, using the standard graphics for the Building. Except in connection with the hanging of lightweight pictures and wall decorations, no nails, hooks or screws shall be inserted into any part of the Premises, Building or Project except by Landlord's maintenance personnel. 4.Intentionally Omitted. 5.Tenant shall not place any lock(s) on any door in the Premises, Building or Project without Landlord's prior reasonable written consent and Landlord shall have the right to retain at all times and to use keys to all locks within and into the Premises (except for keys to the Secured Area). A reasonable number of keys to the locks on the entry doors in the Premises shall be furnished by Landlord to Tenant at Tenant's cost, and Tenant shall not make any duplicate keys. Landlord acknowledges that Tenant may, subject to the terms of this Lease (including the obligation to obtain Landlord's reasonable prior consent and approval), install a "key card" system whereby each of Tenant's employees may gain access to the Premises through a key card pass. All keys shall be returned to Landlord at the expiration or early termination of this Lease. 6.All contractors, contractor's representatives and installation technicians performing work in the Building and/or the Project shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be required to comply with Landlord's standard reasonable rules, regulations, policies and procedures, which may be revised from time to time. 7.Movement in or out of the Building or the Project of furniture or office equipment, or dispatch or receipt by Tenant of merchandise or materials requiring the use of elevators, stairways, lobby areas or loading dock areas, shall be restricted to hours reasonably designated by Landlord. Tenant shall obtain Landlord's prior approval by providing a detailed listing of the activity. If approved by Landlord, the activity shall be under the supervision of Landlord and performed in the manner reasonably required by Landlord. Tenant shall assume all risk for damage to articles moved and injury to any persons resulting from the activity. If equipment, property, or personnel of Landlord or of any other party is damaged or injured as a result of or in connection with the activity, Tenant shall be solely liable for any resulting damage or loss, except to the extent due to the negligence of Landlord or Landlord's agents, contractors or employees. 1 -------------------------------------------------------------------------------- 8.Landlord shall have the right to reasonably approve the weight, size, or location of heavy equipment or articles in and about the Premises. Damage to the Building and/or Project by the installation, maintenance, operation, existence or removal of Tenant's Property shall be repaired at Tenant's sole expense. 9.Intentionally Omitted. 10.Tenant shall not: (1) make or permit any improper, objectionable or unpleasant noises or odors in the Project, or otherwise interfere in any way with other tenants or persons having business with them; (2) solicit business or distribute, or cause to be distributed, in any portion of the Project, handbills, promotional materials or other advertising; or (3) conduct or permit other activities in the Building or Project that might, in Landlord's sole reasonable opinion, constitute a nuisance. 11.No animals, except those assisting handicapped persons, and no aquariums shall be brought into the Building or the Project or kept in or about the Premises. 12.Intentionally Omitted. 13.Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises or the Building or the Project. Tenant shall not use, or permit any part of the Premises to be used, for lodging, sleeping or for any illegal purpose. 14.Tenant shall not take any action which would violate Landlord's labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute, or unreasonably interfere with Landlord's or any other tenant's or occupant's business or unreasonably interfere with the rights and privileges of any person lawfully in the Building and/or the Project ("Labor Disruption"). Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume. Tenant shall have no claim for damages against Landlord or any of the Landlord Related Parties, nor shall the Commencement Date of the Term be extended as a result of the above actions. 15.Tenant shall not install, operate or maintain in the Premises or in any other area of the Building or the Project, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord. Tenant shall not furnish cooling or heating to the Premises, including, without limitation, the use of electronic or gas heating devices, without Landlord's prior written consent. Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building and/or the Project. 16.Tenant shall not operate or permit to be operated a coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes and other goods), except for machines for the exclusive use of Tenant's employees, licensees and invitees and then only if the operation does not violate the lease of any other tenant in the Building or the Project. 17.Bicycles and other vehicles are not permitted inside the Building or on the walkways outside the Building, except in areas reasonably designated by Landlord, which shall be of a size large enough to accommodate Tenant's reasonable requirements for bicycle parking. 18.Landlord may from time to time adopt reasonable systems and reasonable procedures for the security and safety of the Building, the Project and their occupants, entry, use and contents. Tenant, its agents, employees, contractors, guests and invitees shall comply with Landlord's reasonable systems and procedures so long as the same do not adversely affect (i) Tenant's ability 2 -------------------------------------------------------------------------------- to use the Premises for the Permitted Use, (ii) Tenant's access to and ingress and egress to and from the Premises, and (iii) the accessibility and availability of Tenant's parking. 19.Landlord shall have the right to prohibit the use of the name of the Building and/or the Project or any other publicity by Tenant that in Landlord's sole opinion may impair the reputation of the Building and/or the Project or their desirability. Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately. 20.Tenant shall not canvass, solicit or peddle in or about the Building, the Property or the Project. 21.Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Common Areas, unless the Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building or Project. Landlord shall have the right to designate the Building (including the Premises) and/or the Project as a non-smoking building or area. 22.Landlord shall have the right to reasonably designate and approve standard window coverings for the Premises and to establish reasonable rules to assure that the Building and Project present a uniform exterior appearance. Tenant shall ensure, to the extent reasonably practicable, that window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun. 23.Deliveries to and from the Premises shall be made only in the areas and through the entrances and exits reasonably designated by Landlord. Tenant shall not make deliveries to or from the Premises in a manner that might unreasonably interfere with the use by any other tenant of its premises or of the Common Areas, any pedestrian use, or any use which is inconsistent with good business practice. 24.If Landlord elects to perform janitorial work in the Premises as provided in Article IX.A. of the Lease, the work of cleaning personnel shall not be hindered by Tenant after 5:30 p.m., and cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles to prevent unreasonable hardship to the cleaning service. 3 -------------------------------------------------------------------------------- EXHIBIT C COMMENCEMENT LETTER (EXAMPLE) Date --------------------------------------------------------------------------------   Tenant Address --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   Re:Commencement Letter with respect to that certain Lease dated as of the      day of            ,      , by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company, as Landlord, and AEROGEN, INC., a Delaware corporation, as Tenant, for 66,096 rentable square feet on the first and second floors of the Building located at 2071 Stierlin Court, Mountain View, California. Dear                         :     In accordance with the terms and conditions of the above referenced Lease, Tenant accepts possession of the Premises and agrees: 1.The Commencement Date of the Lease is                         ; 2.The Termination Date of the Lease is                         .     Please acknowledge your acceptance of possession and agreement to the terms set forth above by signing all 3 counterparts of this Commencement Letter in the space provided and returning 2 fully executed counterparts to my attention. Sincerely,     -------------------------------------------------------------------------------- Property Manager     Agreed and Accepted:     Tenant:   --------------------------------------------------------------------------------     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   --------------------------------------------------------------------------------     Date:   --------------------------------------------------------------------------------     1 -------------------------------------------------------------------------------- EXHIBIT D WORK LETTER     This Exhibit is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. As used in this Work Letter, the "Premises" shall be deemed to mean the Premises, as initially defined in the attached Lease. I.  Alterations. A.Tenant, following the delivery of the Premises by Landlord and the full and final execution and delivery of the Lease to which this Exhibit is attached and all prepaid rental and security deposits required under such agreement, shall have the right to perform alterations and improvements in the Premises (the "Initial Alterations"). Notwithstanding the foregoing, Tenant and its contractors shall not have the right to perform Initial Alterations in the Premises unless and until Tenant has complied with all of the terms and conditions of Article IX of the Lease, including, without limitation, reasonable approval by Landlord of the final plans for the Initial Alterations and the contractors to be retained by Tenant to perform such Initial Alterations. Tenant shall be responsible for all elements of the design of Tenant's plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the premises and the placement of Tenant's furniture, appliances and equipment), and Landlord's approval of Tenant's plans shall in no event relieve Tenant of the responsibility for such design. Landlord shall advise Tenant in writing within 5 Business Days after Landlord's receipt of each of Tenant's space plans, working drawings and construction drawings if the Landlord disapproves such plans or drawings. Landlord shall state the reason(s) for such disapproval in its written notification to Tenant. If Landlord disapproves the applicable plans or drawings, then within 3 Business Days after Tenant's receipt of such disapproval, Tenant shall cause the applicable plans or drawings to be revised to correct any such problems identified by Landlord that Landlord may require. Within 3 Business Days of Landlord's receipt of such revised plans or drawings, Landlord shall advise Tenant in writing if the Landlord again disapproves of such revised plans or drawings, and stating the reason(s) for such disapproval. Landlord's approval of the contractors to perform the Initial Alterations shall not be unreasonably withheld. The parties agree that Landlord's approval of the general contractor to perform the Initial Alterations shall not be considered to be unreasonably withheld if any such general contractor (i) does not have trade references reasonably acceptable to Landlord, (ii) does not maintain insurance as required pursuant to the terms of this Lease, (iii) does not provide current financial statements reasonably acceptable to Landlord, or (iv) is not licensed as a contractor in the state/municipality in which the Premises is located. Tenant acknowledges the foregoing is not intended to be an exclusive list of the reasons why Landlord may reasonably withhold its consent to a general contractor. B.Notwithstanding the provisions of Article I.F of the Lease to the contrary, the Abatement Period shall be extended by the number of days of delay of the "substantial completion of the Initial Alterations", as that term is defined below, which delay is caused solely by a "Landlord Caused Delay". For purposes of this Exhibit D, a "Landlord Caused Delay" shall mean only (1) an actual delay resulting from the failure of Landlord to timely furnish information or approve or disapprove Tenant's plans and drawings for the Initial Alterations as provided in Section I.A. above, and (2) any action or inaction by Landlord or its agents, employees, 1 -------------------------------------------------------------------------------- vendors or contractors which actually delays Tenant's construction and completion of the Initial Alterations. A Landlord Caused Delay shall not include any delay in the substantial completion of the Initial Alterations for any other reason, including but not limited to a delay (i) caused by the inability of Landlord to recapture the Premises from an existing tenant or occupant of the Premises or to regain the legal right to possession thereof, it being agreed that the rights and obligations of the parties hereto resulting from such circumstances shall be governed by the provisions of Article III. of the Lease, (ii) due to compliance with or additional burdens resulting from the Landlord's Contractor Rules and Regulations and the Building Rules and Regulations, or (iii) resulting from the access needs of other tenants or occupants of the Building. If Tenant contends that a Landlord Caused Delay has occurred, Tenant shall notify Landlord in writing (the "Delay Notice") within 10 Business Days of the date upon which such Landlord Caused Delay becomes known to Tenant. Tenant's failure to deliver such notice to Landlord within the required time period shall be deemed to be a waiver by Tenant of the contended Landlord Caused Delay to which such notice would have related. If such actions, inaction or circumstances described in the Delay Notice are not cured by Landlord within 3 Business Days of receipt of the Delay Notice, and if such actions, inaction or circumstances otherwise qualify as a Landlord Caused Delay, then a Landlord Caused Delay shall be deemed to have occurred commencing as of the date of Landlord's receipt of the Delay Notice and ending as of the date upon which such Landlord Caused Delay ends (the "Delay Termination Date"). For purposes of this Paragraph B, "substantial completion of the Initial Alterations" shall mean completion of construction of the Initial Alterations in the Premises pursuant to the final plans approved by Landlord with the exception of any punch list items, any furniture, fixtures, work-stations, built-in furniture or equipment (even if the same requires installation or electrification by Tenant's agents). C.This Exhibit shall not be deemed applicable to any additional space added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the original Term of the Lease, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease. 2 --------------------------------------------------------------------------------     Landlord and Tenant have executed this Exhibit as of the day and year first above written.     LANDLORD:     EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company     By:   EOP Operating Limited Partnership, a Delaware limited partnership, its sole member         By:   Equity Office Properties Trust, a Maryland real estate investment trust, its general partner             By:   --------------------------------------------------------------------------------             Name:   --------------------------------------------------------------------------------             Title:   --------------------------------------------------------------------------------     TENANT:     AEROGEN, INC., a Delaware corporation     By:      --------------------------------------------------------------------------------     Name:      --------------------------------------------------------------------------------     Title:      -------------------------------------------------------------------------------- 3 -------------------------------------------------------------------------------- EXHIBIT E ADDITIONAL PROVISIONS     This Exhibit is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. I.  RENEWAL OPTION. A.Grant of Option; Conditions. Tenant shall have the right to extend the Term (the "Renewal Option") for one additional period of 5 years commencing on the day following the Termination Date of the initial Term and ending on the 5th anniversary of the Termination Date (the "Renewal Term"), if: 1.Landlord receives notice of exercise ("Initial Renewal Notice") not less than 12 full calendar months prior to the expiration of the initial Term and not more than 18 full calendar months prior to the expiration of the initial Term; and 2.Tenant is not in default under the Lease beyond any applicable cure periods at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice (as defined below); and 3.No more than 50% of the Premises, in the aggregate, is sublet (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice; and 4.The Lease has not been assigned (other than pursuant to a Permitted Transfer, as defined in Article XII of the Lease) prior to the date that Tenant delivers its Initial Renewal Notice or prior to the date Tenant delivers its Binding Notice. B.Terms Applicable to Premises During Renewal Term. 1.The initial Base Rent rate per rentable square foot for the Premises during the Renewal Term shall equal the Prevailing Market (hereinafter defined) rate per rentable square foot for the Premises. Base Rent during the Renewal Term shall increase, if at all, in accordance with the increases assumed in the determination of Prevailing Market rate. Base Rent attributable to the Premises shall be payable in monthly installments in accordance with the terms and conditions of Article IV of the Lease. 2.Tenant shall pay Additional Rent (i.e. Taxes and Expenses) for the Premises during the Renewal Term in accordance with Article IV of the Lease, and the manner and method in which Tenant reimburses Landlord for Tenant's share of Taxes and Expense and the Base Year, if any, applicable to such matter, shall be one of the factors considered in determining the Prevailing Market Rate for the Renewal Term. C.Initial Procedure for Determining Prevailing Market. Within 30 days after receipt of Tenant's Initial Renewal Notice, Landlord shall advise Tenant of the applicable Base Rent rate for the Premises for the Renewal Term. Tenant, within 15 days after the date on which Landlord advises Tenant of the applicable Base Rent rate for the Renewal Term, shall either (i) give Landlord final binding written notice ("Binding Notice") of Tenant's exercise of its Renewal Option, or (ii) if Tenant disagrees with Landlord's determination, provide Landlord with written notice of rejection (the "Rejection Notice"). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such 15 day period, Tenant's Renewal Option shall be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into the Renewal Amendment (as defined below) upon the terms and conditions set forth herein. If Tenant provides Landlord 1 -------------------------------------------------------------------------------- with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market rate for the Premises during the Renewal Term. Upon agreement, Landlord and Tenant shall enter into the Renewal Amendment in accordance with the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and Tenant fail to agree upon the Prevailing Market rate within 30 days after the date Tenant provides Landlord with the Rejection Notice, Tenant, by written notice to Landlord (the "Arbitration Notice") within 10 days after the expiration of such 30 day period, shall have the right to have the Prevailing Market rate determined in accordance with the arbitration procedures described in Section D below. If Landlord and Tenant fail to agree upon the Prevailing Market rate within the 30 day period described and Tenant fails to timely exercise its right to arbitrate, Tenant's Renewal Option shall be deemed to be null and void and of no further force and effect. D.Arbitration Procedure. 1.If Tenant provides Landlord with an Arbitration Notice, Landlord and Tenant, within 5 days after the date of the Arbitration Notice, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the Premises during the Renewal Term (collectively referred to as the "Estimates"). If the higher of such Estimates is not more than 105% of the lower of such Estimates, then Prevailing Market rate shall be the average of the two Estimates. If the Prevailing Market rate is not resolved by the exchange of Estimates, then, within 7 days after the exchange of Estimates, Landlord and Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Premises during the Renewal Term. Each appraiser so selected shall be certified as an MAI appraiser or as an ASA appraiser and shall have had at least 5 years experience within the previous 10 years as a real estate appraiser working in the Shoreline/Mountain View, California area, with working knowledge of current rental rates and practices. For purposes hereof, an "MAI" appraiser means an individual who holds an MAI designation conferred by, and is an independent member of, the American Institute of Real Estate Appraisers (or its successor organization, or in the event there is no successor organization, the organization and designation most similar), and an "ASA" appraiser means an individual who holds the Senior Member designation conferred by, and is an independent member of, the American Society of Appraisers (or its successor organization, or, in the event there is no successor organization, the organization and designation most similar). 2.Upon selection, Landlord's and Tenant's appraisers shall work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Premises. The Estimate chosen by such appraisers shall be binding on both Landlord and Tenant as the Base Rent rate for the Premises during the Renewal Term. If either Landlord or Tenant fails to appoint an appraiser within the 7 day period referred to above, the appraiser appointed by the other party shall be the sole appraiser for the purposes hereof. If the two appraisers cannot agree upon which of the two Estimates most closely reflects the Prevailing Market within 20 days after their appointment, then, within 10 days after the expiration of such 20 day period, the two appraisers shall select a third appraiser meeting the aforementioned criteria. Once the third appraiser (i.e. arbitrator) has been selected as provided for above, then, as soon thereafter as practicable but in any case within 14 days, the arbitrator shall make his determination of which of the two Estimates most closely reflects the Prevailing Market rate and such Estimate shall be binding on both Landlord and Tenant as the Base Rent rate for the Premises. If the arbitrator believes that expert advice would materially assist him, he may retain one or more qualified persons to provide such expert advice. The parties shall share equally in the costs of the arbitrator and of any experts retained by the arbitrator. Any fees of any 2 -------------------------------------------------------------------------------- appraiser, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, counsel or expert. 3.If the Prevailing Market rate has not been determined by the commencement date of the Renewal Term, Tenant shall pay Base Rent upon the terms and conditions in effect during the last month of the initial Term for the Premises until such time as the Prevailing Market rate has been determined. Upon such determination, the Base Rent for the Premises shall be retroactively adjusted to the commencement of the Renewal Term for the Premises. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within 30 days after the determination thereof. If such adjustment results in an overpayment of Base Rent by Tenant, Landlord shall credit such overpayment against the next installment of Base Rent due under the Lease and, to the extent necessary, any subsequent installments, until the entire amount of such overpayment has been credited against Base Rent. E.Renewal Amendment. If Tenant is entitled to and properly exercises its Renewal Option, Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes in the Base Rent, Term, Termination Date and other appropriate terms. The Renewal Amendment shall be sent to Tenant within a reasonable time after receipt of the Binding Notice and Tenant shall execute and return the Renewal Amendment to Landlord within 15 days after Tenant's receipt of same, but, upon final determination of the Prevailing Market rate applicable during the Renewal Term as described herein, an otherwise valid exercise of the Renewal Option shall be fully effective whether or not the Renewal Amendment is executed. F.Definition of Prevailing Market. For purposes of this Renewal Option, "Prevailing Market" shall mean the arms length fair market annual rental rate per rentable square foot under renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Project and Comparable Buildings. The determination of Prevailing Market shall take into account any material economic differences between the terms of this Lease and any comparison lease, such as rent abatements, construction costs, tenant improvement allowances and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes but shall specifically exclude the value of all Initial Alterations and subsequent Leasehold Improvements (as both terms are defined in the Lease) installed in the Premises by or for the benefit of Tenant (other than Initial Alterations or Leasehold Improvements, if any, paid for through tenant improvement allowance(s) subsequently provided by Landlord after the date of this Lease). The determination of Prevailing Market shall also take into consideration any reasonably anticipated changes in the Prevailing Market rate from the time such Prevailing Market rate is being determined and the time such Prevailing Market rate will become effective under this Lease. 3 -------------------------------------------------------------------------------- II.  SATELLITE DISH.   A.   1. Tenant shall have the right, in consideration for payments of $250 per month (the "Original Dish/Antenna Payments"), to lease space on the roof of the Building for the purpose of installing (in accordance with Section IX.C of the Lease), operating and maintaining one (1) TV antenna and two (2) 3' diameter satellite dishes (collectively, the "Original Dish/Antenna"). Upon each and every anniversary date of the Commencement Date of this Lease during the initial Term, and during any renewal Term hereof, if any, the monthly Original Dish/Antenna Payments referenced above shall increase by 3%, rounded to the nearest dollar, from the rate in effect at the end of the immediately preceding year. The Original Dish/Antenna Payments shall constitute Additional Rent under the terms of the Lease and Tenant shall be required to make these payments in strict compliance with the terms of Article IV of the Lease. The exact location of the space on the roof to be leased by Tenant shall be designated by Landlord and shall not exceed one hundred (100) square feet (the "Original Roof Space"). In addition, subject to availability (as determined by Landlord in Landlord's reasonable discretion), Tenant shall have the option from time to time to lease additional space on the roof of the Building for the purpose of installing (in accordance with Section IX.C of the Lease), operating and maintaining additional dish, antenna or other communication devices not to exceed 36 inches in diameter (the "Additional Dish/Antenna"), if (i) Landlord receives written notice of exercise of the such option (the "Dish Option") from Tenant specifying (a) the type of Additional Dish/Antenna Tenant desires to install and (b) the date Tenant desires to commence the operation of the Additional Dish/Antenna, provided that such notice is delivered to Landlord not less than 120 days prior to the date Tenant desires to install and commence operations of the Additional Dish/Antenna; (ii) Tenant is not in default under the Lease beyond any applicable cure periods at the time that Tenant delivers its Dish Notice or at the time Tenant delivers its Dish Binding Notice (hereinafter defined); (iii) no more than 50% of the Premises is sublet in the aggregate (not including any subleases entered into pursuant to a Permitted Transfer) pursuant to one or more then currently effective subleases at the time that Tenant delivers its Dish Notice or at the time Tenant delivers its Dish Binding Notice; (iv) the Lease has not been assigned (other than pursuant to a Permitted Transfer) prior to the date that Tenant delivers its Dish Notice or prior to the date Tenant delivers its Dish Binding Notice; and (v) Landlord approves of the type and size of Additional Dish/Antenna which Tenant desires to install (provided that such approval shall not be unreasonably withheld, conditioned or delayed). The Original Dish/Antenna and the Additional Dish/Antenna are collectively referred to herein as the "Dish/Antenna". 2.Tenant shall pay monthly rent for the Additional Dish/Antenna based upon the Landlord's determination of the then prevailing rate for comparable dish/antennas at the Project (the "Additional Dish/Antenna Payments") The Additional Dish/Antenna Payments shall commence on a commencement date to be mutually agreed upon by Landlord and Tenant and shall constitute Additional Rent under the terms of the Lease and Tenant shall be required to make these payments in strict compliance with the terms of Section IV of the Lease. The Original Dish/Antenna Payments and the Additional Dish/Antenna Payments are collectively referred to herein as the Dish/Antenna Payments. 3.If Tenant is entitled to and properly exercises its Dish Option, Landlord shall prepare an amendment (the "Dish Amendment") to reflect the exercise of the Dish Option including the Additional Dish/Antenna Payments, the commencement date for the Additional Dish/Antenna, the location of the Additional Dish/Antenna and other appropriate terms. The Dish Amendment shall be: a.sent to Tenant within a reasonable time after receipt of the Binding Notice; and b.executed by Tenant and returned to Landlord in accordance with the terms set forth above. 4 -------------------------------------------------------------------------------- 4.In the event the Dish Option is properly exercised as provided above, the exact location of the space on the roof to be leased by Tenant shall be designated by Landlord and shall not exceed one hundred (100) square feet (the "Additional Roof Space"). The Original Roof Space and the Additional Roof Space are collectively referred to herein as the "Roof Space". Landlord reserves the right to relocate the Roof Space as reasonably necessary during the Term. Landlord's designation shall take into account Tenant's use of the Dish/Antenna. Notwithstanding the foregoing, Tenant's right to install the Dish/Antenna shall be subject to the approval rights of Landlord and Landlord's architect and/or engineer with respect to the plans and specifications of the Dish/Antenna, the manner in which the Dish/Antenna is attached to the roof of the Building and the manner in which any cables are run to and from the Dish/Antenna. The precise specifications and a general description of the Dish/Antenna along with all documents Landlord reasonably requires to review the installation of the Dish/Antenna (the "Plans and Specifications") shall be submitted to Landlord for Landlord's written approval no later than 20 days before Tenant commences to install the Dish/Antenna. Tenant shall be solely responsible for obtaining all necessary governmental and regulatory approvals and for the cost of installing, operating, maintaining and removing the Dish/Antenna. Tenant shall notify Landlord upon completion of the installation of the Dish/Antenna. If Landlord determines that the Dish/Antenna equipment does not comply with the approved Plans and Specifications, that the Building has been damaged during installation of the Dish/Antenna or that the installation was defective, Landlord shall notify Tenant of any noncompliance or detected problems and Tenant immediately shall cure the defects. If the Tenant fails to immediately cure the defects, Tenant shall pay to Landlord upon demand the cost, as reasonably determined by Landlord, of correcting any defects and repairing any damage to the Building caused by such installation. If at any time Landlord, in its reasonable discretion, deems it necessary, Tenant shall provide and install, at Tenant's sole cost and expense, appropriate aesthetic screening, reasonably satisfactory to Landlord, for the Dish/Antenna (the "Aesthetic Screening"). B.Landlord agrees that Tenant, upon reasonable prior written notice to Landlord, shall have access to the roof of the Building and the Roof Space for the purpose of installing, maintaining, repairing and removing the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, all of which shall be performed by Tenant or Tenant's authorized representative or contractors, which shall be approved by Landlord, at Tenant's sole cost and risk. It is agreed, however, that only authorized engineers, employees or properly authorized contractors of Tenant, FCC inspectors, or persons under their direct supervision will be permitted to have access to the roof of the Building and the Roof Space. Tenant further agrees to exercise firm control over the people requiring access to the roof of the Building and the Roof Space in order to keep to a minimum the number of people having access to the roof of the Building and the Roof Space and the frequency of their visits. C.It is further understood and agreed that the installation, maintenance, operation and removal of the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, will in no way damage the Building or the roof thereof, or interfere with the use of the Building and roof by Landlord. Tenant agrees to be responsible for any damage caused to the roof or any other part of the Building, which may be caused by Tenant or any of its agents or representatives. D.Tenant agrees to install only equipment of types and frequencies which will not cause unreasonable interference to Landlord or existing tenants of the Project. In the event Tenant's equipment causes such interference, Tenant will change the frequency on which it transmits and/or receives and take any other steps necessary to eliminate the interference. If said 5 -------------------------------------------------------------------------------- interference cannot be eliminated within a reasonable period of time, in the judgment of Landlord, then Tenant agrees to remove the Dish/Antenna from the Roof Space. E.Tenant shall, at its sole cost and expense, and at its sole risk, install, operate and maintain the Dish/Antenna in a good and workmanlike manner, and in compliance with all Building, electric, communication, and safety codes, ordinances, standards, regulations and requirements, now in effect or hereafter promulgated, of the Federal Government, including, without limitation, the Federal Communications Commission (the "FCC"), the Federal Aviation Administration ("FAA") or any successor agency of either the FCC or FAA having jurisdiction over radio or telecommunications, and of the state, city and county in which the Building is located. Under this Lease, the Landlord and its agents assume no responsibility for the licensing, operation and/or maintenance of Tenant's equipment. Tenant has the responsibility of carrying out the terms of its FCC license in all respects. The Dish/Antenna shall be connected to Landlord's power supply in strict compliance with all applicable Building, electrical, fire and safety codes. Neither Landlord nor its agents shall be liable to Tenant for any stoppages or shortages of electrical power furnished to the Dish/Antenna or the Roof Space because of any act, omission or requirement of the public utility serving the Building, or the act or omission of any other tenant, invitee or licensee or their respective agents, employees or contractors, or for any other cause beyond the reasonable control of Landlord, and Tenant shall not be entitled to any rental abatement for any such stoppage or shortage of electrical power. Neither Landlord nor its agents shall have any responsibility or liability for the conduct or safety of any of Tenant's representatives, repair, maintenance and engineering personnel while in or on any part of the Building or the Roof Space. F.The Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, shall remain the personal property of Tenant, and shall be removed by Tenant at its own expense at the expiration or earlier termination of this Lease or Tenant's right to possession hereunder. Tenant shall repair any damage caused by such removal, including the patching of any holes to match, as closely as possible, the color surrounding the area where the equipment and appurtenances were attached. Tenant agrees to maintain all of the Tenant's equipment placed on or about the roof or in any other part of the Building in proper operating condition and maintain same in satisfactory condition as to appearance and safety in Landlord's sole discretion. Such maintenance and operation shall be performed in a manner to avoid any interference with any other tenants or Landlord. Tenant agrees that at all times during the Lease Term, it will keep the roof of the Building and the Roof Space free of all trash or waste materials produced by Tenant or Tenant's agents, employees or contractors. G.In light of the specialized nature of the Dish/Antenna, Tenant shall be permitted to utilize the services of its choice for installation, operation, removal and repair of the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, subject to the reasonable approval of Landlord. Notwithstanding the foregoing, Tenant must provide Landlord with prior written notice of any such installation, removal or repair and coordinate such work with Landlord in order to avoid voiding or otherwise adversely affecting any warranties granted to Landlord with respect to the roof. If necessary, Tenant, at its sole cost and expense, shall retain any contractor having a then existing warranty in effect on the roof to perform such work (to the extent that it involves the roof), or, at Tenant's option, to perform such work in conjunction with Tenant's contractor. In the event the Landlord contemplates roof repairs that could affect Tenant's Dish/Antenna, or which may result in an interruption of the Tenant's telecommunication service, Landlord shall formally notify Tenant at least 30 days in advance (except in cases of an emergency) prior to the commencement of such contemplated work in order to allow Tenant to make other arrangements for such service. 6 -------------------------------------------------------------------------------- H.Tenant shall not allow any provider of telecommunication, video, data or related services ("Communication Services") to locate any equipment on the roof of the Building or in the Roof Space for any purpose whatsoever, nor may Tenant use the Roof Space and/or Dish/Antenna to provide Communication Services to an unaffiliated tenant, occupant or licensee of another building, or to facilitate the provision of Communication Services on behalf of another Communication Services provider to an unaffiliated tenant, occupant or licensee of the Project or any other building. I.Tenant acknowledges that Landlord may at some time establish a standard license agreement (the "Roof License Agreement") with respect to the use of roof space by tenants of the Project. Tenant, upon request of Landlord, shall enter into such Roof License Agreement with Landlord provided that such agreement does not materially alter the rights of Tenant hereunder with respect to the Roof Space. J.Tenant specifically acknowledges and agrees that the terms and conditions of Article XIV of the Lease (Indemnity and Waiver of Claims) shall apply with full force and effect to the Roof Space and any other portions of the roof accessed or utilized by Tenant, its representatives, agents, employees or contractors. K.If Tenant defaults under any of the terms and conditions of this Section or the Lease, and Tenant fails to cure said default within the time allowed by Article XIX of the Lease, Landlord shall be permitted to exercise all remedies provided under the terms of the Lease, including removing the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, and restoring the Building and the Roof Space to the condition that existed prior to the installation of the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any. If Landlord removes the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, as a result of an uncured default, Tenant shall be liable for all costs and expenses Landlord incurs in removing the Dish/Antenna, the appurtenances and the Aesthetic Screening, if any, and repairing any damage to the Building, the roof of the Building and the Roof Space caused by the installation, operation or maintenance of the Dish/Antenna, the appurtenances, and the Aesthetic Screening, if any. III.SIGNAGE. Subject to the conditions precedent set forth below, Tenant, at Tenant's sole cost, shall be entitled to (1) place its name and logo on the monument sign for the Project located at the corner of Shoreline Drive and Stierlin Court, (2) place its name on each of the periodic directional signs along Stierlin Court leading to the Building, (3) place its name and logo on both sides of the monument sign in front of the Building, and (4) erect and install on the Building sign, eyebrow signage with Tenant's name and logo. The signs described above shall be collectively referred to herein as the "Signs". Landlord shall cause Prior Tenant's existing signage to be removed from the Building prior to the Commencement Date. Tenant's use and installation of the Signs shall be in accordance with all applicable signage codes, laws, regulations and ordinances. Tenant shall bear the responsibility for all costs associated with the Signs, including but not limited to design, government permits and approvals, construction, installation, insurance, on-going maintenance and removal and repair at the expiration of the Term. Upon expiration or earlier termination of the Lease, Tenant, at Tenant's sole cost and expense, shall remove all of the Signs and repair any damage caused by such removal. Tenant acknowledges and agrees that Tenant's right to install the Signs is specifically contingent upon and subject to satisfaction of the following conditions precedent: (1) Tenant's receipt of the prior approval (if required) of the City of Mountain View, California and any other applicable governmental entities; (2) Tenant's submission to Landlord, and Landlord's reasonable approval, of reasonably detailed drawings of the Signs prior to installation of the Signs, and (3) full compliance of the type, size and style of the Signs with the requirements of the Governing Documents and the design criteria of the Project. 7 -------------------------------------------------------------------------------- IV.CONTINGENCY. This Lease is contingent upon the termination of that certain lease dated December 15, 1999 ("Prior Tenant Lease"), by and between Landlord and Visto Corporation, Inc. ("Prior Tenant") relating to the Premises. Landlord currently is negotiating the terms of an agreement with Prior Tenant to terminate or modify the Prior Tenant Lease (the "Prior Tenant Modification Agreement") with respect to the Premises. If the Prior Tenant Modification Agreement is executed by Landlord and Prior Tenant, Landlord shall so notify Tenant in writing. Such notification by Landlord shall constitute satisfaction of this contingency. If the Prior Tenant Modification Agreement has not been executed by Prior Tenant on or before 10 Business Days following the date this Lease has been executed by Tenant and Tenant has delivered all prepaid rental required hereunder to Landlord, then Landlord shall so notify Tenant in writing, and thereupon either Landlord or Tenant may terminate this Lease by providing written notice thereof to the other party hereto within 5 Business Days after the expiration of such 10 Business Day period. In the event the Prior Tenant Modification Agreement has not been fully executed within the required 10 Business Day period, and neither Landlord nor Tenant elects to terminate this Lease in the time and manner provided above, then this contingency shall be deemed to have been waived by Landlord and Tenant. 8 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as of the day and year first above written.     LANDLORD:     EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company     By:   EOP Operating Limited Partnership, a Delaware limited partnership, its sole member         By:   Equity Office Properties Trust, a Maryland real estate investment trust, its general partner             By:   --------------------------------------------------------------------------------             Name:   --------------------------------------------------------------------------------             Title:   --------------------------------------------------------------------------------     TENANT:     AEROGEN, INC., a Delaware corporation     By:   --------------------------------------------------------------------------------     Name:   --------------------------------------------------------------------------------     Title:   -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- EXHIBIT F PARKING AGREEMENT     This Exhibit (the "Parking Agreement") is attached to and made a part of the Lease dated as of the      day of            , 2001, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company ("Landlord") and AEROGEN, INC., a Delaware corporation ("Tenant") for space in the Building located at 2071 Stierlin Court, Mountain View, California. 1.The capitalized terms used in this Parking Agreement shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Parking Agreement. In the event of any conflict between the Lease and this Parking Agreement, the latter shall control. 2.Landlord hereby grants to Tenant and persons designated by Tenant a license to use 245 non-reserved parking spaces in the surface parking lot ("Parking Area") located at the Property. The term of such license shall commence on the Commencement Date under the Lease and shall continue until the earlier to occur of the Termination Date under the Lease, the sooner termination of the Lease, or Tenant's abandonment of the Premises thereunder. During the term of this license, Tenant shall pay Landlord the prevailing monthly charges established from time to time for parking in the Parking Area, payable in advance, with Tenant's payment of monthly Base Rent. The charge for such parking spaces during the initial Term of the Lease (but not any Renewal Term) is $0.00 per non-reserved parking space, per month. No deductions from the monthly charge shall be made for days on which the Parking Area is not used by Tenant. Tenant may, from time to time request additional parking spaces, and if Landlord in its discretion shall provide the same, such parking spaces shall be provided and used on a month-to-month basis, and otherwise on the foregoing terms and provisions, and at such prevailing monthly parking charges as shall be established from time to time. 3.Tenant shall at all times comply with all applicable ordinances, rules, regulations, codes, laws, statutes and requirements of all federal, state, county and municipal governmental bodies or their subdivisions respecting the use of the Parking Area. Landlord reserves the right to adopt, modify and enforce reasonable rules ("Rules") governing the use of the Parking Area from time to time including any key-card, sticker or other identification or entrance system and hours of operation. The rules set forth herein are currently in effect. Landlord may refuse to permit any person who violates such rules to park in the Parking Area, and any violation of the rules shall subject the car to removal from the Parking Area. 4.The parking spaces hereunder shall be provided on a non-designated "first-come, first-served" basis. Except to the extent caused by the negligence or willful misconduct of Landlord, Landlord shall have no liability whatsoever for any damage to items located in the Parking Area, nor for any personal injuries or death arising out of any matter relating to the Parking Area, and in all events, Tenant agrees to look first to its insurance carrier and to require that Tenant's employees look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the Parking Area. Tenant hereby waives on behalf of its insurance carriers all rights of subrogation against Landlord or Landlord's agents. Landlord reserves the right to assign reasonable numbers of specific parking spaces, and to reserve parking spaces for visitors, small cars, handicapped persons and for other tenants, guests of tenants or other parties, which assignment and reservation or spaces may be relocated as determined by Landlord from time to time, and Tenant and persons designated by Tenant hereunder shall not park in any location designated for such assigned or reserved parking spaces. Tenant acknowledges that upon reasonable prior notice to Tenant (except in the event of an emergency, in which event no notice shall be required) the Parking Area may be closed entirely or in part in order to make repairs or 1 -------------------------------------------------------------------------------- perform maintenance services, or to alter, modify, re-stripe or renovate the Parking Area, or if required by casualty, strike, condemnation, act of God, governmental law or requirement or other reason beyond the operator's reasonable control. In such event, Landlord shall refund any prepaid parking rent hereunder, prorated on a per diem basis. To the extent reasonably practical, Landlord shall use commercially reasonable efforts to consult with Tenant and to not unreasonably interfere with the Tenant's use of the Parking Area. However, the foregoing shall not require Landlord to perform work after Normal Business Hours. 5.If Tenant shall default under this Parking Agreement, the operator shall have the right to remove from the Parking Area any vehicles hereunder which shall have been involved or shall have been owned or driven by parties involved in causing such default, without liability therefor whatsoever. In addition, if Tenant shall default under this Parking Agreement, Landlord shall have the right to cancel this Parking Agreement on 30 days' written notice, unless within such 30 day period, Tenant cures such default. If Tenant defaults with respect to the same term or condition under this Parking Agreement more than 3 times during any 12 month period, and Landlord notifies Tenant thereof promptly after each such default, the next default of such term or condition during the succeeding 12 month period, shall, at Landlord's election, constitute an incurable default. Such cancellation right shall be cumulative and in addition to any other rights or remedies available to Landlord at law or equity, or provided under the Lease (all of which rights and remedies under the Lease are hereby incorporated herein, as though fully set forth). Any default by Tenant under the Lease shall be a default under this Parking Agreement, and any default under this Parking Agreement shall be a default under the Lease. RULES (i)Tenant shall have access to the Parking Area on a 24-hour basis, 7 days a week. Tenant shall not store or permit its employees to store any automobiles in the Parking Area without the prior written consent of the operator. Except for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the Parking Area, or on the Property. If it is necessary for Tenant or its employees to leave an automobile in the Parking Area overnight, Tenant shall provide the operator with prior notice thereof designating the license plate number and model of such automobile. (ii)Cars must be parked entirely within the stall lines painted on the floor, and only small cars may be parked in areas reserved for small cars. (iii)All directional signs and arrows must be observed. (iv)The speed limit shall be 5 miles per hour. (v)Parking spaces reserved for handicapped persons must be used only by vehicles properly designated. (vi)Parking is prohibited in all areas not expressly designated for parking, including without limitation: (a)Areas not striped for parking (b)aisles (c)where "no parking" signs are posted (d)ramps (e)loading zones (vii)Parking stickers, key cards or any other devices or forms of identification or entry supplied by the operator shall remain the property of the operator. Such device must be displayed as 2 -------------------------------------------------------------------------------- requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking passes and devices are not transferable and any pass or device in the possession of an unauthorized holder will be void. (viii)Monthly fees (if applicable during any extension or renewal term) shall be payable in advance prior to the first day of each month. Failure to do so will automatically cancel parking privileges and a charge at the prevailing daily parking rate will be due. No deductions or allowances from the monthly rate will be made for days on which the Parking Area is not used by Tenant or its designees. (ix)Parking Area managers or attendants are not authorized to make or allow any exceptions to these Rules. (x)Every parker is required to park and lock his/her own car. (xi)Loss or theft of parking pass, identification, key cards or other such devices must be reported to Landlord and to the Parking Area manager, if any, immediately. Any parking devices reported lost or stolen found on any authorized car will be confiscated and the illegal holder will be subject to prosecution. Lost or stolen passes and devices found by Tenant or its employees must be reported to the office of the garage immediately. (xii)Washing, waxing, cleaning or servicing of any vehicle by the customer and/or his agents is prohibited. Parking spaces may be used only for parking automobiles. (xiii)By signing this Parking Agreement, Tenant agrees to acquaint all persons to whom Tenant assigns a parking space with these Rules. 6.TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANT'S PROPERTY (INCLUDING, WITHOUT LIMITATIONS, ANY LOSS OR DAMAGE TO TENANT'S AUTOMOBILE OR THE CONTENTS THEREOF DUE TO THEFT, VANDALISM OR ACCIDENT) ARISING FROM OR RELATED TO TENANT'S USE OF THE PARKING AREA OR EXERCISE OF ANY RIGHTS UNDER THIS PARKING AGREEMENT, UNLESS SUCH LOSS OR DAMAGE RESULTS FROM LANDLORD'S OR LANDLORD'S AGENTS' OR EMPLOYEES' WILLFUL MISCONDUCT, ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION. 7.Without limiting the provisions of Paragraph 6 above, Tenant hereby voluntarily releases, discharges, waives and relinquishes any and all actions or causes of action for personal injury or property damage occurring to Tenant arising as a result of parking in the Parking Area, or any activities incidental thereto, wherever or however the same may occur, and further agrees that Tenant will not prosecute any claim for personal injury or property damage against Landlord or any of its officers, agents, servants or employees for any said causes of action. It is the intention of Tenant by this instrument, to exempt and relieve Landlord from liability for personal injury or property damage caused by negligence. Notwithstanding the foregoing, except as provided in Article XVI of the Lease to the contrary, Tenant shall not be required to release, discharge, waive or relinquish any such claims against Landlord where such loss or damage is due to the negligence or willful misconduct of Landlord or any Landlord Related Parties. 8.The provisions of Article XIV and Article XXI of the Lease are hereby incorporated by reference as if fully recited.     Tenant acknowledges that Tenant has read the provisions of this Parking Agreement, has been fully and completely advised of the potential dangers incidental to parking in the Parking Area and is fully aware of the legal consequences of signing this instrument. 3 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as of the day and year first above written.   LANDLORD:   EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company   By: EOP Operating Limited Partnership, a Delaware limited partnership, its sole member     By: Equity Office Properties Trust, a Maryland real estate investment trust, its general partner       By: --------------------------------------------------------------------------------       Name: --------------------------------------------------------------------------------       Title: --------------------------------------------------------------------------------   TENANT:   AEROGEN, INC., a Delaware corporation   By: --------------------------------------------------------------------------------   Name: --------------------------------------------------------------------------------   Title: -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- EXHIBIT G FORM OF LETTER OF CREDIT     -------------------------------------------------------------------------------- [Name of Financial Institution]         Irrevocable Standby     Letter of Credit     No.     Issuance Date:     Expiration Date     Applicant: Aerogen, Inc. Beneficiary EOP-Shoreline Technology Park, L.L.C. c/o Equity Office Properties Trust 1735 Technology Drive Suite 125 San Jose, California 95110 Attention: Leasing Director Ladies/Gentlemen:     We hereby establish our Irrevocable Standby Letter of Credit in your favor for the account of the above referenced Applicant in the amount of One Million Two Hundred Thousand and 00/100 U.S. Dollars ($1,200,000.00) available for payment at sight by your draft drawn on us when accompanied by the following documents: 1.An original copy of this Irrevocable Standby Letter of Credit. 2.Beneficiary's dated statement signed by one of its officers reading: "This draw in the amount of            U.S. Dollars ($            ) under your Irrevocable Standby Letter of Credit No.            represents funds due and owing to us as a result of the Applicant's uncured event of default under that certain Lease Agreement dated      , 2001 ("Lease") by and between EOP-Shoreline Technology Park, L.L.C., a Delaware limited liability company, as landlord, and AeroGen, Inc., a Delaware corporation, as tenant."     It is a condition of this Irrevocable Standby Letter of Credit that it will be considered automatically renewed for a one year period upon the expiration date set forth above and upon each anniversary of such date, unless at least 60 days prior to such expiration date or applicable anniversary thereof, we notify you in writing by certified mail, return receipt requested, that we elect not to so renew this Irrevocable Standby Letter of Credit. A copy of any such notice shall also be sent to: Equity Office Properties Trust, 2 North Riverside Plaza, Suite 2100, Chicago, Illinois 60606, Attention: Treasury Department. In addition to the foregoing, we understand and agree that you shall be entitled to draw upon this Irrevocable Standby Letter of Credit in accordance with 1 and 2 above in the event that we elect not to renew this Irrevocable Standby Letter of Credit and, in addition, you provide us with a dated statement signed by one of Beneficiary's officers stating that the Applicant has failed to provide you with an acceptable substitute irrevocable standby letter of credit in accordance with the terms of the above-referenced Lease. We further acknowledge and agree that: (a) upon receipt of the documentation required herein, we will honor your draws against this Irrevocable Standby Letter of Credit without inquiry into the accuracy of Beneficiary's signed statement and regardless of whether Applicant disputes the content of such statement; (b) this Irrevocable Standby Letter of Credit shall 1 -------------------------------------------------------------------------------- permit partial draws and, in the event you elect to draw upon less than the full stated amount hereof, the stated amount of this Irrevocable Standby Letter of Credit shall be automatically reduced by the amount of such partial draw; and (c) you shall be entitled to transfer your interest in this Irrevocable Standby Letter of Credit from time to time without our approval and without charge. In the event of a transfer, we reserve the right to require reasonable evidence of such transfer as a condition to any draw hereunder.     This Irrevocable Standby Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 revision) ICC Publication No. 500.     We hereby engage with you to honor drafts and documents drawn under and in compliance with the terms of this Irrevocable Standby Letter of Credit.     All communications to us with respect to this Irrevocable Standby Letter of Credit must be addressed to our office located at            to the attention of             .         Very truly yours,            --------------------------------------------------------------------------------     Name:      --------------------------------------------------------------------------------     Title:      -------------------------------------------------------------------------------- 2 -------------------------------------------------------------------------------- QuickLinks TABLE OF CONTENTS EXHIBIT A-1 OUTLINE AND LOCATION OF PREMISES EXHIBIT A-2 OUTLINE AND LOCATION OF PROJECT EXHIBIT A-3 OUTLINE AND LOCATION OF RECREATIONAL AREA EXHIBIT B BUILDING RULES AND REGULATIONS EXHIBIT C COMMENCEMENT LETTER (EXAMPLE) EXHIBIT D WORK LETTER EXHIBIT E ADDITIONAL PROVISIONS EXHIBIT F PARKING AGREEMENT RULES EXHIBIT G FORM OF LETTER OF CREDIT